Colon Health Centers v. Bill Hazel

Filing

PUBLISHED AUTHORED OPINION filed. Originating case number: 1:12-cv-00615-CMH-TCB. [999224261]. [12-2272]

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 1 of 28

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 12-2272

COLON HEALTH CENTERS OF AMERICA, LLC; WASHINGTON IMAGING
ASSOCIATES-MARYLAND, LLC, d/b/a Progressive Radiology,
Plaintiffs - Appellants,
v.
BILL HAZEL, in his official capacity as Secretary of Health
and Human Resources; BRUCE EDWARDS, in his official capacity
as Chairman of the Virginia State Board of Health; PAUL
CLEMENTS, in his official capacity as member of the Virginia
State Board of Health; KAY R. CURLING, in her official
capacity as member of the Virginia State Board of Health;
ERIC DEATON, in his official capacity as member of the
Virginia State Board of Health; JOHN DETRIQUET, in his
official capacity as member of the Virginia State Board of
Health; JAMES E. EDMONDSON, JR., in his official capacity as
member of the Virginia State Board of Health; STEVEN R.
ESCOBAR, in his official capacity as member of the Virginia
State Board of Health; H. ANNA JENG, in her official
capacity as member of the Virginia State Board of Health;
CHARLES K. JOHNSON, in his official capacity as member of
the Virginia State Board of Health; BENNIE MARSHALL, in his
official capacity as member of the Virginia State Board of
Health; MARY MCCLUSKEY, in her official capacity as member
of the Virginia State Board of Health; M. CATHERINE SLUSHER,
in her official capacity as member of the Virginia State
Board of Health; GAIL TAYLOR, in her official capacity as
member of the Virginia State Board of Health; AMY VEST, in
her official capacity as member of the Virginia State Board
of Health; ERIC O. BODIN, in his official capacity as Acting
Director of the Office of Licensure and Certification and
Director of the Division of Certificate of Public Need;
MAUREEN DEMPSEY, in her official capacity as State Health
Commissioner; JOHN W. SEEDS, in his official capacity as
member of the Virginia State Board of Health,
Defendants - Appellees.

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 2 of 28

-----------------------------PACIFIC LEGAL FOUNDATION; CURVEBEAM, LLC,
Amici Supporting Appellants.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.
Claude M. Hilton, Senior
District Judge. (1:12-cv-00615-CMH-TCB)

Argued:

September 19, 2013

Decided:

October 23, 2013

Before WILKINSON and KING, Circuit Judges, and Samuel G. WILSON,
United States District Judge for the Western District of
Virginia, sitting by designation.

Affirmed in part, reversed in part, and remanded by published
opinion. Judge Wilkinson wrote the opinion, in which Judge King
and Judge Wilson joined.
Judge Wilson wrote a concurring
opinion.

ARGUED: Robert McNamara, INSTITUTE FOR JUSTICE, Arlington,
Virginia, for Appellants. Earle Duncan Getchell, Jr., OFFICE OF
THE ATTORNEY GENERAL OF VIRGINIA, Richmond, Virginia, for
Appellees.
ON BRIEF: William H. Mellor, Lawrence Salzman,
Darpana M. Sheth, INSTITUTE FOR JUSTICE, Arlington, Virginia,
for Appellants. Kenneth T. Cuccinelli, II, Attorney General of
Virginia,
Michael
H.
Brady,
Assistant
Solicitor
General,
Patricia L. West, Chief Deputy Attorney General, Wesley G.
Russell, Jr., Deputy Attorney General, OFFICE OF THE ATTORNEY
GENERAL OF VIRGINIA, Richmond, Virginia, for Appellees. Timothy
Sandefur, PACIFIC LEGAL FOUNDATION, Sacramento, California, for
Amicus Pacific Legal Foundation.
Lewis S. Wiener, David W.
Arrojo, SUTHERLAND ASBILL & BRENNAN LLP, Washington, D.C., for
Amicus Curvebeam, LLC.

2

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 3 of 28

WILKINSON, Circuit Judge:
Appellants are out-of-state medical providers who seek to
open facilities in Virginia similar to those they operate in
other states. They are hindered by Virginia’s certificate-ofneed requirement, which they challenged in the court below under
a variety of constitutional theories. That court dismissed the
suit for failure to state a claim upon which relief could be
granted. We reverse the dismissal of appellants’ Commerce Clause
claims,

affirm

the

dismissal

of

their

Fourteenth

Amendment

claims, and remand for further proceedings in accordance with
this decision.

I.
A.
In order to launch a medical enterprise in the state of
Virginia, a firm is required to obtain a “certificate of public
need.” Va. Code Ann. §§ 32.1-102.1 et. seq.; 12 Va. Admin. Code
§§

5-220-10

governs
state,

most

et

seq.

Virginia’s

medical

including

the

capital

certificate-of-need

expenditures

construction

of

new

undertaken
facilities

program
in

the

and

the

addition of new equipment or services to an existing facility.
It

does

not,

however,

apply

to

the

replacement

of

existing

equipment. At its core, the program mandates that an applicant
demonstrate, within the relevant region, a public need for the
3

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 4 of 28

service that it seeks to offer. Va. Code Ann. § 32.1-102.3(A).
The

primary

purposes

of

the

requirement

are

to

preclude

the

development of excess capacity, to ensure proper geographical
distribution

of

medical

facilities,

to

protect

the

economic

viability of existing providers, and to promote the provision of
cost-effective medical services. Appellees’ Br. at 2-3.
In

determining

whether

a

particular

applicant

has

demonstrated a sufficient public need for its proposed services,
the State Health Commissioner is required to consider a variety
of

factors.

factor

is

instance,
facility

Va.

Code

Ann.

dispositive.
“[t]he

The

extent

fosters

§

32.1-102.3(B)(1)-(8).
Commissioner

to

which

institutional

the

must

single

consider,

proposed

competition

No

that

for

service
benefits

or
the

area to be served,” in addition to “[t]he relationship of the
project to the existing health care system of the area to be
served,

including

the

utilization

and

efficiency

of

existing

services or facilities.” Id. § 32.1-102.3(B)(4)-(5).
Firms
required

that
to

unpredictable

desire

navigate

to

obtain

a

potentially

application

a

process.

certificate

The

lengthy,
cost

of

of

need

are

costly,

and

applying

is

pegged at one percent of the proposed expenditure, with a cap of
$20,000. In the review scheme, different types of submissions
are

grouped

into

subcategories

for

simultaneous

review

in

a

process referred to as “batching.” The statute facially requires
4

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 5 of 28

the review process to be completed within 190 days of the start
of the relevant batching cycle.
Following the submission of an application, the appropriate
regional

health

planning

agency

must

complete

its

initial

investigation within 60 days. This stage of review includes a
public

hearing

in

proximity

to

the

site

of

the

proposed

expenditure. Affected persons are permitted to submit data to
assist the agency in its task. Subsequent to this preliminary
examination, the agency must provide the Department of Health
with

its

recommendation

regarding

the

disposition

of

the

application.
The Department is then required to determine whether an
informal fact-finding conference is warranted. Such a conference
will be held if the Department independently determines that it
is necessary or if an intervening party demonstrates that good
cause exists to hold such a hearing. Good cause exists if “(i)
there

is

presented

significant
at

and

not

relevant
available

information
at

the

time

not
of

previously
the

public

hearing, (ii) there have been significant changes in factors or
circumstances

relating

to

the

application

subsequent

to

the

public hearing, or (iii) there is a substantial material mistake
of

fact

or

law

in

the

Department

staff’s

report

on

the

application or in the report submitted by the health planning

5

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 6 of 28

agency.” Id. § 32.1-102.6(G); see also 12 Va. Admin. Code § 5220-230(A).
The date on which the record closes varies depending on
whether

an

application

informal
is

fact-finding

deemed

approved

conference

if

the

is

conducted.

Commissioner

fails

An
to

issue a decision within 70 days of the closing of the record.
Appellants

allege

that

“[w]ithout

an

informal

fact-finding

conference, the entire application process and review can take
six to seven months to complete. If an informal fact-finding
conference is requested by any person, the certificate-of-need
process can take significantly longer.” Compl. ¶ 136. In their
brief before this court, appellants elaborate on this claim by
asserting

that

the

process

“can

take

literally

years.”

Appellants’ Br. at 11.
B.
Appellants, Colon Health Centers and Progressive Radiology,
are medical providers who seek to avoid the purportedly onerous
burdens

imposed

by

the

certificate

application

process.

Each

desires to offer potentially valuable services in the Virginia
market.

Colon

Health

“combines

the

advantages

of

the

two

prevailing colon-cancer screening methods in a ‘one-stop shop’
that screens, diagnoses, and treats colon cancer.” Compl. ¶ 47.
Traditional

colon-cancer

screening

involves

an

invasive

procedure referred to as optical colonoscopy. The alternative,
6

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 7 of 28

virtual colonoscopy, relies on noninvasive computed tomography
(CT) scans but, unlike optical colonoscopy, does not permit the
treating physician to immediately remove any detected polyps.
Instead, a second visit is typically required.
Colon
images

Health

captured

circumvents
via

this

virtual

problem

colonoscopy

by

exporting

to

a

the

team

of

radiologists, who immediately scan the images for polyps. They
report

their

conclusions

within

an

hour

to

an

on-site

gastroenterologist, who is able to perform the necessary surgery
without

recalling

streamlined

the

approach

colonoscopy,

thus

patient

reduces

for

the

encouraging

a

a

cost

higher

second
and

visit.

This

inconvenience

percentage

of

of

at-risk

individuals to undergo screening.
Colon Health currently provides joint virtual colonoscopy
and treatment services at offices in Delaware and New Jersey.
Its attempts to enter the Virginia market, however, were stymied
after

potential

competitors

intervened

to

oppose

its

certificate-of-need application. Id. ¶ 140. It alleges that, in
the

absence

of

the

certificate

requirement

(which

covers

CT

scanners), it would open Virginia facilities offering its unique
package of services.
Progressive

Radiology

specializes

in

using

magnetic

resonance imaging (MRI) to diagnose neurological and orthopedic
injuries.

Id.

¶¶

75-76.

Progressive
7

currently

maintains

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 8 of 28

radiology facilities in Maryland and the District of Columbia.
It

formerly

operated

a

radiology

business

in

Virginia,

but

ceased to do so when the facility which had contracted for its
services was purchased and the contract subsequently terminated.
Like

Colon

Health,

Progressive

alleges

that

the

certificate

requirement, which covers MRI machines, deters it from providing
its

specialized

services

in

the

Commonwealth.

Progressive

estimates that it would serve approximately 400 patients per
month if it were permitted to reenter the market.
Notably, Virginia does not contend that either Colon Health
or Progressive is unqualified to render the services that each
seeks to offer in the state, nor does it deny that the firms’
respective
sources

of

facilities
funding.

would
It

be

also

financed
makes

entirely

private

attempt

no

by
to

contest

appellants’ assertion that the proffered services are medically
uncontroversial

and

would

be

performed

by

state-licensed

physicians. Id. ¶ 41.
Appellants

challenged

the

certificate

program

in

the

district court, alleging that it violates the dormant Commerce
Clause

in

addition

to

the

Fourteenth

Amendment’s

Equal

Protection, Due Process, and Privileges or Immunities Clauses.
The

court

Clause,

concluded,
that

the

with

respect

to

the

certificate-of-need

dormant

Commerce

program

was

nondiscriminatory, served legitimate local purposes, and imposed
8

Appeal: 12-2272

Doc: 66

negligible
respect

Filed: 10/23/2013

burdens

to

on

Pg: 9 of 28

interstate

appellants’

commerce.

Fourteenth

J.A.

Amendment

142-47.

challenges,

With
the

district court held that the statute was supported by a rational
basis. Id.

at

131-42.

In

an

opinion

that

reproduced,

almost

verbatim, appellees’ memorandum in support of their motion to
dismiss, the court dismissed the entire suit under Federal Rule
of Civil Procedure 12(b)(6) for failure to state a claim. Id. at
147. This appeal followed.

II.
Appellants’ most serious challenge to the certificate-ofneed

requirement

is

predicated

on

the

dormant

aspect

of

the

Constitution’s Commerce Clause. The Commerce Clause authorizes
Congress

“[t]o

regulate

Commerce

.

.

.

among

the

several

States.” U.S. Const. art. I, § 8, cl. 3. By its terms, the
clause does not explicitly restrain the conduct of the states.
It is “well-established,” however, “that this affirmative grant
of authority implies a ‘negative’ or ‘dormant’ constraint on the
power of the States to enact legislation that interferes with or
burdens interstate commerce.” Brown v. Hovatter, 561 F.3d 357,
362 (4th Cir. 2009) (citing Dennis v. Higgins, 498 U.S. 439, 447
(1991)). As relevant here, “[t]he dormant Commerce Clause is
implicated by burdens placed on the flow of interstate commerce

9

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 10 of 28

-- the flow of goods, materials, and other articles of commerce
across state lines.” Id. at 364.
Modern dormant Commerce Clause jurisprudence is motivated
primarily by a desire to limit “economic protectionism -- that
is, regulatory measures designed to benefit in-state economic
interests

by

burdening

out-of-state

competitors.”

Dep’t

of

Revenue of Ky. v. Davis, 553 U.S. 328, 337-38 (2008) (internal
quotation

marks

omitted).

By

invalidating

unlawfully

impede

interstate

commerce,

courts

statutes

that

effectuate

the

Framers’ desire to prevent the “economic Balkanization” “‘that
had plagued relations among the Colonies and later among the
States

under

the

Articles

of

Confederation.’”

Id.

at

338

(quoting Hughes v. Oklahoma, 441 U.S. 322, 325-26 (1979)).
A.
As

the

Court’s

concern

with

economic

protectionism

suggests, “[t]he principal objects of dormant Commerce Clause
scrutiny

are

statutes

that

discriminate

against

interstate

commerce.” CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 87
(1987)

(emphasis

differential
interests

added).

treatment

that

benefits

of

“‘[D]iscrimination’
in-state

the

former

simply

means

and

out-of-state

economic

and

burdens

latter.”

the

Oregon Waste Sys., Inc. v. Dep’t of Envtl. Quality, 511 U.S. 93,
99

(1994).

A

statute

may

discriminate

“facially,

in

its

practical effect, or in its purpose.” Envtl. Tech. Council v.
10

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 11 of 28

Sierra Club, 98 F.3d 774, 785 (4th Cir. 1996) (citing Wyoming v.
Oklahoma, 502 U.S. 437, 454-55 (1992)).
The discrimination test thus has an empirical as well as a
formal dimension: merely noting a law’s facial neutrality is
insufficient

under

this

analysis.

“The

principal

focus

of

inquiry must be the practical operation of the statute, since
the validity of state laws must be judged chiefly in terms of
their probable effects.” Lewis v. BT Inv. Managers, Inc., 447
U.S.

27,

37

(1980);

see

also

Yamaha

Motor

Corp.

v.

Jim’s

Motorcycle, Inc., 401 F.3d 560, 568 (4th Cir. 2005). In order to
prove

discriminatory

demonstrate

that

the

effect,

for

challenged

instance,

statute,

“if

plaintiffs

must

enforced,

would

negatively impact interstate commerce to a greater degree than
intrastate commerce.” Waste Mgmt. Holdings, Inc. v. Gilmore, 252
F.3d 316, 335 (4th Cir. 2001).
In conducting the discrimination inquiry, a court should
focus

on

discrimination

against

interstate

commerce

--

not

merely discrimination against the specific parties before it.
See Exxon Corp. v. Governor of Md., 437 U.S. 117, 127 (1978)
(noting

that

the

Commerce

Clause

“protects

the

interstate

market, not particular interstate firms”). The district court
opinion here appeared to contravene this principle at various
points. See J.A. 145-46 (declining to find a substantial burden
on

interstate

commerce

in

part
11

because

appellants

are

“two

Appeal: 12-2272

Doc: 66

relatively

Filed: 10/23/2013

small

discrimination

Pg: 12 of 28

businesses”).

against

individual

Focusing
firms,

exclusively

however,

on

improperly

narrows the scope of the judicial inquiry and has the baneful
effect of precluding certain meritorious claims. For while the
burden on a single firm may have but a negligible impact on
interstate commerce, the effect of the law as a whole and in the
aggregate may be substantial.
B.
State laws that discriminate against interstate commerce in
any of the three ways identified by this court -- facially, in
practical effect, or in purpose -- are subject to “a virtually
per

se

rule

(internal

of

invalidity.”

quotation

marks

Wyoming,

omitted).

502

Under

U.S.
this

at

454-55

variant

of

“strict scrutiny analysis,” Waste Mgmt. Holdings, 252 F.3d at
334,

a

court

must

invalidate

the

challenged

law

“unless

the

state demonstrates ‘both that the statute serves a legitimate
local purpose, and that this purpose could not be served as well
by available nondiscriminatory means.’” Yamaha, 401 F.3d at 567
(quoting Maine v. Taylor, 477 U.S. 131, 138 (1986) (internal
quotation marks omitted)).
Here,

appellants

concede

that

Virginia’s

certificate-of-

need law is not facially discriminatory. Appellants’ Br. at 21
n.3. The statute applies to all firms that seek to engage in the
covered activities (e.g., expansion of an existing facility or
12

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 13 of 28

construction of a new one), regardless of their geographical
location.
Appellants

do,

however,

allege

discrimination

in

both

purpose and effect. Compl. ¶¶ 200-07. With respect to purpose,
they declare that “[t]he primary goal of Virginia’s certificateof-need program is to provide current healthcare providers with
a government-backed shield from competition.” Id. ¶ 103. More
concretely,

they

point

to

an

implementing

regulation

which

states that the certificate requirement is intended, at least in
part, to “‘discourage[] the proliferation of services that would
undermine

the

ability

of

essential

community

providers

to

maintain their financial viability.’” Id. ¶ 104 (quoting 12 Va.
Admin.

Code

§

5-230-30).

Under

this

theory,

since

current

medical providers are by definition in-state entities, a major
purpose of the certificate requirement is to protect them at the
expense of new out-of-state entrants, such as Colon Health and
Progressive. Id. ¶¶ 43, 103, 200.
Appellants’ allegations of discriminatory effect are rooted
in the administrative process prescribed by the statutory text.
As

noted,

authorizing

the

relevant

individuals

to

code

sections

request

an

include
informal

a

proviso

fact-finding

conference to further examine the implications of a particular
application. Va. Code Ann. § 32.1-102.6; see also 12 Va. Admin.
Code § 5-220-230(A). Appellants assert that the default process
13

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 14 of 28

requires between six and seven months to complete, but that the
addition of an informal fact-finding conference can result in
the process taking “significantly longer.” Compl. ¶ 136. Such a
prolonged

delay

may

occur

in

part

because,

“[d]espite

the

‘informal’ label, [fact-finding conferences] can resemble fullblown litigation, involving attorneys, adversarial parties, and
expert witnesses.” Id. ¶ 134. Appellants further allege that,
“[u]pon
almost

information
exclusively

and

belief,

requested

by

fact-finding
entities

conferences

that

would

be

are
in

economic competition with” the applicant. Id. ¶ 137.
According to this characterization, Virginia’s certificateof-need program grants established, in-state economic interests
the power to obstruct the market entrance of new, primarily outof-state competitors in two ways. First, by requesting factfinding

conferences,

established

interests

can

dramatically

lengthen the application process, thus increasing the costs and
uncertainty borne by the applicant. Second, objecting firms may
influence

the

substantive

outcome

of

the

process

through

an

effective adversarial presentation at the conference. Apart from
these practical advantages, the intervention proviso also grants
a structural edge to local firms: if an established, in-state
facility desires to expand its operations, it will necessarily
face one fewer objector than would an out-of-state firm that
seeks to enter the market de novo -- itself.
14

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 15 of 28

All these allegations raise practical questions of fact. It
is

entirely

possible

that

in-state

interests

frequently

commandeer the process to derail the applications of out-ofstate firms, but whether this outcome actually obtains cannot be
resolved without examining the functioning of the statute in
practice. Similarly, it may be that the Commissioner, although
charged

with

considering

a

variety

of

factors,

focuses

exclusively on protecting existing businesses. See Walgreen Co.
v.

Rullan,

405

discriminates

F.3d

against

50,

55

(1st

interstate

Cir.

commerce

2005)
by

(“[T]he

Act

permitting

the

Secretary to block a new pharmacy from locating in its desired
location simply because of the adverse competitive effects that
the new pharmacy will have on existing pharmacies.”). Whether
this

actually

occurs,

however,

cannot

be

ascertained

in

the

absence of proper fact-finding.
Thus,
law

determining

discriminates

requires

looking

in

whether
either

behind

the

Virginia’s
purpose
statutory

or

certificate-of-need
effect

text

to

necessarily
the

actual

operation of the law. This conclusion is confirmed by a host of
precedents which have repeatedly emphasized the factual nature
of the dormant Commerce Clause inquiry. The Supreme Court has
observed, for instance, that “when considering the purpose of a
challenged

statute,

[courts

are]

not

bound

by

[t]he

name,

description or characterization given it by the legislature or
15

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 16 of 28

the courts of the State, but will determine for [themselves] the
practical impact of the law.” Hughes, 441 U.S. at 336 (internal
quotation

marks

consciously

omitted).

“eschewed

In

this

formalism

for

respect,
a

the

sensitive,

Court

has

case-by-case

analysis of purposes and effects.” West Lynn Creamery, Inc. v.
Healy, 512 U.S. 186, 201 (1994).
The

fact-intensive

quality

of

the

substantive

inquiry

assumes heightened importance when considered in light of the
procedural posture of the instant dispute. “To survive a motion
to dismiss, a complaint must [merely] contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
570

(2007)).

Rule

12(b)(6)

“does

not

countenance

.

.

.

dismissals based on a judge’s disbelief of a complaint’s factual
allegations.” Neitzke v. Williams, 490 U.S. 319, 327 (1989).
Here, appellants’ claims of discrimination are sufficient “to
raise

[their]

right

to

relief

above

the

speculative

level.”

Twombly, 550 U.S. at 555. They therefore satisfy the standard
articulated in the above precedents. The district court gave a
serious claim the back of its hand. This was error.
C.
Even

if

Virginia’s

certificate-of-need

requirement

discriminates neither in purpose nor in effect, it may still be
16

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 17 of 28

unconstitutional under Pike v. Bruce Church, Inc., 397 U.S. 137
(1970), if it places an “undue burden” on interstate commerce.
Yamaha,

401

F.3d

at

567.

“Where

[a]

statute

regulates

even-

handedly to effectuate a legitimate local public interest, and
its effects on interstate commerce are only incidental, it will
be upheld unless the burden imposed on such commerce is clearly
excessive in relation to the putative local benefits.” Pike, 397
U.S. at 142.
Unlike the more exacting standard of review employed in the
context of discriminatory statutes, “[a] ‘less strict scrutiny’
applies under the undue burden tier.” Yamaha, 401 F.3d at 567
(quoting Wyoming, 502 U.S. at 455 n.12). The putative benefits
of a challenged law are evaluated under the rational basis test,
id. at 569, though “speculative” benefits will not pass muster,
Medigen of Ky., Inc. v. Pub. Serv. Comm’n, 985 F.2d 164, 167
(4th Cir. 1993). “The Pike test requires closer examination,
however, when a court assesses a statute’s burdens, especially
when the burdens fall predominantly on out-of-state interests.”
Yamaha, 401 F.3d at 569. The test is therefore deferential but
not toothless. See Davis, 553 U.S. at 339.
Appellants
program

“does

contend
not

that

actually

Virginia’s
achieve

any

certificate-of-need
legitimate

local

benefits.” Compl. ¶ 208. To substantiate this claim, appellants
cite a joint report issued by the Department of Justice and the
17

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 18 of 28

Federal Trade Commission concluding that certificate “programs
are not successful in containing health care costs, and . . .
pose serious anticompetitive risks that usually outweigh their
purported economic benefits.” Id. ¶ 99. Appellants also allege
that the Virginia program substantially burdens the interstate
market for both medical devices and services. Id. ¶¶ 194-99,
202.
Appellants’ contentions find some support in the case law.
For example, with regard to putative local benefits, the Medigen
court

invalidated

a

certificate-of-need

program

because

“[r]estricting market entry” not only fails to expand service
availability, but also “does nothing to [e]nsure that services
are

provided

Furthermore,

at
with

reasonable
respect

to

prices.”
burdens

985

on

F.2d

interstate

at

167.

commerce,

Virginia’s certificate program may be “uniquely anti-competitive
even as [certificate-of-need] laws go.” Yamaha, 401 F.3d at 571.
Apart from Virginia, only Connecticut and Michigan are said to
have

similarly

onerous

certificate

requirements

for

low-value

devices like CT and MRI scanners. Br. for Curvebeam, LLC as
Amicus Curiae at 23. Finally, this court has recognized that
when the burdens of a challenged law fall primarily on out-ofstate economic interests -- as appellants allege is the case
with

respect

to

Virginia’s

statute

18

--

the

state’s

political

Appeal: 12-2272

Doc: 66

process

Filed: 10/23/2013

cannot

be

relied

Pg: 19 of 28

upon

to

rectify

legislative

abuse.

Yamaha, 401 F.3d at 573.
The Pike inquiry, like the discrimination test, is factbound.

“If

a

legitimate

local

purpose

is

found,

then

the

question becomes one of degree. And the extent of the burden
that will be tolerated will of course depend on the nature of
the local interest involved, and on whether it could be promoted
as well with a lesser impact on interstate activities.” Pike,
397 U.S. at 142. We shall not attempt to forecast what further
investigation may demonstrate. The fact-intensive character of
this inquiry, however, counsels against a premature dismissal.
As

noted

above,

in

order

to

survive

a

motion

to

dismiss,

plaintiffs’ “[f]actual allegations must be enough to raise a
right

to

relief

above

the

speculative

level,

.

.

.

on

the

assumption that all the allegations in the complaint are true
(even if doubtful in fact).” Twombly, 550 U.S. at 555. In the
instant

case,

appellants

have

succeeded

in

“nudg[ing]

their

claims across the line from conceivable to plausible.” Id. at
570. This particular challenge too presents issues of fact that
cannot be properly resolved on a motion to dismiss. The district
court therefore erred in dismissing appellants’ Pike claim.
D.
On remand, the factual development of the dormant Commerce
Clause

claims

should

focus

primarily
19

on

the

discriminatory

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 20 of 28

effects test. In particular, the proceedings must investigate
the differential burdens imposed on out-of-state and in-state
firms subject to the certificate-of-need process. The fulcrum of
this inquiry will be whether the certificate requirement erects
a special barrier to market entry by non-domestic entities. As
noted, the district court should not confine its focus to the
effect on appellants alone, but should instead survey the burden
imposed on interstate commerce generally.
The

discriminatory

effects

test

represents

the

superior

framework of analysis for two reasons. First, this standard,
although fact-intensive, has the virtue of providing a clearer
measure by which to gauge the challenged statute’s validity. The
Pike test is often too soggy to properly cabin the judicial
inquiry or effectively prevent the district court from assuming
a

super-legislative

role.

See,

e.g.,

Davis,

553

U.S.

at

353

(declining to apply Pike because “the Judicial Branch is not
institutionally suited to draw reliable conclusions of the kind
that

would

be

necessary

for

[plaintiffs]

to

satisfy

a

Pike

burden in this particular case”). Second, the factual material
relevant to the Pike standard largely overlaps with evidence
germane

to

the

effect

of

the

constitutes

the

discrimination
challenged
principal

test.

statute

focus.

20

In
on

both

inquiries,

out-of-state

Discovery

on

the

the

firms

issue

of

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

discrimination

should

Pg: 21 of 28

therefore

substantially

suffice

with

respect to Pike, as well.
Although the precise effects of the certificate program can
only be uncovered via fact-finding, further inquiry is likely to
confirm

that

outcomes.

the

requirement

First,

the

certificate

program

interstate

commerce.

produces

district
has

court

significant,

The

one
may

of

three

discover

deleterious

bureaucratic

red

tape

possible
that

effects
foisted

the
on
upon

businesses by the program may well be so cumbersome that, as a
functional
commerce

matter,
and

it

imposes

discourages

a

major

out-of-state

burden

on

firms

from

interstate
offering

important medical services in Virginia.
Second, it seems less likely, though conceivable, that the
requirement produces the opposite effect and actually stimulates
interstate commerce. In this scenario, firms are encouraged to
enter the market because the certificate program ensures that
they will have time to build patient goodwill, establish the
necessary

business

and

referral

relationships,

and

generally

acquire a market foothold before being economically submerged.
In

essence,

the

certificate

requirement

theoretically

grants

out-of-state firms a limited safe harbor to recoup the sizeable
capital investment that the establishment of a medical facility
requires.

21

Appeal: 12-2272

Doc: 66

Finally,
commerce

may

Filed: 10/23/2013

the

certificate

be

entirely

Pg: 22 of 28

program’s

neutral,

or

effect
at

on

least

interstate

sufficiently

insubstantial to avoid implicating the dormant Commerce Clause.
The point is: we do not know. It is impossible to ascertain
which

of

these

potential

outcomes

actually

obtains

without

examining the practical operation of the statute and the actual,
concrete effects it has on out-of-state firms seeking to enter
the Virginia market.

III.
Appellants

also

assert

a

battery

of

claims

under

the

Fourteenth Amendment. Specifically, they allege that Virginia’s
certificate-of-need requirement violates the Equal Protection,
Due Process, and Privileges or Immunities Clauses. Unlike the
Commerce

Clause,

the

Fourteenth

Amendment

is

not

primarily

focused on commerce and economic discrimination against out-ofstate

interests,

and

its

general

provisions

provide

correspondingly less warrant for close judicial supervision. For
the

reasons

that

follow,

we

affirm

the

district

court’s

dismissal of each of these claims.
A.
First,
violates
Amendment.

appellants

the
This

Equal

argue

that

Protection

particular

claim
22

the

certificate

Clause
centers

of
on

the
the

requirement
Fourteenth
statute’s

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 23 of 28

treatment of nuclear cardiac imaging, which is exempted from the
certificate-of-need

requirement.

Compl.

¶

110.

Appellants

contend that nuclear cardiac imaging is “similarly situated to
other types . . . of medical imaging,” id. ¶ 111, and that the
differential treatment of the two is irrational and therefore
unconstitutional. See City of Cleburne v. Cleburne Living Ctr.,
473 U.S. 432, 439 (1985).
Non-suspect classifications -- such as the one at issue
here -- are “accorded a strong presumption of validity,” Heller
v. Doe, 509 U.S. 312, 319 (1993), and must be upheld “if there
is any reasonably conceivable state of facts that could provide
a rational basis” for the distinction, FCC v. Beach Commc’ns,
Inc., 508 U.S. 307, 313 (1993). This deferential standard is
informed

by

the

principle

that

“equal

protection

is

not

a

license for courts to judge the wisdom, fairness, or logic of
legislative choices.” Id.
Here,

Virginia

has

articulated

sufficient

justifications

for the nuclear cardiac imaging exemption to survive rational
basis

scrutiny.

State

legislators

could

reasonably

have

concluded, for instance, that nuclear cardiac imaging services
are provided in a different market than other imaging services,
and thus less susceptible to the dangers of excess capacity or
geographical misallocation. Appellees’ Br. at 54; see also 12
Va. Admin. Code § 5-230-30. Moreover, appellants have provided
23

Appeal: 12-2272

no

Doc: 66

general

Filed: 10/23/2013

context

or

Pg: 24 of 28

perspective

to

support

their

equal

protection challenge, and we are disinclined to pick apart the
Virginia statute specialty by specialty or to unravel a complex
medical regulatory scheme strand by strand. We thus affirm the
district

court’s

dismissal

of

appellants’

equal

protection

claim.
B.
Second, appellants argue that the certificate requirement
violates

the

Fourteenth

Appellants’

specific

substantive

rights

rests

the

on

irrationally
fails

to

Amendment’s

claim,

into

a

which

advance

whose

that

the

appellants’

any

seeks

clause

contention

burdens

Due

state

right

Process
to

focus

import
is

further

procedural,

certificate
to

earn

a

other

purpose

Clause.

than

bald

does

not

program

living

and

economic

protectionism. Compl. ¶¶ 221-25.
The

certificate-of-need

fundamental
rational

or

basis

enumerated
review

program

right

under

and

the

is
Due

infringe

therefore
Process

subject
Clause.

any
to
See

Washington v. Glucksberg, 521 U.S. 702, 719-20 (1997). Rational
basis scrutiny in the due process context -- as in the equal
protection context -- is quite deferential. See Star Scientific
Inc. v. Beales, 278 F.3d 339, 348-49 (4th Cir. 2002).
Here, appellants have failed to plausibly rebut the state’s
asserted justifications for the certificate-of-need program. The
24

Appeal: 12-2272

Doc: 66

state,

both

articulates

Filed: 10/23/2013

in
a

its

brief

variety

Pg: 25 of 28

and

of

its

implementing

legitimate

purposes

regulations,

served

by

the

statute, including ensuring geographically convenient access to
healthcare

for

Appellees’

Br.

Virginia
at

49-50.

residents

at

Appellants’

a

reasonable

cursory,

cost.

unsubstantiated

assertion that the statute fails to advance this purpose or any
other is insufficient to merit further factual inquiry. As is
the

case

with

their

equal

protection

claim,

appellants

have

failed to state a plausible due process entitlement to relief.
Iqbal, 556 U.S. at 678. The district court’s dismissal of this
count is therefore affirmed.
C.
Finally,
program

appellants

contravenes

the

contend
“right

that
to

the
earn

certificate-of-need
an

honest

living”

embodied in the Fourteenth Amendment’s Privileges or Immunities
Clause, which provides that “No State shall make or enforce any
law which shall abridge the privileges or immunities of citizens
of

the

United

States.”

They

concede,

however,

that

this

particular claim is foreclosed by the Supreme Court’s decision
in the Slaughter-House Cases, 83 U.S. 36, 79-80 (1872), which
confined the reach of that clause to a set of national rights
that

does

occupation.

not
This

include
court

the

right

lacks

the

to

pursue

authority

a
to

particular
disturb

an

unimpeached precedent issued by a superior tribunal. State Oil
25

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 26 of 28

Co. v. Khan, 522 U.S. 3, 20 (1997). This is especially the case
where

recognition

of

an

unenumerated

substantive

right

would

open the door to a host of textually dubious challenges to state
economic

regulation

dismissal

of

of

appellants’

every

sort.

privileges

The
or

district

immunities

court’s
claim

is

therefore affirmed.

IV.
In

sum,

appellants’

closer

scrutiny

court,

but

the

and

Commerce

further

Fourteenth

Clause

proceedings
Amendment

challenges
before

claims

require

the

district

were

properly

dismissed. We thus affirm in part, reverse in part, and remand
this

case

for

further

proceedings

in

accordance

with

this

decision.
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED

26

Appeal: 12-2272

Doc: 66

Filed: 10/23/2013

Pg: 27 of 28

WILSON, District Judge, concurring:
Plaintiffs
Virginia

with

would

like

equipment

to

they

render
cannot

medical
utilize

services
without

in

first

proving to the Commonwealth that the competition they bring with
them will not harm established local health care providers.

In

my opinion, little distinguishes such a regulatory system from
one that offends the dormant commerce clause by isolating local
interests from the national economy.
A handful of states initially developed certificate of need
regulations in the 1960s.

Congress injected the certificate of

need regimen more broadly into national health care planning
when

it

enacted

the

National

Health

Planning

and

Resource

Development Act of 1974 (the “NHPRDA”), Pub. L. 93-641, 88 Stat.
2225, §§ 1-3, to control escalating health care costs and the
widely

diverging

NHPRDA

had

the

incidental

of

certificate
scrutiny.

availability

need

of

effect

regimens

health
of

from

care

services.

protecting
dormant

the

The

states’

commerce

clause

But twelve years later, Congress repealed the NHPRDA,

Pub. L. 99-60, 100 Stat. 3743 (1986), after its failures had
become

well

past

certificate

of

scrutiny.

Yet,

throughout

much

obvious.

need’s

shield

twenty-seven
of

the

The

NHPRDA’s

from
years

country,

repeal

dormant
later,

state

removed

commerce
in

clause

Virginia,

certificate

the

of

and
need

regimens continue to grow and now regulate an enormous segment
27

Appeal: 12-2272

of

Doc: 66

the

Filed: 10/23/2013

national

economy.

Pg: 28 of 28

The

Virginia

regimen

explicitly

regulates its share of that economy by using the certificate of
need to “discourage[] the proliferation of services that would
undermine

the

ability

of

essential

community

providers

to

maintain their financial viability.” 12 Va. Admin. Code § 5-23030

(2013).

Stripped

Commonwealth’s
providers”

purpose

(i.e.,

of
is

to

its

protect

established

effects of competition.

linguistic

pretense,

established

in-state

interests)

the

“community
from

the

Though this purpose or goal may be

legitimate, I find little difference in the means it employs to
accomplish that goal -- the limitation of competition -- from
illegitimate efforts to isolate local economic interests from
the national economy. Wyoming v. Oklahoma, 502 U.S. 437, 456-57
(1992)

(noting

legitimate

the

goal,’

court

only

to

has

“often

find

that

examined
the

State

a

‘presumably
attempted

to

achieve it by ‘the illegitimate means of isolating the State
from the national economy’”).

But even apart from its stated

purpose, in my view, a state regulatory system that chooses to
limit competition as its means to promote the delivery of health
care will still likely, if not inevitably, entangle itself with
the dormant commerce clause.

28