Colon Health Centers of Americ v. Bill Hazel
Filing
PUBLISHED AUTHORED OPINION filed. Originating case number: 1:12-cv-00615-CMH-TCB. [999739539]. [14-2283]
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 1 of 31
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-2283
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 Chair 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; M. CATHERINE SLUSHER, 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
Director of the Office of Licensure and Certification; JOHN
W. SEEDS, in his official capacity as member of the Virginia
State Board of Health; MARISSA LEVINE, in her official
capacity as the State Health Commissioner; BRADLEY BEALL, in
his official capacity as member of the Virginia State Board
of Health; THERESA MIDDLETON BROSCHE, in her official
capacity as member of the Virginia State Board of Health;
MEGAN C. GETTER, in her official capacity as member of the
Virginia State Board of Health; HENRY N. KUHLMAN, in his
official capacity as member of the Virginia State Board of
Health; HONORABLE FAYE PRICHARD, in her official capacity as
member of the Virginia State Board of Health; BENITA MILLER,
in her official capacity as member of the Virginia State
Board of Health; PETER BOSWELL, in his official capacity as
Director of the Division of Certificate of Public Need; TOM
EAST, in his official capacity as member of the Virginia
State Board of Health; LINDA HINES, in her official capacity
as member of the Virginia State Board of Health; HONORABLE
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 2 of 31
MARY MARGARET WHIPPLE, in her official capacity as member of
the Virginia State Board of Health,
Defendants - Appellees.
------------------------------------------SHENANDOAH
INDEPENDENT
PRACTICE
ASSOCIATION,
INC.;
SHENANDOAH
SURGEONS
LLC;
CHRISTOPER
KOOPMAN,
Research
Fellow, The Mercatus Center at George Mason University;
MATTHEW MITCHEL, Senior Research Fellow, The Mercatus Center
at George Mason University; THOMAS STRATMANN, University
Professor of Economics and Law, Department of Economics,
George Mason University; ROBERT GRABOYES, Senior Research
Fellow, Mercatus Center at George Mason University; JAKE
RUSS, Graduate Fellow, Mercatus Center at George Mason
University; JAMES BAILEY, Assistant Professor of Economics,
Department of Economics and Finance, Creighton University,
Amici Supporting Appellants,
THE VIRGINIA HOSPITAL & HEALTHCARE ASSOCIATION; THE VIRGINIA
HEALTH CARE ASSOCIATION; THE STATE OF WASHINGTON; THE STATE
OF ARIZONA; THE STATE OF HAWAII; THE STATE OF MISSISSIPPI;
THE STATE OF VERMONT,
Amici Supporting Appellees.
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:
December 10, 2015
Decided:
January 21, 2016
Before WILKINSON, KING, and WYNN, Circuit Judges.
Affirmed by published opinion.
Judge Wilkinson
opinion, in which Judge King and Judge Wynn joined.
wrote
the
ARGUED:
Darpana
Sheth,
INSTITUTE
FOR
JUSTICE,
Arlington,
Virginia, for Appellants. Stuart Alan Raphael, OFFICE OF THE
2
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 3 of 31
ATTORNEY GENERAL OF VIRGINIA, Richmond, Virginia, for Appellees.
ON BRIEF: Robert J. McNamara, William H. Mellor, Mahesha P.
Subbaraman, INSTITUTE FOR JUSTICE, Arlington, Virginia, for
Appellants.
Mark R. Herring, Attorney General, Cynthia V.
Bailey, Deputy Attorney General, Christy W. Monolo, Assistant
Attorney General, Carly L. Rush, Assistant Attorney General,
Farnaz F. Thompson, Assistant Attorney General, Trevor S. Cox,
Deputy Solicitor General, OFFICE OF THE ATTORNEY GENERAL OF
VIRGINIA, Richmond, Virginia, for Appellees. Milad Emam, WILEY
REIN LLP, Washington, D.C., for Amici Shenandoah Independent
Practice Association and Shenandoah Surgeons LLC.
Jared M.
Bona, Aaron R. Gott, BONA LAW P.C., La Jolla, California, for
Amici Scholars of Economics and Scholars of Law and Economics.
Robert W. Ferguson, Attorney General, Alan D. Copsey, Deputy
Solicitor General, Richard A. McCartan, Senior Counsel, OFFICE
OF THE ATTORNEY GENERAL OF WASHINGTON, Olympia, Washington; Mark
Brnovich, Attorney General, OFFICE OF THE ATTORNEY GENERAL OF
ARIZONA, Phoenix, Arizona; Douglas S. Chin, Attorney General,
OFFICE OF THE ATTORNEY GENERAL OF HAWAII, Honolulu, Hawaii; Jim
Hood, Attorney General, OFFICE OF THE ATTORNEY GENERAL OF
MISSISSIPPI, Jackson, Mississippi; William H. Sorrell, Attorney
General, OFFICE OF THE ATTORNEY GENERAL OF VERMONT, Montpelier,
Vermont, for Amici States of Washington, Arizona, Hawaii,
Mississippi and Vermont. James J. O’Keeffe, IV, JOHNSON, ROSEN &
O’KEEFFE, LLC, Roanoke, Virginia; Jamie Baskerville Martin,
Jeremy A. Ball, Jennifer L. Ligon, MCCANDLISH HOLTON, Richmond,
Virginia, for Amici Virginia Hospital & Healthcare Association
and Virginia Health Care Association.
3
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 4 of 31
WILKINSON, Circuit Judge:
Virginia’s certificate of need (CON) program governs the
establishment and expansion of certain medical facilities inside
the
state.
services,
In
this
Colon
case
Health
two
providers
Centers
of
of
America
medical
and
imaging
Progressive
Radiology, argue that the CON law unconstitutionally violates
the dormant aspect of the Commerce Clause. The district court
held
that
the
certificate
requirement
neither
discriminated
against nor placed an undue burden on interstate commerce, and
granted summary judgment to the Commonwealth. For the reasons
that follow, we affirm.
I.
A.
Much of the background and many of the claims in this case
have
been
set
forth
in
our
prior
opinion.
See
Colon
Health
Centers of Am., LLC v. Hazel, 733 F.3d 535 (4th Cir. 2013).
Virginia
is
one
of
thirty-six
states
that
requires
medical
service providers to obtain a “certificate of public need” in
order to establish or expand operations within its borders.
Va.
Code Ann. §§ 32.1–102.1 et seq.; 12 Va. Admin. Code §§ 5–220–10
et
seq.
capital
Virginia’s
CON
expenditures,
tomographic
facilities.
(CT)
See
including
and
Va.
program
applies
investments
magnetic
Code
Ann.
4
to
most
in
resonance
§
32.1-102.2.
health
new
computed
imaging
It
care
does
(MRI)
not,
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 5 of 31
however, cover the “[r]eplacement of existing equipment.” Id. at
§
32.1–102.1.
The
program
requires
that
an
applicant
show
a
sufficient public need for its proposed venture in the relevant
geographic
area.
mechanism
helps
facilities,
Virginia
prevent
protect
providers,
promote
asserts
the
that
redundant
the
economic
indigent
care,
this
preapproval
accretion
viability
and
assist
of
of
medical
existing
cost-effective
health care spending.
Firms that seek to obtain a certificate of need must file
their completed applications with the Department of Health and
the appropriate regional health planning agency. Id. at § 32.1–
102.6. Applicants pay a fee of one percent of the project’s
expected capital cost, but no less than $1,000 and no more than
$20,000. 12 Va. Admin. Code § 5-220-180(B). The submissions are
grouped into subcategories based on project type and evaluated
in
a
process
called
“batching.”
The
code
mandates
that
the
review process be completed within 190 days of the start of the
applicable batch cycle. Va. Code Ann. § 32.1–102.6.
Five regional health planning agencies across the state are
charged with conducting, within 60 days, initial investigations
into their respective regions’ applications. During this stage
of
review
vicinity
the
of
agencies
the
must
proposed
hold
a
investment
public
site,
hearing
where
in
the
interested
individuals and local governing bodies may submit comments to
5
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 6 of 31
assist the agencies in their evaluations. After examining the
data and reviewing the testimony before them, the agencies are
directed
to
provide
the
Department
of
Health
with
their
recommendations to approve or deny each application. Id.
The
Department,
concurrently
with
the
regional
health
planning agencies, reviews the completed applications upon the
commencement of the appropriate batch cycle. The Department is
required to assess whether an informal fact-finding conference
is warranted. Such a proceeding will be held if the Department
independently
determines
that
it
is
necessary
or
if
an
intervening party demonstrates that good cause exists to conduct
it. Va. Code Ann. § 32.1-102.6(E). The date on which the record
closes
on
the
application
varies
depending
on
whether
an
informal fact-finding conference is conducted.
The code instructs that a certificate may not be issued
unless
the
State
Health
Commissioner
“has
determined
that
a
public need for the project has been demonstrated.” Id. at §
32.1–102.3(A).
The
Commissioner’s
decision
is
due
forty-five
days after the record closes, but that period may be extended by
an
additional
twenty-five
days.
Id.
at
§
32.1-102.6(E).
In
making his assessment, the Commissioner must consider a number
of factors, although no single factor is dispositive.
32.1–102.3(B)(1)–(8).
For
example,
the
Commissioner
Id. at §
evaluates
“[t]he extent to which the proposed service or facility will
6
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 7 of 31
provide or increase access to needed services for residents of
the area to be served,” and “[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. at § 32.1–102.3(B)(1),(5). An application is
considered
approved
and
a
certificate
is
granted
if
the
Commissioner fails to issue a decision within seventy days after
the closing of the record.
Constructing
operations
new
facilities
a
certificate
without
or
of
augmenting
need
is
existing
a
Class
1
misdemeanor, punishable by fines of up to $1,000 for each day a
service provider is in violation of the statute. Id. at § 32.1–
27.1. Applicants and other interested persons dissatisfied with
the Commissioner’s decision may seek judicial review under the
Virginia Administrative Procedure Act. See id. at § 32.1–24.
B.
Appellants Colon Health Centers and Progressive Radiology
are
out-of-state
through
the
services
use
in
medical
of
providers
private
Virginia.
funds,
who
wish
to
specialized
Appellants
establish,
MRI
and
challenged
CT
the
constitutionality of the CON program, claiming that it violates
the
dormant
Amendment’s
Immunities
Commerce
Equal
Clause
Protection,
Clauses.
The
as
Due
district
7
well
as
Process,
court
the
and
Fourteenth
Privileges
dismissed
or
appellants’
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 8 of 31
suit under Federal Rule of Civil Procedure 12(b)(6) for failure
to state a claim upon which relief may be granted. Colon Health
Centers of Am., LLC v. Hazel, No. 1:12CV615, 2012 WL 4105063, at
*11 (E.D. Va. Sept. 14, 2012).
On
appeal,
Fourteenth
we
Amendment
affirmed
claims,
the
dismissal
reversed
the
of
appellants’
dismissal
of
the
dormant Commerce Clause claim, and remanded the case for further
factual development on the Commerce Clause issue. Colon Health,
733 F.3d at 539. After careful consideration of the parties’
arguments, we made clear that this case is one of “heightened
importance,” and emphasized the “fact-intensive quality” of the
dormant Commerce Clause analysis. Id. at 545.
The district court conducted an extensive discovery process
on remand, and ultimately granted summary judgment in favor of
the
Commonwealth.
J.A.
1509-27.
Colon
Health
and
Progressive
Radiology now urge us to reverse that decision on two grounds.
First, appellants argue that Virginia’s CON requirement violates
the dormant Commerce Clause by discriminating against interstate
commerce in both purpose and effect. Second, appellants contend
that
even
discriminate,
if
it
the
program
does
nevertheless
not
violates
the
unconstitutionally
dormant
Commerce
Clause because it places an undue burden on interstate commerce.
We address each of these arguments in turn.
8
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 9 of 31
II.
A.
The
settled.
general
The
framework
Commerce
of
the
Clause
gives
law
in
this
Congress
area
the
is
power
well
“[t]o
regulate Commerce . . . among the several States.” U.S. Const.
art. I, § 8, cl. 3. Although by its terms the clause speaks only
of
congressional
authority,
“the
[Supreme]
Court
long
has
recognized that it also limits the power of the States to erect
barriers against interstate trade.” Dennis v. Higgins, 498 U.S.
439, 446 (1991) (quoting Lewis v. BT Inv. Managers, Inc., 447
U.S. 27, 35 (1980)). This implicit or “dormant” constraint is
driven
that
primarily
is,
by
concerns
regulatory
over
measures
“economic
designed
protectionism --
to
benefit
in-state
economic interests by burdening out-of-state competitors.” New
Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273-74 (1988).
To that end, the Supreme Court has instructed that “[t]he
principal
statutes
objects
that
of
dormant
discriminate
Commerce
against
Clause
are
commerce.”
interstate
scrutiny
CTS
Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 87 (1987) (emphasis
added).
“[W]hen
interstate
Jim’s
state
commerce,
discrimination
unrelated
a
to
is
will
demonstrably
economic
Motorcycle,
it
statute
be
[]
struck
justified
protectionism.”
Inc.,
401
discriminates
F.3d
9
down
by
Yamaha
560,
567
a
against
unless
valid
Motor
(4th
the
factor
Corp.
Cir.
v.
2005)
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 10 of 31
(quoting Wyoming v. Oklahoma, 502 U.S. 437, 454 (1992)). While
discrimination “simply means differential treatment of in-state
and out-of-state economic interests that benefits the former and
burdens the latter,” Or. Waste Sys., Inc. v. Dep’t of Envtl.
Quality
of
economic
State
harms
or
of
Or.,
511
U.S.
anticompetitive
93,
choices
99
(1994),
can
or
not
should
all
be
remedied through application of the dormant Commerce Clause. See
Brown v. Hovatter, 561 F.3d 357, 363 (4th Cir. 2009). Under the
prevailing framework courts must chart a narrow course between
“rebuff[ing] attempts of states to advance their own commercial
interests
by
curtailing
the
movement
of
articles
of
commerce . . . [and] generally supporting their right to impose
even burdensome regulations in the interest of local health and
safety.” H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 535
(1949).
Recognizing this difficulty, the Supreme Court has advised
courts in this context to “eschew[] formalism for a sensitive,
case-by-case analysis.” W. Lynn Creamery, Inc. v. Healy, 512
U.S. 186, 201 (1994). In other words, courts are “not bound by
[t]he name, description or characterization given [the law] by
the legislature or the courts of the State.” Colon Health, 733
F.3d
at
546
(quoting
Hughes
v.
Oklahoma,
441
U.S.
322,
336
(1979)). “The principal focus of inquiry must be the practical
operation of the statute, since the validity of state laws must
10
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 11 of 31
be judged chiefly in terms of their probable effects.” Lewis,
447
U.S.
at
37;
see
also
Yamaha,
401
F.3d
at
568.
The
discrimination test can thus be described as both flexible and
finite:
Courts
are
afforded
some
latitude
to
determine
for
themselves the practical impact of a state law, but in doing so
they must not cripple the States’ “authority under their general
police powers to regulate matters of legitimate local concern.”
Maine v. Taylor, 477 U.S. 131, 138 (1986) (internal quotation
marks omitted).
B.
A
state
commerce
in
statute
one
of
may
three
discriminate
ways:
against
“facially,
in
its
interstate
practical
effect, or in its purpose.” Envtl. Tech. Council v. Sierra Club,
98 F.3d 774, 785 (4th Cir. 1996). A discriminatory measure is
“virtually per se invalid,” and will survive strict scrutiny
only if it “advances a legitimate local purpose that cannot be
adequately served by reasonable nondiscriminatory alternatives.”
Or.
Waste
Sys.,
511
U.S.
at
99
(internal
quotation
marks
omitted).
Here, the parties are in agreement that Virginia’s CON law
is not facially discriminatory. The program applies to all firms
establishing or expanding covered health care operations within
the state, and makes no distinction between in-state and out-ofstate service providers. See, e.g., Va. Code Ann. § 32.1-102.6
11
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 12 of 31
(“[t]o obtain a certificate for a project,” every applicant,
regardless
of
geographic
location,
“shall
file
a
completed
application”).
Appellants
discriminates
do,
in
however,
both
maintain
purpose
and
that
the
effect.
CON
With
program
regard
to
purpose, they note that the law is intended to “protect the
economic viability of existing [service] providers” by impeding
the development of new medical facilities. Appellants’ Br. at 41
(citing
12
Va.
Admin.
Code
§
5-230-30
(“[t]he
[CON]
program
discourages the proliferation of services that would undermine
the ability of essential community providers to maintain their
financial viability”)). Because current health care firms are
categorically in-state entities, the argument goes, the primary
goal
of
providers
the
certificate
from
requirement
competition
at
the
is
to
expense
shelter
of
those
out-of-state
businesses seeking entry into the market.
That
argument
misses
the
main
point.
Certificate-of-need
regimes -- in place in many states across this country -- are
designed in the most general sense to prevent overinvestment in
and maldistribution of health care facilities. See Lauretta H.
Wolfson,
State
Regulation
of
Health
Facility
Planning:
The
Economic Theory and Political Realities of Certificates of Need,
4
DePaul
J.
Health
Care
L.
261,
262
(2001).
Indeed,
as
we
discuss in greater detail below, Virginia’s program serves an
12
Appeal: 14-2283
Doc: 87
array
of
quality
legitimate
by
facilities,
access
Filed: 01/21/2016
public
discouraging
enabling
necessary
Pg: 13 of 31
purposes:
the
proliferation
underserved
medical
improving
and
of
indigent
services,
and
health
care
underutilized
populations
encouraging
to
cost-
effective consumer spending. See infra part III.B. Appellants
may be dissatisfied with the Virginia General Assembly’s policy
choices in this complex field, but we cannot discern a sinister
protectionist purpose in this straightforward effort to bring
medical care to all the citizens of the Commonwealth in the most
efficient and professional manner. We thus turn our attention to
the issue of discriminatory effect.
Appellants allege that in practice Virginia’s CON program
“systematically advantages established in-state providers at the
expense” of new, primarily out-of-state firms. Appellants’ Br.
at
13-14.
Specifically,
appellants
claim
that
the
CON
application process impermissibly grants current Virginia firms
the
authority
providers
in
to
thwart
three
the
ways.
market
First,
entrance
the
code
of
out-of-state
allows
interested
parties to request an informal fact-finding conference so that
the
merits
of
a
particular
application
can
be
further
scrutinized. See Va. Code Ann. § 32.1-102.6. This authorization,
according
to
administrative
uncertainty
appellants,
review
borne
by
can
period
significantly
and
applicants.
13
increase
Second,
lengthen
the
the
costs
the
and
intervention
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 14 of 31
proviso also grants local firms, who may be in competition with
an
applicant,
the
power
to
stymie
the
process
through
an
adversarial presentation at conference. Appellants assert that
despite
the
resemble
retain
”informal”
full-blown
counsel.”
label,
fact-finding
litigation”
Appellants’
Br.
and
at
conferences
“[a]pplicants
10.
Finally,
“often
regularly
appellants
argue that the process gives a structural edge to established
interests:
batches,
Because
applications
“Virginia-based
are
entities
grouped
[can]
and
reviewed
submit
in
competing
applications [within the appropriate batch cycle] in order to
block applications they want to see denied.” Id. at 13.
We are unconvinced by appellants’ arguments. In order to
prove
discriminatory
Virginia’s
CON
law,
interstate
commerce
effect,
“if
to
appellants
enforced,
a
greater
must
would
degree
demonstrate
negatively
than
that
impact
intrastate
commerce.” Colon Health, 733 F.3d at 543 (quoting Waste Mgmt.
Holdings, Inc. v. Gilmore, 252 F.3d 316, 335 (4th Cir. 2001)).
“The fulcrum of this inquiry will be whether the certificate
requirement erects a special barrier to market entry by nondomestic entities.” Id. at 546. Here, the Commonwealth’s expert,
Dr. John Mayo, revealed that over a fourteen-year period ending
in January 2014, “approval rates for applications submitted by
in-state and by out-of-state firms considered by the Virginia
Department of Health [were] virtually identical” at just under
14
Appeal: 14-2283
Doc: 87
eighty-five
Filed: 01/21/2016
percent.
J.A.
Pg: 15 of 31
142-43.
The
State’s
expert
also
reported that obtaining a certificate took the same length of
time for both in-state and out-of-state applicants -- 154 to 167
days. Id. at 143. In short, both the application process and its
end result in Virginia showed no appreciable difference in the
treatment
of
in-state
and
out-of-state
entities.
This
in
contrast to programs that revealed marked disparities in the
handling of in-state and out-of-state applications. See, e.g.,
Walgreen Co. v. Rullan, 405 F.3d 50, 56 (1st Cir. 2005) (in
which
“[o]ver
[were]
forced
fifty
to
percent
undergo
of
the
out-of-Commonwealth
entire
entities
administrative
process
compared to less than twenty-five percent of local applicants”).
Appellants,
for
their
part,
condemn
the
state
expert’s
approach. They argue that “the district court erred by crediting
the
Commonwealth’s
expert’s
decision
to
base
his
analysis
entirely on whether a particular entity was legally incorporated
in Virginia or elsewhere.” Appellant’s Br. at 51. According to
appellants,
“the
inquiry
should
be
practical,
rather
than
formal, and established service providers in Virginia should be
counted
as
‘in-state’
regardless
of
their
state
of
legal
incorporation.” Id. at 52.
We find no error in the approach taken by the district
court.
It
was
plainly
reasonable
for
the
State’s
expert
to
consider an entity’s state of incorporation in demarcating the
15
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
boundary
district
court
relevant
to
in-state
between
Pg: 16 of 31
out-of-state
noted
whether
and
simply
an
that
entity
“state
is
an
applicants.
of
incorporation
out-of-state
The
is
business
discriminated against by Virginia’s regulatory scheme.” J.A. 62.
And
indeed
it
incorporation
is
an
relevant.
easily
Not
applied
only
is
criterion.
the
of
choosing
By
state
to
incorporate within a particular state, a corporation opts to
identify itself with both state law and state process in a way
that an out-of-state corporation does not. James D. Cox & Thomas
Lee Hazen, 1 TREATISE
ON THE
LAW
OF
(“In
state
of
incorporation,
selecting
the
CORPORATIONS § 3:2 (3d ed. 2015)
the
[corporation]
makes a decision not only as to the relevant statutory law but
also
as
to
the
case
law
that
will
govern
all
corporate
questions, including the duties of the corporation’s officers
and directors and the rights of its stockholders”).
Appellants further contest the district court’s decision on
the ground that the court “improperly credited the testimony of
[the
Commonwealth’s]
expert
over
[their
expert’s
analysis].”
Appellants’ Br. at 56. They argue that their expert established
that
the
granting
“Virginia
CONs
to
law
undisputedly
entities
that
have
and
expressly
previously
favors
completed
projects” in the state. Appellants’ Br. at 55 (citing 12 Va.
Admin.
Code
concluded
§ 5-230-60).
that
the
In
other
certificate
16
words,
requirement
appellants’
expert
discriminates
in
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 17 of 31
favor of incumbent health care providers at the expense of new,
predominantly out-of-state firms.
We
reject
incumbency
appellants’
bias
“negative[]
in
impact
argument
this
context
[on]
interstate
as
is
a
not
matter
a
of
law,
for
for
the
which
the
surrogate
commerce”
with
dormant Commerce Clause is concerned. Colon Health, 733 F.3d at
543.
The
dormant
Commerce
Clause
is
exclusively
designed
to
address the “differential treatment of in-state and out-of-state
economic
interests
that
benefits
the
former
and
burdens
the
latter.” Granholm v. Heald, 544 U.S. 460, 472 (2005) (internal
quotation
marks
omitted).
Thus,
what
appellants
label
as
an
impermissible foray into a battle of the experts is a simple
recognition of the fact that incumbency is not the focus of the
dormant Commerce Clause.
Allowing
incumbency
to
serve
as
the
proxy
for
in-state
status would be a risky proposition. One can be, for example, an
incumbent recipient of some state contractual benefit without
necessarily being an in-state resident. In fact, the vitality of
interstate commerce relies upon the ability of one state to have
some allegedly incumbent companies of another state provide its
citizens with needed goods and services. As the district court
explained, “[u]nder [appellants]’ view, the success rate of new
out-of-state applicants should be measured against the success
rate of new in-state applicants combined with every previously17
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 18 of 31
successful entity currently operating in Virginia. This approach
tips the scales in favor of new out-of-state applicants; it does
not
provide
an
accurate
depiction
of
whether
Virginia's
[]
program discriminates against interstate commerce.” J.A. 1523.
Finally, appellants specify that one-hundred percent of CT
scanner and MRI machine manufacturers are located outside the
state
of
Virginia.
Appellants’
Br.
at
31.
Because
medical
imaging manufacturers are by definition out-of-state entities,
appellants
assert
that
“the
burdens
of
Virginia’s
CON
requirement are anything but evenhanded.” Id. at 32. But that
point is easily turned around. We think it axiomatic that there
can be no discrimination in favor of in-state manufacturers when
there are no manufacturers in the state. How are we to properly
assess, for example, “whether the certificate requirement erects
a special barrier to market entry by non-domestic entities,”
Colon
Health,
733
F.3d
at
546,
when
there
is
no
domestic
business with which to compare those non-domestic entities?
We do not doubt that appellants are frustrated by the state
legislature’s decision to impose a certificate requirement in
this area. However, we will not take the potentially limitless
step of striking down every state regulatory program that has
some alleged adverse effect on market competition. We live in
such
an
interconnected
economy
that
for
any
regulation
some
effects are almost bound to be felt out of state. To accept
18
Appeal: 14-2283
Doc: 87
appellants’
Filed: 01/21/2016
arguments
“would
Pg: 19 of 31
broaden
the
negative
Commerce
Clause beyond its existing scope,” United Haulers Ass'n, Inc. v.
Oneida-Herkimer
Solid
Waste
Mgmt.
Auth.,
550
U.S.
330,
348
(2007) (Scalia, J., concurring), such that “the States’ power to
engage in economic regulation would be effectively destroyed.”
See Am. Motors Sales Corp. v. Div. of Motor Vehicles, 592 F.2d
219, 224 (4th Cir. 1979).
III.
A.
Even
where
a
law
does
not
facially,
in
effect,
or
purposefully discriminate against interstate commerce, we have
in
past
whether
cases
any
of
undertaken
the
law’s
a
second
analytical
incidental
burdens
step,
on
asking
interstate
commerce might still be “clearly excessive in relation to [its]
putative local benefits.” Sandlands C & D LLC v. Cty. of Horry,
737 F.3d 45, 53 (4th Cir. 2013) (quoting Pike v. Bruce Church,
Inc., 397 U.S. 137, 142 (1970)). Our previous opinion in this
case was skeptical of Pike’s balancing test. We noted that the
“discriminatory effects test represents [a] superior framework
of analysis” and that the Pike approach “is often too soggy to
properly cabin the judicial inquiry or effectively prevent the
district court from assuming a super-legislative role.” Colon
Health, 733 F.3d at 546. Because it so often casts judges into
disputes involving subjective or technically difficult decisions
19
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 20 of 31
properly committed to the discretion of state legislatures, Pike
balancing
risks
an
unwarranted
expansion
of
the
judicial
function.
Pike balancing frequently requires judges to make highly
subjective calls. “[W]eighing or quantifying” a law’s benefits
and burdens may be “a very subtle exercise.” Dep’t of Revenue of
Ky.
v.
Davis,
553
U.S.
328,
354
(2008).
The
exercise
is
complicated by the difficulty of determining by what criteria
benefits and burdens ought to be assessed. Sometimes “[i]t is a
matter not of weighing apples against apples, but of deciding
whether three apples are better than six tangerines.” Id. at 360
(Scalia, J., concurring). Making that decision often in turn
requires one to “decid[e] which interest is more important” – a
policy call of the kind ordinarily entrusted to representative
government. Id.
Judges are, for better or worse, not often economists or
statisticians.
empirical
We
are
judgments
of
ill-equipped
lawmakers
to
“second-guess
concerning
the
utility
the
of
legislation.” CTS Corp., 481 U.S. at 92. Simply put, there are
cases
in
which
“the
Judicial
Branch
is
not
institutionally
suited to draw reliable conclusions of the kind that would be
necessary . . . to satisfy a Pike burden.” Davis, 553 U.S. at
353. The Supreme Court still “generally leave[s] the courtroom
door open to plaintiffs invoking the rule in Pike,” Davis, 553
20
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 21 of 31
U.S. at 353, and so we proceed to the merits of appellants’
argument. We do so only after recognizing our own institutional
limitations, however, and only after giving due deference to the
body whose primary responsibility it is to judge the benefits
and burdens of Virginia legislation: the Virginia legislature.
B.
While the Supreme Court applies a “virtual per se rule of
invalidity” to enforce the dormant Commerce Clause against plain
attempts
at
local
discriminate
face
protectionism,
only
“less
laws
strict
which
do
so
Wyoming
scrutiny.”
not
v.
Oklahoma, 502 U.S. 437, 454-55 & n.12 (1992). In identifying the
“putative
burdens
local
on
therefore
benefits”
interstate
apply
a
to
be
commerce,
rational
basis
weighed
Pike,
against
397
standard
U.S.
of
incidental
at
142,
review.
we
Colon
Health, 733 F.3d at 535.
Virginia
support
program
of
advances
its
boosts
CON
a
number
program.
healthcare
of
First,
quality.
legitimate
it
argues
The
interests
that
Virginia
the
in
CON
Health
Department’s designee Erik Bodin noted in deposition testimony
that by reducing excess medical capacity, the CON program may
“increase the quality of the care that’s being provided because
the expertise of the people using the equipment and interpreting
the results is higher.” J.A. 639. A subcommittee of the Virginia
General Assembly similarly found that “studies provide strong
21
Appeal: 14-2283
Doc: 87
evidence
Filed: 01/21/2016
that
quantity
and
Pg: 22 of 31
quality
are
closely
related
and
experience and practice with complex procedures are assumed to
increase skill and improve expertise.” J.A. 210. In other words,
practice
makes
sophisticated
perfect,
medical
or
at
devices
is
least
to
be
familiarity
preferred
with
to
only
infrequent use of them. In this regard, the CON program helps
ensure that new entrants do not overly dilute the market and
thereby prevent medical personnel from practicing and performing
procedures on a regular basis.
Second, the CON program may help underserved and indigent
populations access needed medical care. Certificates of need may
be
granted
on
the
condition
that
the
recipients
provide
a
certain level of indigent care each year. Va. Code Ann. § 32.1102.4(F);
Va.
Code
Ann.
§
32.1-102.2(C).
And
applicants
for
certificates of need have at least on occasion “use[d] their
performance of charity care [] at a rate higher than the average
as a factor in why they should be approved” in the first place.
J.A.
640-41
(Bodin
Dep.).
The
impact
of
all
this
may
be
substantial – possibly “in excess” of “several hundred million
dollars” of care for needy patients each year. Id. at 634-35.
Such additional care would be impressive in any state, but it
may
be
all
the
more
so
in
Virginia,
which
has
few
public
hospitals, principally the University of Virginia and Virginia
Commonwealth University Medical Centers. Without the assistance
22
Appeal: 14-2283
of
Doc: 87
private
least
in
Filed: 01/21/2016
caregivers
part
Pg: 23 of 31
serving
motivated
by
indigent
the
CON
patients,
program,
service
those
at
hospitals
might be even more burdened than they already are.
A related purpose of the CON program is geographical in
nature. For reasons not difficult to discern, medical services
tend
to
gravitate
toward
more
affluent
communities.
The
CON
program aims to mitigate that trend by incentivizing healthcare
providers willing to set up shop in underserved or disadvantaged
areas such as Virginia’s Eastern Shore and far Southwest. “In
determining
whether”
to
issue
a
certificate,
for
example,
Virginia considers “the effects that the proposed service or
facility will have on access to needed services in areas having
distinct
and
unique
geographic,
socioeconomic,
cultural,
transportation, or other barriers to access to care.” Va. Code
Ann. § 32.1-102.3(B)(1).
The CON program may also aid underserved consumers in a
more
indirect
profitable
fashion.
operations,
hospitals
with
the
indigents
with
care,
nonetheless
By
reducing
the
program
revenue
important
but
they
competition
may
also
need
operations
to
not
support
like
in
provide
only
to
highly
existing
provide
money-losing
trauma
centers
but
and
neonatal intensive care units. Appellants’ expert agreed in his
deposition that full-service hospitals have “long been in the
practice
of
cross-subsidizing
unprofitable
23
services
with
the
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 24 of 31
profits from those that are profitable.” J.A. 392. It is perhaps
no accident that the CON applicants in this case sought to open
standalone
community
gastroenterology
health
centers.
and
radiology
Concerns
facilities,
that
such
not
practices
new
could
drain needed revenue from more comprehensive general hospitals
providing
necessary
though
unprofitable
services
are
not
irrational.
Finally, Virginia argues that the CON program furthers its
legitimate interest in reducing capital costs and the costs to
consumers of medical services. By preventing untoward increases
in
excess
capacity,
Virginia
contends,
the
CON
program
can
reduce the healthcare system’s overall costs. Excess capacity
means
that
those
extra
hospital
beds
and
additional
medical
equipment must pay for themselves, thereby generating pressure
for hospital stays and diagnostic tests that patients really do
not need. See Brief for Va. Hospital & Healthcare Ass’n & Va
Health
Care
Ass’n
(“Hospitals’
Brief”)
at
21.
And
a
former
Virginia Secretary of Health and Human Resources has observed
that Virginia experienced a significant increase in expenditures
for equipment and new services when it partially deregulated its
health care sector between 1989 and 1992. J.A. 211. It again is
not irrational for Virginia or any other state to credit its own
prior experience with deregulation.
24
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 25 of 31
C.
Appellants “bear[] the burden of proving that the burdens
placed on interstate commerce outweigh” the aforementioned local
benefits. LensCrafters, Inc. v. Robinson, 403 F.3d 798, 805 (6th
Cir. 2005). While they advance a number of arguments, we find
none persuasive. Several in particular warrant discussion.
First, appellants attack the wisdom of the CON program.
They argue that it is “a relic of a failed federal policy” that
once encouraged these sorts of programs, Appellants’ Br. at 7,
and
that
the
application
process
imposes
“[e]xtraordinary
costs . . . in terms of time and money.” Id. at 9. Appellants
also refer to a report of the Federal Trade Commission and the
U.S.
Department
of
Justice,
which
found
in
2004
that
CON
programs “are not successful in containing healthcare costs” and
“pose serious anticompetitive risks that usually outweigh their
purported economic benefits.” J.A. 1153.
At the heart of appellants’ argument is the basic economic
maxim
that
competition
market
barriers
and
power
to
entry
thereby
allow
and
charge
like
CON
entrenched
programs
may
incumbents
inefficiently
high
reduce
to
exert
prices.
Like
Virginia’s legitimate state interest arguments, we do not find
appellants’
countervailing
argument
to
be
unreasonable.
The
points noted above, however, might be more persuasively made
before the Virginia General Assembly, not a panel of unelected
25
Appeal: 14-2283
Doc: 87
federal
Filed: 01/21/2016
judges.
The
Pg: 26 of 31
battle
between
laissez
fairists
and
regulators is as old as the hills. The fighting, however, is
more
often
over
economics
and
politics
than
over
law.
Legislators, not jurists, are best able to compare competing
economic theories and sets of data and then weigh the result
against their own political valuations of the public interests
at stake.
Appellants’ free market arguments also overlook the fact
that
the
health
care
market
has
its
own
idiosyncrasies.
Consumers, i.e. patients, often do not know the price of the
medical service they receive until after it has been provided.
Hospitals’ Br. at 8. For many reasons, patients, some of whom
are
under
intense
time
pressures
and
physical
stress,
face
difficulties in assessing the quality of medical services as
well. In this market, patients at all income levels often choose
a provider with private insurance or the government footing the
lion’s share of the bill; they thus lack the normal incentives
to
shop
Squeezed
for
by
price.
insurers,
Providers
are
regulation,
not
and
free
agents
obligations
to
either.
provide
indigent care at a financial loss, providers lack the customary
freedom of a seller of services to set its price. Unprofitable
but
vital
medical
services
do
not
reap
providers
the
usual
market rewards. Id. at 10. Many of the classic features of a
free market are simply absent in the health care context, and
26
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 27 of 31
that fact counsels caution when courts are urged to dismantle
regulatory efforts to counter perceived gaps and inefficiencies
in the healthcare market.
“There was a time” when courts “rigorously scrutinize[d]
economic
legislation”
and
“presumed
to
make
such
binding
judgments for society.” United Haulers, 550 U.S. at 347 (citing
Lochner v. New York, 198 U.S. 45 (1907)). But this is no longer
that time, and under rational basis review, reasonable debates
such as this one are resolved in favor of upholding state laws.
The
states
do,
constitutional
after
scheme.
all,
To
play
override
a
crucial
their
role
judgments
in
our
casually
would be to undermine a cornerstone of our federal system: the
state police power. Courts enforcing the dormant Commerce Clause
were “never intended to cut the States off from legislating on
[] subjects relating to the health, life, and safety of their
citizens.” Sherlock v. Alling, 93 U.S. 99, 103 (1876). That is
their lifeblood, and we shall not constrict it here.
Appellants, to their credit, are not done. They charge that
the entirety of Virginia’s evidence in support of its purported
interests amounts to mere “hearsay and speculation, unsupported
by any fact or expert testimony.” Appellants’ Br. at 40. They
also contrast Virginia’s lack of expert testimony on the general
effectiveness of CON programs with their expert’s declaration
27
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 28 of 31
that “CON laws produce little or no real benefits even as they
impose costs on taxpayers and patients.” J.A. 828.
Appellants’ empirical arguments are, again, more suited to
a legislature than a court. While we have held that the state
interests considered in Pike balancing must not be “entirely
speculative,” Medigen of Ky., Inc. v. Pub. Serv. Comm'n of W.
Va., 985 F.2d 164, 167 (4th Cir. 1993), Virginia’s are not so
here.
The
Commonwealth
has
supported
them
with
reasonable
argument and the record testimony of individuals well versed in
the CON program’s aims. To require Virginia to submit expert
testimony or provide bullet-proof empirical backing for every
legislative judgment is a requirement bereft of any limiting
principle. Most legislation, after all, relies on assumptions
that can be empirically challenged. Were we to engage in an
exhaustive
Commerce
empirical
Clause
interference
battle
case,
with
in,
there
for
would
legislation
starters,
be
no
touching
no
every
dormant
to
judicial
end
end
of
subject
matters. Our federal system would end up as the loser.
The
same
reasoning
explains
why
we
reject
appellants’
argument that Virginia should have to prove that benefits flow
from
the
CON
program’s
“requirements
for
medical-imaging
devices” in particular, and not just from the CON program in
general. Appellants’ Br. at 39. That argument draws us deep into
the weeds. Were we to allow device-by-device litigation over
28
Appeal: 14-2283
Doc: 87
Filed: 01/21/2016
Pg: 29 of 31
what medical equipment the CON program might constitutionally
cover and what it might not, litigation would become the main
arena and the undermining of legislation would have no end.
In Department of Revenue of Kentucky v. Davis, the Supreme
Court rejected arguments similar to those made here. That case
involved a challenge to a state method of taxing income earned
from state and local bonds. Kentucky, along with forty other
states,
income
used
a
derived
“differential
from
scheme”
issued
bonds
tax
by
in
the
which
state
interest
and
its
subdivisions was not subject to a state income tax, even though
interest
income
earned
taxable.
Davis,
553
from
U.S.
the
at
bonds
332-35.
of
The
other
Court
states
was
rejected
the
challenge to the law under Pike.
It noted both the challengers’
argument
other
that
the
law
“blocks”
states
from
“access
to
investment” and “harms the national municipal bond market . . .
by distorting and impeding the free flow of capital,” and the
countervailing
possibility
that
the
law
might
pose
an
“advantage . . . for bonds issued by [] smaller municipalities,”
who
without
it
might
lack
“ready
access
to
any
other
bond
market.” Id. at 353-55. Under such circumstances, Pike balancing
lay beyond the judicial ken. Id. at 355. As in the case before
us,
the
“most
significant”
aspect
of
“these
cost-benefit
questions [was] not even the difficulty of answering them . . .
but the unsuitability of the judicial process” for “reaching
29
Appeal: 14-2283
Doc: 87
whatever
Filed: 01/21/2016
Pg: 30 of 31
are
at
answers
legislature
the
risks
economic
is
of
possible
preferable
any
all.”
Id.
institution
alteration
in
“[A]n
for
the
elected
incurring
the
things
have
way
traditionally been done.” Id. at 356. So too here.
D.
The Framers wisely aimed to “avoid the tendencies toward
economic
Balkanization
that
had
plagued
relations
among
the
Colonies.” Hughes, 441 U.S. at 325-26. Our jurisprudence has
respected that fact. But every regulatory response to a complex
economic problem is not ripe for a Pike balancing challenge. The
healthcare
market
is
infamously
complicated,
with
patients,
providers, insurers, government, and many others all attempting
to come to terms over a particular service touching physical
wellbeing
and
sometimes
even
life
itself.
Here
thirty-six
states, some of whom appeared before us as amici, have some
variety
of
“laboratories
CON
for
program.
Their
combined
experimentation”
in
ability
such
a
to
act
complex
as
field
warrants our respect. See United States v. Lopez, 514 U.S. 549,
581
(1995)
(Kennedy,
J.,
concurring).
Here
Virginia
has
experimented not only by creating a CON program, but by tweaking
and modifying it over decades. None of the foregoing discussion
proves that the Commonwealth’s approach is the very best way to
deliver its citizens quality healthcare. It may or may not be.
It is anything but clear, however, that courts can lead the way
30
Appeal: 14-2283
in
Doc: 87
providing
Virginia’s
Filed: 01/21/2016
a
better
program
is
path.
Pg: 31 of 31
While
ultimately
we
wise,
cannot
it
most
say
whether
certainly
is
constitutional. The judgment is affirmed.
AFFIRMED
31
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?