Yakima Valley Memorial Hospita v. Washington State Department of, et al
FILED OPINION (RAYMOND C. FISHER, RONALD M. GOULD and RICHARD C. TALLMAN) AFFIRMED IN PART, REVERSED IN PART AND REMANDED. Each party shall bear its own costs on appeal. Judge: RCF Authoring, FILED AND ENTERED JUDGMENT.  [10-35497, 10-35543]
Page: 1 of 24
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
YAKIMA VALLEY MEMORIAL
HOSPITAL, a Washington nonprofit
WASHINGTON STATE DEPARTMENT OF
HEALTH; MARY C. SELECKY, in her
official capacity as Secretary of
the Washington State Dept. of
YAKIMA VALLEY MEMORIAL
HOSPITAL, a Washington nonprofit
WASHINGTON STATE DEPARTMENT OF
HEALTH; MARY C. SELECKY, in her
official capacity as Secretary of
the Washington State Dept. of
Appeal from the United States District Court
for the Eastern District of Washington
Edward F. Shea, District Judge, Presiding
Argued and Submitted
March 10, 2011—Seattle, Washington
11208 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON
Filed August 19, 2011
Before: Raymond C. Fisher, Ronald M. Gould and
Richard C. Tallman, Circuit Judges.
Opinion by Judge Fisher
Page: 2 of 24
Page: 3 of 24
YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11211
James L. Phillips (argued), Miller Nash, LLP, Seattle, Washington, for the appellant and cross-appellee.
Richard A. McCartan, Assistant Attorney General, Michael
Steven Tribble (argued), Assistant Attorney General, Washington State Office of the Attorney General, Olympia, Washington, for the appellee and cross-appellant.
FISHER, Circuit Judge:
The Washington State Department of Health (Department)
will not license Yakima Valley Memorial Hospital (Memorial) to perform certain procedures known as elective percutaneous coronary interventions (PCI), which are used to treat
Page: 4 of 24
11212 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON
diseased arteries of the heart. Examples of such procedures
include stent implantation and laser angioplasty.1 Although
Memorial already performs PCI in emergencies (no license
required), it cannot perform “elective” procedures without a
license that is required as part of the state’s broader “certificate of need” regulatory regime. See Wash. Admin. Code
§ 246-310-700.2 According to the Department, the community
Memorial serves does not need another PCI provider.
The concept of certificate of need regimes, which many
states enforce, is to avoid private parties making socially inefficient investments in health-care resources they might make
if left unregulated. A certificate of need program corrects the
market by requiring preapproval for certain investments and,
in theory, thereby ensures that providers will make only necessary investments in health care. One type of investment the
state of Washington regulates is the capacity to perform “tertiary health services,” which are specialized health-care services including PCI. See Wash. Rev. Code § 70.38.105(4)(f).3
Congress made certificate of need regimes part of the federal
government’s national health planning policy in the National
See Wash. Admin Code § 246-310-705(4) (defining PCI as including,
but not limited to, seven “mechanical procedures and devices that are used
by cardiologists for the revascularization of obstructed coronary arteries”);
see also id. § 246-310-745(4) (defining PCI by reference to “diagnosis
related groups” developed under a Centers for Medicare and Medicaid
See Wash. Admin. Code § 246-310-705(2) (defining “elective” to
mean “a PCI performed on a patient with cardiac function that has been
stable in the days or weeks prior to the operation,” which is “usually
scheduled at least one day prior to the surgical procedure”). The licensing
requirement only applies to “adult” procedures, see id. § 246-310-700,
which includes only those “performed on the planning area residents over
fifteen years of age,” Id. § 246-310-745(10) (Step 1b).
For a statement of purpose, see Wash. Rev. Code §§ 70.38.015(2), 115;
Wash. Admin. Code § 246-310-001; Overlake Hosp. Ass’n v. Dep’t of
Health, 239 P.3d 1095, 1098-99, 1101 (Wash. 2010) (en banc) (¶¶ 9, 18).
For a description of tertiary health services, see Wash. Rev. Code
§ 70.38.025(14); Wash. Admin. Code §§ 246-310-010(58), -020(1)(d).
Page: 5 of 24
YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11213
Health Planning and Resources Development Act of 1974
(NHPRDA). See Nat’l Gerimedical Hosp. & Gerontology Ctr.
v. Blue Cross, 452 U.S. 378, 384 (1981) (noting that Congress
intended to “assist in preventing overinvestment in and maldistribution of health facilities”).4 The NHPRDA conditioned
federal funding on enforcement of certificate of need regimes
as part of the congressional effort to reduce health-care inflation and achieve an adequate supply and distribution of health
resources. See id. at 385-86; 42 U.S.C. § 300k (1976); see
also Walgreen Co. v. Rullan, 405 F.3d 50, 52 (1st Cir. 2005).
In response, Washington enacted its current certificate of need
framework in 1979. See Wash. Rev. Code § 70.38.015.5
Although Congress repealed the NHPRDA in 1986, leaving
states free to abandon their certificate of need programs,
Washington has continued its program. Cf. Rullan, 405 F.3d
at 53 (noting that after 1986 “several states followed suit by
repealing their certificate of need laws”).
In 2007, the Washington legislature passed a law directing
the Department to promulgate regulations requiring a certificate of need for elective PCI. See Wash. Rev. Code
§ 70.38.128. The Department responded in 2008 by promulgating the PCI regulations Memorial now challenges. See
Wash. Admin. Code §§ 246-310-700-755. The PCI regulations, which are explained in detail below, (a) require that a
licensed hospital perform at least 300 elective PCI procedures
per year; and (b) provide that the Department shall issue a
certificate of need only if projected demand in an applicant’s
geographic market exceeds the capacity of incumbent certificate holders by at least 300 procedures. Under this formula,
Memorial has no hope of receiving a certificate of need in the
See Pub. L. 93-641, 88 Stat. 2225, §§ 1-3 (1975) (formerly codified at
42 U.S.C. § 300k-300n-5) (repealed by Pub. L. 99-660, title VII, § 701(a),
100 Stat. 3743, 3799 (1986)).
Washington, along with 23 other states, had a certificate of need program prior to 1979. However, Washington enacted its current program in
direct response to Congress’ enactment of the NHPRDA.
Page: 6 of 24
11214 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON
near future. Memorial operates a single nonprofit hospital in
Yakima, Washington. The surrounding market is already
served by the for-profit Yakima Regional Medical and Cardiac Center, which holds an elective PCI certificate and is the
only competing hospital in the city of Yakima. The Department does not contest Memorial’s assertion that the market’s
“need” will not exceed 300 procedures until 2022.
Memorial sued the Department after it promulgated the PCI
regulations, arguing that the certificate of need requirement
violates the dormant Commerce Clause by unreasonably burdening interstate commerce. Memorial also claimed that the
Department’s methodology for defining “need” is anticompetitive and preempted by § 1 of the Sherman Act because it
allows incumbent certificate holders to expand their capacity
and preclude new certificates. The Department moved to dismiss the case for failure to state a claim and lack of standing
to raise a dormant Commerce Clause challenge. Although the
district court held that Memorial had standing, it dismissed
the case on the pleadings pursuant to Federal Rule of Civil
Procedure 12(c). See Yakima Valley Mem’l Hosp. v. Wash.
State Dept. of Health, 717 F. Supp. 2d 1159 (E.D. Wash.
The district court held that Memorial failed to state a claim
of antitrust preemption, holding that the PCI regulations were
a unilateral restraint of trade not barred by the Sherman Act.
With regard to the dormant Commerce Clause, the district
court found Memorial had standing because it alleged it
would participate in an interstate market for PCI patients, doctors and supplies. Nevertheless, the district court found that
any burden on Memorial’s interstate commercial activity was
expressly authorized by Congress’ approval of certificate of
need regimes, making a dormant Commerce Clause violation
impossible. Memorial appeals the judgment, and the Department cross-appeals the ruling on standing. We agree that
Memorial failed to state a claim of antitrust preemption
because the PCI regulations are a unilateral licensing require-
Page: 7 of 24
YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11215
ment rather than an agreement in restraint of trade. We also
agree that Memorial has standing under the dormant Commerce Clause, but we reverse the district court’s judgment on
that claim because the Department failed to prove congressional authorization for the PCI regulations.
The district court ruled on the pleadings under Federal Rule
of Civil Procedure 12(c), so we assume the facts alleged in the
complaint are true and review de novo whether Memorial
stated a claim under the Sherman Act or dormant Commerce
Clause. See United States ex rel. Cafasso v. Gen. Dynamics
C4 Sys., Inc., 637 F.3d 1047, 1053 (9th Cir. 2011).6 “In
reviewing the dismissal of a complaint, we inquire whether
the complaint’s factual allegations, together with all reasonable inferences, state a plausible claim for relief.” Id. at 1054
(citing Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949
—50 (2009)). We also review de novo whether the plaintiff
has standing. See Sierra Forest Legacy v. Sherman, ___ F.3d
___, 2011 WL 2041149, at *9 (9th Cir. May 26, 2011); Barnum Timber Co. v. EPA, 633 F.3d 894, 905 n.3 (9th Cir.
In granting the Rule 12(c) motion, the district court declined to consider two expert reports submitted by Memorial months after briefing and
argument on the motion had concluded, because the reports were outside
of the pleadings. Memorial appeals that decision, but the argument merits
little discussion. Judgment on the pleadings is limited to material included
in the pleadings. See Schneider v. California Dept. of Corrections, 151
F.3d 1194, 1197 n.1 (9th Cir. 1998); see also Ranch Realty, Inc. v. DC
Ranch Realty, LLC, 614 F. Supp. 2d 983, 987-88 (D. Ariz. 2007). Otherwise, the proceeding is converted to summary judgment. See Fed. R. Civ.
P. 12(d). The district court had discretion not to convert the motion for
judgment on the pleadings into a summary judgment motion, see Hamilton
Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1207 (9th Cir. 2007),
and did not abuse its discretion here. To the extent Memorial’s expert
reports contain factual information, the district court reasonably found
them unhelpful when submitted after the hearing on the motion to dismiss.
Page: 8 of 24
11216 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON
The Sherman Act
Antitrust Preemption Requires a Per Se Violation
Memorial argues that the PCI regulations are preempted by
Sherman Act § 1, which declares “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in
restraint of trade . . . to be illegal.” 15 U.S.C. § 1. There are
two primary modes of analysis under Sherman Act § 1:
The Supreme Court has repeatedly recognized that
by the language of the Sherman Act, “ ‘Congress
intended to outlaw only unreasonable restraints.’ ”
Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006) (quoting
State Oil Co. v. Khan, 522 U.S. 3, 10 (1997)).
“[M]ost antitrust claims are analyzed under a ‘rule of
reason,’ according to which the finder of fact must
decide whether the questioned practice imposes an
unreasonable restraint on competition, taking into
account a variety of factors. . . .” State Oil, 522 U.S.
at 10. . . .
“Some types of restraints, however, have such predictable and pernicious anticompetitive effect, and
such limited potential for procompetitive benefit,
that they are deemed unlawful per se.” State Oil, 522
U.S. at 10. Such restraints “ ‘are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they
have caused or the business excuse for their use.’ ”
Nw. Wholesale Stationers[, Inc. v. Pac. Stationery
and Printing Co.], 472 U.S. [284,] 289
[(1985)](quoting N. Pac. Ry. Co. v. United States,
356 U.S. 1, 5 (1958)).
California ex rel. Harris v. Safeway, Inc.,___ F.3d ___, 2011
WL 2684942 at *11 (9th Cir. 2011) (en banc). The blanket
condemnation of per se analysis applies only where the “chal-
Page: 9 of 24
YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11217
lenged practice [has] ‘manifestly anticompetitive’ effects and
lack[s] ‘any redeeming virtue.’ ” Id. (quoting Con’l T.V., Inc.
v. GTE Sylvania Inc., 433 U.S. 36, 58-59 (1977)). Otherwise,
the rule of reason is the default mode of analysis. See id.
 The distinction between the rule of reason and per se
analysis is important for federal preemption, which requires
“an irreconcilable conflict between the federal and state regulatory schemes.” Rice v. Norman Williams Co., 458 U.S. 654,
659 (1982). Sherman Act § 1 preempts state law only “when
the conduct contemplated by the statute is in all cases a per
se violation” — without per se illegal conduct, there can be
no certainty that the regulation conflicts with the Sherman
Act. Id. at 661 (quoted by Sanders v. Brown, 504 F.3d 903,
910-11 (9th Cir. 2007)). Conduct “contemplated” by the regulation is that which it “mandates,” “authorizes,” or “places
irresistible pressure” on a private party to commit. Id; Sanders, 504 F.3d at 910 (quoting Rice); see also Costco Wholesale Corp. v. Maleng, 522 F.3d 874, 885-86 (9th Cir. 2008)
(“[T]o be struck down, the regulation or restraint must effect
a per se violation of the Sherman Act.”). Importantly, a state
regulation is not preempted simply because it has anticompetitive effects. See Fisher v. City of Berkeley, 475 U.S. 260,
 To determine whether a regulation facially conflicts
with Sherman Act § 1, we first consider whether the challenged regulation involves (1) unilateral action by the state
and is thus not subject to preemption (because there is no concerted action), see id. at 266-67 (citing Copperweld Corp. v.
Independence Tube Corp., 467 U.S. 752, 768 (1984))7; or (2)
See also Hoover v. Ronwin, 466 U.S. 558, 567-68 (1984) (“When the
conduct is that of the sovereign itself, . . . the danger of unauthorized
restraint of trade does not arise.”); Parker v. Brown, 317 U.S. 341, 350-51
(1943) (“We find nothing in the language of the Sherman Act or in its history which suggests that its purpose was to restrain a state or its officers
or agents from activities directed by its legislature.”).
Page: 10 of 24
11218 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON
a hybrid of state and private action and is thus potentially subject to preemption, see id. at 267-69.8 See also Costco, 522
F.3d at 887-89 (distinguishing between unilateral and hybrid
A regulation is a unilateral restraint when “[n]o further
action is necessary by the private parties because the anticompetitive nature of [the] restraint is complete upon enactment.” Costco, 522 F.3d at 890. “[P]ublic officials determine[ ] the nature and extent of the resulting consumer injury,
with no degree of discretion delegated to private actors.” Id.
Consequently, any anticompetitive effects are the “logical and
intended result” of the state’s action, rather than the result of
private parties being empowered to “ ‘dictate market conditions to others.’ ” Id. at 887 (quoting Sanders, 504 F.3d at
918). Because the state acts alone in creating the restraint,
there is no concerted action to be evaluated for consistency
with Sherman Act § 1. See Fisher, 475 U.S. at 267.
A hybrid regulation is only potentially preempted because the private
discretionary conduct it incorporates may not “in all cases [be] a per se
violation.” Sanders, 504 F.3d at 910-11; see also id. at 919 (holding that
to be preempted as a per se illegal “hybrid restraint,” a regulation must
involve “a delegation of market power to private parties that is per se illegal” because “[o]therwise, the hybrid restraint could not be attacked as
facially invalid”); Fisher, 475 U.S. at 270 (holding that where regulations
lacked “the element of concerted action needed before they can be characterized as a per se violation,” there could be no preemption). Not all delegations of discretion will amount to per se illegal restraints of trade — for
example, the delegation might resemble a vertical non-price restraint uniformly analyzed under the rule of reason. See Rice, 458 U.S. at 661-62;
Costco, 522 F.3d at 891 n.11.
Even a per se illegal hybrid restraint may be saved from preemption by
the “state action” immunity doctrine. See Fisher, 475 U.S. at 265 (citing
Parker, 317 U.S. at 341). We do not need to reach the question of stateaction immunity, and thus our opinion should not be construed as an analysis of the state’s supervision of PCI providers, despite the suggestion in
Costco that state-action immunity and unilateral action analyses can be
conflated. See 522 F.3d at 887 (citing Snake River Valley Elec. Ass’n v.
PacifiCorp, 238 F.3d 1189, 1192 n.8 (9th Cir. 2001)).
Page: 11 of 24
YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11219
In contrast, a hybrid restraint “may be attacked under
[Sherman Act] § 1” as per se unreasonable. 324 Liquor Corp.
v. Duffy, 479 U.S. 335, 345 n.8 (1987) (quoting Fisher, 475
U.S. at 268) (quotation marks omitted). The “hallmark” of a
hybrid restraint is the “delegation of discretion to private
actors.” Costco, 522 F.3d at 898 n.20. The key distinction is
that the regulation leaves a gap in the restraint of trade for private parties to fill at their discretion. A regulation is not
hybrid “solely because it produces an effect that could not be
produced by agreement of private parties without violating the
antitrust laws.” Id. at 889 (emphasis added). Rather, hybrid
regulations “merely enforce private marketing decisions,”
granting “a degree of private regulatory power” to the regulated parties. Fisher, 475 U.S. at 268 (citing Rice, 458 U.S. at
665 (Stevens, J., concurring in judgment)).9
 In light of the foregoing principles, we must decide
whether the PCI regulations go beyond the anticompetitive
tendencies of a licensing requirement and actually delegate a
degree of regulatory power to incumbent licensees.10 Memorial argues that the PCI regulations grant regulatory power to
incumbent licensees by calculating the need for a new certificate based in part on the number of PCI procedures they per9
General statements that a restraint is hybrid because “the federal antitrust laws pre-empt state laws authorizing or compelling private parties to
engage in anticompetitive behavior,” 324 Liquor, 479 U.S. at 345 n.8, or
because regulations “creating unsupervised private power in derogation of
competition are subject to preemption,” Costco, 522 F.3d at 889, must be
understood in context. Not all potentially anticompetitive conduct creates
an irreconcilable conflict with federal law, either because it is subject to
the rule of reason or because it is unilateral action by private parties covered by Sherman Act § 2’s fact-specific analysis. See id. at 891 n.11 (recognizing that a regulation “akin to a non-price vertical restraint” would be
analyzed under the rule of reason).
See Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d 1421, 1439 &
n.11 (1995) (“It is well known that some of the most insuperable barriers
in the great race of competition are the result of government regulation.”
(quoting United States v. Syufy Enters., 903 F.2d 659, 673 (9th Cir. 1990)
(quotation marks omitted))).
Page: 12 of 24
11220 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON
form, thereby allowing the incumbent licensees to manipulate
the number of PCIs they perform so as to exclude competing
hospitals from the elective PCI market. We disagree, for reasons explained below. We begin with an analysis of the regulations.
The PCI Regulations Impose a Barrier to Entry
The Washington legislature ordered the Department to promulgate a certificate of need requirement for elective PCI
addressing, “at a minimum, factors related to access to care,
patient safety, quality outcomes, costs, and the stability of
Washington’s cardiac care delivery system and of existing
cardiac care providers.” Wash. Rev. Code § 70.38.128 (2007).
In response, the Department promulgated regulations setting
forth a variety of requirements for an elective PCI certificate
of need. See Wash. Admin. Code §§ 246-310-700-755.
Memorial challenges only the PCI regulations’ methodology
for calculating a community’s need for an additional elective
PCI provider. See Wash. Admin. Code § 246-310-745. As is
apparent from the regulations, once the Department grants a
hospital a certificate of need to perform elective PCI, the
requirement that there be an unmet demand for 300 procedures before granting another certificate of need creates a barrier to entry for potential competing hospitals.
The Department calculates need based on dividing the state
into 14 geographical markets (planning areas). See id. §§ 246310-705(5), -745(10). A hospital applies for a certificate of
need to serve a particular planning area. The Department then
forecasts whether the planning area will have unmet demand
for elective PCI procedures within five years. See id. § 246310-745(10) (explaining a five-step numeric methodology). A
planning area “needs” another provider of elective PCI only
if projected demand exceeds current capacity by 300 procedures. See id. (Steps 4-5).11
See also Wash. Admin. Code §§ 246-310-010(58), -715(2). If a planning area’s net need is negative, the Department may revoke existing certificates of need. See Wash. Admin. Code §§ 246-310-715(2), -755(a).
Page: 13 of 24
YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11221
Projected demand is based on the planning area’s current
“use rate” (procedures per 1,000 residents) in the “base year”
and the planning area’s estimated population in the “forecast
year,” five years into the future. Id. §§ 246-310-745 (1), (3),
(5) & (10) (Steps 1-2). Assuming a constant use rate, the
Department projects demand in the forecast year. That is, the
projected demand is the current “use rate” multiplied by the
forecasted population. If the projected demand sufficiently
exceeds the planning area’s current capacity, the Department
will issue a certificate of need.
Current capacity is based on the volume of procedures performed by the planning area’s existing certified PCI providers
in the base year. The planning area’s current capacity is “assumed to remain constant over the forecast period.” Id. § 246310-745(10) (Step 3). The Department calculates the planning
area’s net need for an additional provider by subtracting the
current capacity from the projected demand. See id. (Step 4).
If the difference exceeds 300 procedures, the Department will
issue one certificate of need for every 300 excess procedures.
That is, if there is excess demand from 301 to 599 procedures,
the Department will issue only a single additional certificate
of need. Similarly, if there is excess demand up to 299 procedures, the Department will not issue any new certificates. See
id. (Step 5). The regulations’ limitation on when hospitals
may offer elective PCI procedures serves as a barrier to market entry for hospitals who, but for the certificate of need
requirement, would begin offering elective PCI procedures
and competing for those patients.
The PCI Regulations are a Unilateral Restraint Not
Subject to Preemption
Memorial’s challenge focuses on Step 3, which relies on
incumbent certificate holders’ “current capacity” to define
whether need exists for an additional licensee. Memorial
argues that, because incumbent hospitals can expand their
Page: 14 of 24
11222 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON
current capacity to meet demand, they can forestall entry of
a competing PCI provider.
 Memorial mistakes the barrier to entry created by the
licensing requirement, and its attendant anticompetitive
effects, for a hybrid restraint. The Department licenses the
first certificate of need holder in a planning area to perform
as many PCI procedures as it wishes. The logical and
intended result of the PCI regulations is that the Department
will issue a second certificate of need only if the incumbent
does not expand its capacity to meet growing demand. The
PCI regulations create market power, but that is different from
a hybrid regulation that delegates regulatory power.
That the Department leaves open the number of procedures
that an incumbent licensee may perform does not mean it delegates regulatory power to licensees. The restraint of trade is
the licensing requirement — a barrier to entry — and it is
complete upon enactment. The state imposes the licensing
requirements. The state decides what the licensing requirements will be and whether they are met. The state does not
delegate any aspect of need calculation to private parties.
Admittedly, the state takes notice of whether incumbent providers are meeting the needs of the planning area, but that
responsiveness to private activity does not amount to a hybrid
restraint. See Fisher, 475 U.S. at 269 (holding that despite the
power of tenants to trigger enforcement of a regulated rent
ceiling, the rent levels were set exclusively by the state and
the ceiling thus was a unilateral restraint).
 Rather, the Department has decided that monopoly is
preferable in the market for elective PCI; otherwise it would
grant a second certificate when a planning area’s demand
exceeded 600 procedures annually — that is, when the market
would support two competing providers both able to perform
the minimum 300 procedures annually. That a licensee meets
the Department’s expectation and supplies all demand is the
logical and intended consequence of the PCI regulations, not
Page: 15 of 24
YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11223
a delegation of regulatory power to the incumbent. Entry is
prohibited by the Department’s decision to grant an unlimited
license and then withhold additional licenses until the incumbent can no longer meet demand, not the incumbent’s natural
inclination to capitalize on the market power the licensing
 Moreover, an incumbent provider’s discretion to
increase supply unilaterally to meet demand is neither per se
illegal nor recognizable as an element of a per se illegal agreement.12 The only facet of the PCI regulations that could be
equated with a per se illegal agreement is the division of the
state into planning areas, but the licensees have no role in
drawing the dividing lines.13 It is true that within a planning
area the incumbent certificate holders might conspire to
jointly keep current capacity within 300 procedures of projected demand, but the PCI regulations neither require,
encourage nor condone collusion. In short, nothing about the
PCI regulations involves private discretion to engage in per se
Although this case deals with a barrier to entry, the case
law on hybrid and unilateral restraints involving price-fixing
is instructive. For instance, horizontal price fixing is per se
illegal. See Dagher, 547 U.S. at 5. Agreements to post and
hold prices have been found to be such prohibited horizontal
At worst, capacity expansion, if motivated by a specific intent to
monopolize with a dangerous probability of success, might be attempted
monopolization under Sherman Act § 2, but that could not be decided on
a facial challenge and thus could not warrant preemption. See Fisher, 475
U.S. at 270 n.2 (holding that an allegation of monopolization or attempted
monopolization would “go[ ] beyond the scope of the facial [preemption]
challenge presented here”); Copperweld, 467 U.S. at 774-75 (explaining
Congress intentionally subjected unilateral, private conduct to a less
demanding standard under Sherman Act § 2 than agreements under Sherman Act § 1).
Horizontal market division is a “classic per se antitrust violation.”
United States v. Brown, 936 F.2d 1042, 1045 (9th Cir. 1991).
Page: 16 of 24
11224 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON
conduct. See Catalano, Inc. v. Target Sales, Inc., 446 U.S.
643, 649-50 (1980) (discussing Sugar Inst. v. United States,
297 U.S. 553, 601-02 (1936)). Thus, we held in Costco that
a state regulation requiring competing wholesalers to post
their prices and hold to those posted prices for a fixed period
was a hybrid restraint. Such regulatory post-and-hold requirements do not mandate, authorize or compel the concerted
action necessary to make a private post-and-hold system per
se illegal. But the regulations do have the effect of delegating
to private parties the discretion to set the posted price to be
held — an anticompetitive arrangement they could not
achieve legally by explicit agreement. See Costco, 522 F.3d
at 895-96; see also 324 Liquor, 479 U.S. at 345 n.8 (“Our
decisions reflect the principle that the federal antitrust laws
pre-empt state laws authorizing . . . private parties to engage
in anticompetitive behavior.”).14
If the state fixes the price, however, the requirement that
private parties adhere to the fixed price is a unilateral
restraint. For example, in Fisher, the Supreme Court held that
a regulation requiring private landlords to adhere to a maximum rent ceiling fixed by the state was a unilateral restraint.
See Fisher, 475 U.S. at 269 (“Not just the controls themselves
but also the rent ceilings they mandate have been unilaterally
imposed on the landlords by the city.”). The anticompetitive
effects were the same as if the landlords had conspired, but
the extent of the harm to competition was decided by the state
and complete upon enactment of the regulation.
The Supreme Court reached a similar result in holding preempted a
regulation that compelled vertical resale price maintenance but allowed
wholesalers to fix the price. See 324 Liquor, 479 U.S. at 341-42 (discussing Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S.
97, 102-03 (1980)); Fisher, 475 U.S. at 268-69 (same); Rice, 458 U.S. at
659 (same). Although vertical resale price maintenance is no longer per se
illegal, Midcal remains instructive. See Leegin Creative Leather Prods.,
Inc. v. PSKS, Inc., 551 U.S. 877, 889 (2007) (overturning the per se rule
against vertical resale price maintenance announced in Dr. Miles Med. Co.
v. John D. Park & Sons Co., 220 U.S. 373 (1911)).
Page: 17 of 24
YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11225
Memorial argues that incumbent certificate holders’ control
over their PCI capacity makes them like the wholesalers in
Costco (who were free to set their own prices), not the landlords in Fisher (for whom rent was fixed by regulation).
Memorial fails to recognize that in a post-and-hold regime the
restraint of trade is that private parties hold to their prices,
whereas here the restraint is not that licensees are allowed to
expand their capacity, but rather that the Department requires
licenses and doles them out based on a standard skewed
We made a similar distinction in Costco, which in addition
to holding that a post-and-hold regulation was a hybrid
restraint, held that a regulation requiring wholesalers to
charge at least a 10-percent mark-up was a unilateral restraint.
Although the minimum mark-up regulation “gave” private
parties discretion to mark up higher than the minimum, the
state did not create that discretion. Wholesalers could already
mark up their prices unilaterally. The regulation simply created a floor on price competition without allowing private
parties any role in setting what the floor would be. The regulated market was less competitive, but the restraint of trade
was complete upon enactment of the regulation. Significantly,
the state did not grant “to private parties a means to manipulate, and therefore control, the pricing decisions of other
firms,” in contrast to post-and-hold regulations. Costco, 522
F.3d at 899.
 In sum, “[t]he distinction between unilateral and concerted action is critical here” because the state unilaterally
imposes the barrier to entry and unilaterally determines when
to issue a new PCI license. Fisher, 475 U.S. at 266. Any anticompetitive effect from allowing the first licensee the option
of holding a monopoly in the planning area is “part-andparcel of the state-imposed licensing scheme.” Costco, 522
F.3d at 890. There is neither a per se illegal agreement nor its
functional equivalent to turn the PCI regulations into a hybrid
restraint. Absent a hybrid restraint or other per se violation of
Page: 18 of 24
11226 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON
the antitrust laws, there is no preemption and the district court
properly granted judgment on the pleadings.15
The Dormant Commerce Clause
 Memorial’s complaint alleges that the PCI regulations
violate the dormant Commerce Clause by placing an undue
burden on interstate commerce.16 If it were not for the licensing requirement, Memorial would offer elective PCI to out-ofstate patients, as well as hire out-of-state doctors and import
medical supplies from out-of-state to perform the procedures.
There is no allegation of intentional discrimination against
interstate commerce, but “[e]ven laws that are applied evenhandedly and impose only an incidental burden on interstate
commerce can be unconstitutional.” Shamrock Farms Co. v.
Veneman, 146 F.3d 1177, 1179 (9th Cir. 1998); see also C&A
Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 389
(1994) (“It is well settled that actions are within the domain
of the Commerce Clause if they burden interstate commerce
or impede its free flow.”). Where a law only incidentally burdens interstate commerce, it “will be upheld unless the burden
imposed on interstate commerce is clearly excessive in relation to the putative local benefits.” Dep’t of Revenue of Ky.
v. Davis, 553 U.S. 328, 338-39 (2008) (quoting Pike v. Bruce
Memorial complains that by rejecting its allegation that the PCI regulations are a hybrid restraint of trade, the district court did not construe the
facts alleged in the complaint in its favor. Whether a regulation is a hybrid
restraint of trade is a question of law, see Phillip E. Areeda & Herbert
Hovenkamp, Antitrust Law, vol. XI ¶ 1909b (2d ed. 2000) (explaining that
identification of per se illegal restraints is a question of law, citing Arizona
v. Maricopa Cnty. Med. Soc’y, 457 U.S. 332, 337 n.3 (1982)), so there was
no need to construe that allegation in Memorial’s favor.
The Commerce Clause of the Constitution explicitly grants Congress
authority to regulate interstate commerce. See U.S. Const. art. I, § 8, cl.
3. As a corollary, the Commerce Clause implicitly limits the regulatory
authority of the states over interstate commerce. This inference is commonly referred to as the dormant Commerce Clause. See Nat’l Ass’n of
Optometrists & Opticians LensCrafters, Inc. v. Brown, 567 F.3d 521, 523
(9th Cir. 2009).
Page: 19 of 24
YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11227
Church, Inc., 397 U.S. 137, 142 (1970)) (quotation marks and
We must decide whether Memorial has standing to raise a
dormant Commerce Clause challenge under Pike, and if so,
whether the PCI regulations are immunized by congressional
authorization. The ultimate question of whether the PCI regulations survive Pike scrutiny is not before us.
Memorial has standing to raise a dormant Commerce
 Standing includes two components: Article III constitutional standing and prudential standing. See City of L.A. v.
Cnty. of Kern, 581 F.3d 841, 845 (9th Cir. 2009). The Department challenges only Memorial’s prudential standing.17 As
relevant here, prudential standing requires that “the plaintiff’s
complaint must ‘fall within the zone of interests to be protected or regulated by the statute or constitutional guarantee
in question.’ ” Individuals for Responsible Gov’t, Inc. v.
Washoe Cnty., 110 F.3d 699, 702-03 (9th Cir. 1997) (quoting
Valley Forge Christian Coll. v. Ams. United for Separation of
Church & State, Inc., 454 U.S. 464, 474 (1982)). The zoneof-interests test “denies a right of review if the plaintiff’s
interests are . . . marginally related to or inconsistent with the
purposes implicit in the relevant constitutional provision.” Id.
at 703 (quoting Wyoming v. Oklahoma, 502 U.S. 437, 469
(1992) (Scalia, J., dissenting)) (omission in original) (quotation marks and alteration omitted). Thus, we must first identify the purpose of the dormant Commerce Clause.
“The chief purpose underlying [the Commerce] Clause is to
Recognizing that Article III standing is jurisdictional and can neither
be waived by the parties nor ignored by the court, we are independently
satisfied that Memorial has Article III standing under Lujan v. Defenders
of Wildlife, 504 U.S. 555, 560-61 (1992). See Cnty. of Kern, 581 F.3d at
Page: 20 of 24
11228 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON
limit ‘the power of the States to erect barriers against interstate trade.’ ” Washoe Cnty., 110 F.3d at 703 (quoting Dennis
v. Higgins, 498 U.S. 439, 446 (1991)). The intent is to promote a national market and “the free flow of goods and services through the several states; it is the economic interest in
being free from trade barriers that the clause protects.” S.D.
Myers, Inc. v. City & Cnty. of S.F., 253 F.3d 461, 471 (9th
Cir. 2001) (citing C&A Carbone, 511 U.S. at 390; On the
Green Apartments L.L.C. v. City of Tacoma, 241 F.3d 1235,
1238 (9th Cir. 2001)). The ultimate question, therefore, is
whether Memorial’s claims “bear more than a marginal relationship to claims addressing a state or county’s effort to erect
barriers to interstate commerce.” Cnty. of Kern, 581 F.3d at
847 (quotation marks omitted).
 “As the name implies, the zone of interests test turns
on the interest sought to be protected, not the harm suffered
by the plaintiff.” Id. at 848. Any alleged injury “must somehow be tied to a barrier imposed on interstate commerce.” Id.
Here, the barrier to interstate commerce is the requirement of
a certificate of need to offer elective PCI to all patients, instate or out-of-state. By virtue of the certificate of need
requirement, the Department prevents Memorial from soliciting out-of-state patients and competing in an interstate market
to offer elective PCI services, activities that clearly involve
interstate commerce. See Summit Health, Ltd. v. Pinhas, 500
U.S. 322, 329-30 (1991). Under Pike such incidental effects
on interstate commerce are an unconstitutional barrier to trade
if they are “clearly excessive in relation to the putative local
benefits.” Pike, 397 U.S. at 142.
 The Department contends that Memorial lacks standing because it operates only an in-state hospital. The Commerce Clause, however, protects the vitality of the national
market for goods and services, not the location of a particular
participant, and thus a state burdens the rights of its own residents as well as those of other states when it burdens interstate commerce. Although the dormant Commerce Clause
Page: 21 of 24
YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11229
primarily targets discrimination against out-of-state economic
activity, under Pike it prohibits all unjustifiable burdens on
interstate commerce. See Kleenwell Biohazard Waste and
Gen. Ecology Consultants, Inc. v. Nelson, 48 F.3d 391, 392,
398-99 (9th Cir. 1995) (reviewing a facially neutral licensing
regime under Pike where the plaintiff was an in-state “corporation with all of its facilities located within the state”).
Memorial’s alleged injury is thus tied to an alleged violation
of the dormant Commerce Clause. The district court correctly
held that prudential standing is satisfied.
Congress has not authorized the 2008 PCI regulations
 “It is well established that Congress may authorize the
States to engage in regulation that the Commerce Clause
would otherwise forbid.” Maine v. Taylor, 477 U.S. 131, 138
(1986) (citing S. Pac. Co. v. Ariz. ex rel. Sullivan, 325 U.S.
761, 769 (1945)); see Ne. Bancorp, Inc. v. Bd. of Governors
of the Fed. Reserve Sys., 472 U.S. 159, 174 (1985). Congressional authorization must be “ ‘unmistakably clear’ ” and “unambiguous.” Taylor, 477 U.S. at 139 (quoting South-Central
Timber Dev. Inc. v. Wunnicke, 467 U.S. 82, 91 (1984)). Congress must clearly evince its intent “to alter the limits of state
power otherwise imposed by the Commerce Clause.” Id.
(quotation marks omitted) (quoting United States v. Pub.
Utils. Comm’n of Cal., 345 U.S. 295, 304 (1953); see SouthCentral Timber, 467 U.S. at 91 (requiring clear evidence that
Congress “affirmatively contemplate[d] otherwise invalid
state legislation”). Congressional authorization is a defense
that the state must prove. See Wyoming, 502 U.S. at 458.
 The district court granted judgment on the pleadings
to the Department because it concluded Congress had authorized certificate of need programs in the National Health Planning and Resources Development Act of 1974 (NHPRDA).
See supra n.4. Although recognizing that the NHPRDA had
been repealed in 1986 before the Department promulgated the
challenged regulations in 2008, the district court accepted the
Page: 22 of 24
11230 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON
repealed statute as a prima facie authorization and erroneously
put the burden on Memorial to prove the significance of
repeal. We reverse because the Department has failed to show
that the NHPRDA, a statute repealed without a savings
clause, provides the requisite clear statement of authorization
for the 2008 PCI regulations.18 We do not decide whether the
NHPRDA is sufficient authorization for certificate of need
requirements established prior to repeal.
 The Department argues that the NHPRDA was a clear
statement of authorization for certificate of need regimes
because the statute made them a condition of federal funding.
Memorial disputes whether this suffices as a sufficiently clear
statement of authorization, but we need not decide the question. Whatever the NHPRDA authorized prior to 1986, after
Congress repealed the statute there was no NHPRDA left to
authorize a regulation promulgated in 2008. For more than a
century, “the general rule . . . [has been] that when an act of
the legislature is repealed, it must be considered, except as to
transactions past and closed, as if it never existed.” Ex Parte
McCardle, 74 U.S. 506, 514 (1868) (quotation marks omitted). Even in a pending action, “no judgment could be rendered . . . after the repeal of the act under which it was
brought and prosecuted.” Id. A statute that Congress snuffed
out of existence by repeal leaves no residual clear statement
 Had Congress meant to perpetuate its alleged authorization for certificate of need programs, it could have included
a savings clause in the repeal.19 The savings clause would then
The burden did not fall on Memorial to rebut the alleged clear statement in the NHPRDA because there was no NHPRDA in force to make
a clear statement. A different situation arose in Central Valley ChryslerJeep v. Witherspoon, 456 F. Supp. 2d 1160 (E.D. Cal. 2006), which put
the burden on the plaintiff to prove that an apparently clear statement of
authorization had in fact been implicitly revoked by subsequent legislation. See id. at 1185. Here, there is no doubt the NHPRDA was repealed.
The repeal stated:
Sec. 701. Repeal of Title XV
Page: 23 of 24
YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11231
itself be an unmistakably clear statement of authorization.
Savings clauses can be used to preserve state authority from
implied preemption when Congress passes a statute. See, e.g.,
Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1010 (9th Cir.
2010); Qwest Corp. v. Ariz. Corp. Comm’n, 567 F.3d 1109,
1117-18 (9th Cir. 2009). By the same token, Congress could
enact a savings clause to avoid the natural implication of
repealing an act. Cf. Daghlian v. DeVry Univ., Inc., 574 F.3d
1212, 1213 (9th Cir. 2009) (order) (dismissing for lack of
jurisdiction because the California statute under which the
plaintiff sued “was repealed without a savings clause” to preserve pending claims). Instead, Congress repealed the
NHPRDA with terse language that, at best, leaves it ambiguous whether Congress affirmatively contemplated the fate of
state certificate of need programs.
 To the extent there is ambiguity, the Department
offers no legislative history to inform our interpretation of it.
The district court relied on President Reagan’s signing statement, but even if a presidential signing statement could establish an unmistakably clear legislative intent, President
Reagan’s opinion does not amount to an unmistakably clear
statement of authorization for the Department’s PCI regulations. See Statement of President Ronald Reagan upon Signing S. 1744, 22 Weekly Comp. Pres. Doc. 1565, 1566 (Nov.
14, 1986).20 Ultimately, the Department is reduced to arguing
(a) Repeal — Title XV of the Public Health Services Act is
repealed effective January 1, 1987.
(b) Funds — The repeal made by subsection (a) shall not affect
any funds obligated for the purposes of title XV of the Public
Health Service Act before January 1, 1987.
Pub. L. No. 99-660, tit. VII, § 701, 100 Stat. 3743, 3799 (1986).
President Reagan said:
It is also with great pleasure that I can finally lay to rest the Federal health planning authorities. I have sought their repeal since
Page: 24 of 24
11232 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON
that we can infer authorization from congressional silence —
that Congress could not have meant to pull the rug out from
under the states after inducing their transition to certificate of
need programs, so Congress must have meant to leave undisturbed its authorization for certificates of need. As the district
court’s agreement demonstrates, that may be a reasonable
inference. Congressional silence is not a clear statement, however. See Sossamon v. Texas, ___ U.S. ___, 131 S. Ct. 1651,
1660 (2011). Accordingly, we hold that the repealed
NHPRDA does not provide congressional authorization for
the 2008 PCI certificate of need regulation.
 We hold that there is no antitrust preemption because
the PCI regulations are a unilateral restraint of trade not subject to preemption. We also hold that Memorial has standing
to raise a dormant Commerce Clause challenge under Pike,
because the PCI regulations burden the free flow of commerce to Memorial’s financial detriment. We reverse judgment on the dormant Commerce Clause claim, however,
because the Department failed to prove congressional authorization for its PCI certificate of need regulations. We remand
for further proceedings on Memorial’s dormant Commerce
Clause claim consistent with this opinion. The parties shall
bear their own costs.
I assumed office. These authorities, while perhaps well-intentioned when
they were enacted in the 1970’s, have only served to insert the Federal
Government into a process that is best reserved to the marketplace. Health
planning has proved to be a process that was costly to the Federal Government, in the last analysis without benefit, and even detrimental to the rational allocation of economic resources for health care.
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?