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Decided: January 21, 2016  

The Fourth Circuit affirmed the district court’s holding that the certificate requirement neither discriminated against nor placed an undue burden on interstate commerce and granted summary judgment to the Commonwealth of Virginia.

The Commonwealth of Virginia requires medical service providers to obtain a “certificate of public need” in order to establish or expand operations within its borders. The certificate of need (CON) program applies to most health care capital expenditures, but does not cover the replacement of existing equipment. The CON program requires an applicant to show a sufficient public need for its proposed venture in the relevant geographic area. A certificate may not be issued unless the State Health Commissioner has determined that a public need for the project exists. Constructing new facilities or supplementing existing operations without a CON is a Class 1 misdemeanor, punishable by fines of up to $1,000 for each day a service provider is in violation of the statute. Applicants who are dissatisfied with the Commissioner’s decision may seek judicial review.

Colon Health Centers and Progressive Radiology (Appellants) are out-of-state medical providers that desire to establish, via the use of private funds, specialized MRI and CT services in Virginia. Appellants were denied a CON and sought judicial review. The district court ultimately granted summary judgment in favor of the Commonwealth. Appellants argue on appeal, first, Virginia’s CON requirement violates the dormant Commerce Clause by discriminating against interstate commerce in both purpose and effect, and second, Appellants argue that even if the program does not unconstitutionally discriminate, it nevertheless violates the dormant Commerce Clause because it places an undue burden on interstate commerce.  

The Commerce Clause delegates Congress the power to regulate commerce among the states. Under the dormant Commerce Clause, the Supreme Court has recognized that there is a limit on the states to erect barriers against interstate trade. This constraint is driven by concerns over “economic protectionism,” which is regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors. When a state statute discriminates against interstate commerce, it must be struck down unless a valid factor unrelated to economic protectionism exists.

Here, the Appellants argued that the program discriminates in both purpose and effect. Concerning purpose, they noted that the law is intended to “protect the economic viability of existing [service] providers” by impeding the development of new medical facilities. However, the Fourth Circuit determined Virginia’s program serves several legitimate public purposes including, “improving health care quality by discouraging the proliferation of underutilized facilities, enabling underserved and indigent populations to access necessary medical services, and encouraging cost-effective consumer spending.” Additionally, Appellants argued that in practice, the CON program “systematically advantages established in-state providers at the expense” of new, primarily out-of-state firms. However, the Fourth Circuit stated that even though the Appellants might have been frustrated by the law, there was no appreciable difference in the treatment of in-state and out-of-state entities. Therefore, the Fourth Circuit decided not to take the potentially limitless step of striking down every state regulatory program that has some alleged adverse impact on market competition.

Even when a law does not facially, in effect, or in purpose discriminate against interstate commerce, the court has undertaken a second analytical step, to make sure none of the law’s incidental burdens on interstate commerce are not clearly excessive in relation to its local benefits. The weighing or quantifying of a law’s benefits and burdens can be a very difficult exercise. A rational basis standard of review is applied in identifying the local benefits to be weighed against incidental burdens on interstate commerce.

Virginia advanced a number of legitimate interests in support of its CON program. First, it argued that the CON program improves healthcare quality. Second, the CON program may benefit underserved and indigent populations’ access to medical care. Third, by reducing competition in highly profitable operations, the program might provide existing hospitals with the revenue they need to support money-losing but important operations. Finally, the CON program reduces capital costs and the costs to consumers of medical services. Although the Appellants offered several arguments as to the burdens that the CON program faced, the Fourth Circuit determined that the burdens did not outweigh the aforementioned local benefits. Under rational basis review, reasonable debates such as this one are resolved in favor of upholding state laws. Therefore, the Fourth Circuit ultimately affirmed the decision of the district court.

Full Opinion

Austin T. Reed