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February 23, 2016
  Colon Health Centers of America, LLC v. Hazel -- Fourth Circuit
The Long CON and the Dormant Commerce Clause

Areas of Law: Constitutional Law, Health Law

Issue Presented: Does Virginia's Certificate of Need Program unconstitutionally violate the Dormant Commerce Clause by either a) discriminating against interstate commerce in both purpose and effect or b) by placing an undue burden on interstate commerce?

Brief Summary: Virginia's Certificate of Need (hereinafter "CON") program does not unconstitutionally discriminate against interstate commerce in violation of the Dormant Commerce Clause or place an undue burden on interstate commerce. Appellants Colon Health Centers and Progressive Radiology argue that the primary goal of the CON requirement is discriminatory in purpose and effect. The United States Court of Appeals for the Fourth Circuit (hereinafter "the court" or "the Fourth Circuit") rejected both of these arguments, pointing to the array of legitimate purposes the CON program serves, as well as the lack of appreciable difference in the approval/rejection rate for in-state and out-of-state applicants. Finally, the court engaged in Pike's balancing test and determined there is no undue burden on interstate commerce, as the appellants' asserted arguments do not outweigh the purpose of the CON program.

Extended Summary: Appellants, Colon Health Centers and Progressive Radiology, are out-of-state medical imaging service providers who applied for a certificate of need to operate in Virginia. The Virginia CON Program governs establishment and expansion of certain medical facilities inside the state and requires applicants to prove that there is public need for their proposed medical venture to prevent redundant accretion of medical facilities, protect the economic viability of existing providers, promote indigent care, and assist cost-effective health care spending.

When appellants' CON applications were rejected, they challenged the constitutionality of the program, claiming that it violates the Dormant Commerce Clause, and the Fourteenth Amendment's Equal Protection, Due Process, and Privileges and Immunities Clauses. The United States District Court for the Eastern District of Virginia dismissed the suit for failure to state a claim upon which relief could be granted. The Fourth Circuit affirmed the dismissal of the Fourteenth Amendment claims on appeal, but reversed and remanded the Commerce Clause issue for further factual development. The district court ultimately granted summary judgment in favor of the Commonwealth. Appellants urged the Fourth Circuit to reverse the decision, arguing that the CON program unconstitutionally violates the Dormant Commerce Clause by either a) discriminating against interstate commerce in both purpose and effect or b) placing and undue burden on interstate commerce.

While the Commerce Clause grants Congress the power to regulate commerce among the states, implicit in that grant is Congress' dormant ability to limit the power of a state to erect barriers against interstate trade by discriminating against and burdening out-of-state competitors. A state discriminates against interstate commerce in three ways: facially, in practical effect, and in its purpose. The parties agreed there was no facial discrimination in this case. The appellants instead argued the CON program discriminated in purpose because the goal of the program is to shelter in-state providers from competition at the expense of out-of-state businesses seeking entry into the market. The Fourth Circuit rejected this argument because CON programs serve an array of legitimate purposes. Alternatively, appellants argued that the CON program was discriminatory in effect because the different stages of approval in the process enabled local firms to thwart and stymie the applications of out-of-state firms. The court rejected this argument as well because the Commonwealth's expert pointed out that in 2014 both the application process and its results showed no appreciable difference in the treatment of in-state and out-of-state medical firms in Virginia.

Finally, the court engaged in Pike's balancing test to determine whether Virginia's CON program places an undue burden on interstate commerce. The Pike balancing test weighs the putative local benefits against incidental burdens on interstate commerce under a rational basis standard of review. The court rejected appellants' arguments that the CON program creates anticompetitive risks and is unsuccessful at containing healthcare costs, finding instead that Virginia had weighty interests in taking regulatory steps to counter perceived gaps and inefficiencies in the healthcare market. While the court noted that appellants' arguments were reasonable, it concluded the Virginia General Assembly would be a more appropriate forum for airing them.

To read the full opinion, click here.

Panel: Wilkinson, King, and Wynn, Circuit Judges

Argument Date: December 10, 2015

Date of Issued Opinion: January 21, 2016

Docket Number: Case No. 14-2283

Decided: Affirmed by published opinion

Case Alert Author: Nakisha Small, Univ. of Maryland Carey School of Law

Counsel: Darpana Sheth, INSTITUTE FOR JUSTICE, Arlington, Virginia, for Appellants. Stuart Alan Raphael, OFFICE OF THE 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.

Author of Opinion: Judge Wilkinson

Dissenting Opinion: None

Case Alert Supervisor: Professor Renée Hutchins

    Posted By: Renee Hutchins @ 02/23/2016 07:26 PM     4th Circuit  

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