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By Kayleigh Butterfield

On January 21, 2016, in the published civil case Colon Health Centers v. Hazel, the Fourth Circuit affirmed the Eastern District of Virginia’s decision upholding the constitutionality of the state’s certificate of need (“CON”) program. Colon Health Centers of America and Progressive Radiology (“Appellants”) argued that Virginia’s CON law violates the dormant Commerce Clause of the United States Constitution. However, the Fourth Circuit held that the CON program does not discriminate against out-of-state companies and does not create excessive burdens on interstate commerce in relation to its local benefits.

A Contested Approach to Health Care

Similar to 35 other states, Virginia has adopted a “certificate of public need” requirement for medical service providers who seek to establish or expand operations within the state. The CON program requires, for various public policy and health reasons, that applicants show a sufficient public need for its establishment in any given area. The application process involves a “batching” system whereby health-planning agencies conduct initial investigations into a batch of various company applications before making a recommendation to the Department of Health (“Department”). The Department is then responsible for determining whether a public need for the given program has been demonstrated and, if it has, issuing a certificate to the applicant.

Appellants are out-of-state medical providers who initially brought suit against the Commonwealth under the dormant Commerce Clause and the Fourteenth Amendment’s Equal Protection, Due Process, and Privileges and Immunities Clauses. The district court dismissed the entire suit for failure to state a claim. The Fourth Circuit reversed the dismissal of the dormant Commerce Clause claim and remanded the case for discovery. After extensive discovery, the district court granted summary judgment for the Commonwealth.

No Interstate Discrimination

The Fourth Circuit noted that a state law could discriminate against interstate commerce facially, in effect, or in purpose. Here, Appellants did not allege facial discrimination. Similarly, the Fourth Circuit quickly disposed of any discriminatory purpose, noting that the CON program is primarily designed to improve the overall function of Virginia’s health care system.

Appellants also alleged that the effect of the CON program systematically advantages in-state companies as opposed to those out-of-state. Pointing to the State’s expert testimony at trial, the Fourth Circuit noted that statistics do not show any unfair advantage against out-of-state providers. The Fourth Circuit further distinguished Appellant’s expert testimony by observing that this evidence only established that the program favored incumbents over new providers. The Fourth Circuit explained that advantages for or against incumbents are not relevant to the dormant Commerce Clause analysis involving in-state and out-of-state entities.

Burdens on Interstate Commerce Not Excessive

The Fourth Circuit went on to examine whether Virginia’s CON program might still excessively burden interstate commerce in relation to its proposed benefits. To carry out this analysis, the Fourth Circuit employed the balancing test from Pike v. Bruce Church, Inc. under a rational basis standard of review. While the Fourth Circuit acknowledged that Appellants made fair arguments regarding potential burdens, the court ultimately held that the burdens did not outweigh the program’s significant interests in bettering the state health care system. The Fourth Circuit also noted that this balancing of interests is better handled by the legislative branch, which is representative of the Commonwealth itself.

Affirmed

The Fourth Circuit determined that Virginia’s CON law neither discriminated against out-of-state health care providers, nor created excessive burdens on interstate commerce that would warrant judicial intervention. The district court’s grant of summary judgment for the Commonwealth was therefore affirmed.

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