Health Law Daily Virginia’s Certificate of Need program constitutional even if not perfect
Monday, January 25, 2016

Virginia’s Certificate of Need program constitutional even if not perfect

By Mary Damitio, J.D.

Virginia’s Certificate of Need (CON) program, which requires all health care providers to obtain approval prior to expanding operations in the state, did not violate the dormant aspect of the Commerce Clause because it did not have a discriminatory intent and it did not result in a discriminatory impact on out-of-state applicants. The U.S. Court of Appeals for the Fourth Circuit, in affirming summary judgment in favor of the state, also found that the CON program serves legitimate state purposes, such as improving health care by discouraging the creation of underused facilities and assisting underserved individuals in accessing care, which outweigh any incidental burdens the program may place on interstate commerce (Colon Health Centers of America, LLC v. Hazel, January 21, 2016, Wilkinson, J.).

CON program. Virginia requires medical services providers to obtain a “certificate of public need” prior to expanding operations in the state. The CON program applies to most health care providers’ capital expenditures, including any investments in new computed tomographic (CT) and magnetic resonance imaging facilities (MRI). However, the program does not apply to the replacement of existing equipment. Prior to expanding any health care operations in the state, providers must show that there is a sufficient public need in the area for the proposed expenditure. Firms seeking a CON must file applications with the Department of Health and the regional health planning agency and must also pay a fee.

Challenge. Colon Health Centers of America, LLC and Washington Imaging Associates-Maryland, LLC d/b/a Progressive Radiology (the providers) are out-of-state medical providers that wanted to establish specialized MRI and CT services in the state. The providers filed suit, alleging that the CON program violated the dormant Commerce Clause and various Fourteenth Amendment clauses. The trial court dismissed the lawsuit for failure to state claim. The appeals court affirmed the dismissal of the Fourteenth Amendment claims, but reversed and remanded the Commerce Clause claim for further factual development (see Dormant Commerce Clause claims require fact inquiry beyond motion to dismiss, October 24, 2013). After extensive discovery, the court granted summary judgment in favor of Virginia and the providers again appealed.

Commerce clause. The CON program did not violate the dormant Commerce Clause because the program was not facially discriminatory and the providers failed to present evidence that it intended to discriminate against out-of-state applicants or had a discriminatory effect. The court could not discern any discriminatory intent of the program because it was aimed at serving that state’s legitimate interests in bringing health care to its residents in the most efficient and professional manner.

A review of the application process and its approval rates also showed no difference in the treatment of in-state and out-of-state providers. The state’s evidence demonstrated that during a 14-year period, the approval rates for applications from in-state and out-of-state firms were almost identical. Additionally, obtaining a certificate through the program took the same amount of time for in-state and out-of-state applicants.

Incidental burdens. Recognizing that the court is ill-equipped to second-guess the judgment of the lawmakers in this area, the court examined Virginia’s legitimate interests in its CON program and found that they outweighed the incidental burdens that it imposed on interstate commerce. The court noted that the program improves health care quality by discouraging the building of underused facilities and assists underserved and indigent individuals with obtaining medical services. It also found that the program encourages cost-effective consumer spending and incentivizes health care providers to set up facilities in underserved or disadvantaged areas. The Commerce Clause was not intended to prohibit states from legislating on issues relating to the health, life, and safety of its residents. The health care market is “infamously complicated,” and although Virginia’s approach may not be the best, it is constitutional.

The case is No. 14-2283.

Attorneys: Robert McNamara, Institute for Justice, for Colon Health Centers of America, LLC and Washington Imaging Associates-Maryland, LLC, d/b/a Progressive Radiology. Trevor Stephen Cox, Office of the Attorney General of Virginia, for Bill Hazel, Secretary, Health and Human Resources.

Companies: Colon Health Centers of America, LLC; Washington Imaging Associates-Maryland, LLC, d/b/a Progressive Radiology; Virginia Department of Health

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