PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-2283
COLON HEALTH CENTERS OF AMERICA, LLC; WASHINGTON IMAGING
ASSOCIATES-MARYLAND, LLC, d/b/a Progressive Radiology,
Plaintiffs - Appellants,
v.
BILL HAZEL, in his official capacity as Secretary of Health
and Human Resources; BRUCE EDWARDS, in his official capacity
as Chair of the Virginia State Board of Health; JAMES E.
EDMONDSON, JR., in his official capacity as member of the
Virginia State Board of Health; STEVEN R. ESCOBAR, in his
official capacity as member of the Virginia State Board of
Health; M. CATHERINE SLUSHER, in her official capacity as
member of the Virginia State Board of Health; AMY VEST, in
her official capacity as member of the Virginia State Board
of Health; ERIC O. BODIN, in his official capacity as
Director of the Office of Licensure and Certification; JOHN
W. SEEDS, in his official capacity as member of the Virginia
State Board of Health; MARISSA LEVINE, in her official
capacity as the State Health Commissioner; BRADLEY BEALL, in
his official capacity as member of the Virginia State Board
of Health; THERESA MIDDLETON BROSCHE, in her official
capacity as member of the Virginia State Board of Health;
MEGAN C. GETTER, in her official capacity as member of the
Virginia State Board of Health; HENRY N. KUHLMAN, in his
official capacity as member of the Virginia State Board of
Health; HONORABLE FAYE PRICHARD, in her official capacity as
member of the Virginia State Board of Health; BENITA MILLER,
in her official capacity as member of the Virginia State
Board of Health; PETER BOSWELL, in his official capacity as
Director of the Division of Certificate of Public Need; TOM
EAST, in his official capacity as member of the Virginia
State Board of Health; LINDA HINES, in her official capacity
as member of the Virginia State Board of Health; HONORABLE
MARY MARGARET WHIPPLE, in her official capacity as member of
the Virginia State Board of Health,
Defendants - Appellees.
-------------------------------------------
SHENANDOAH INDEPENDENT PRACTICE ASSOCIATION, INC.;
SHENANDOAH SURGEONS LLC; CHRISTOPER KOOPMAN, Research
Fellow, The Mercatus Center at George Mason University;
MATTHEW MITCHEL, Senior Research Fellow, The Mercatus Center
at George Mason University; THOMAS STRATMANN, University
Professor of Economics and Law, Department of Economics,
George Mason University; ROBERT GRABOYES, Senior Research
Fellow, Mercatus Center at George Mason University; JAKE
RUSS, Graduate Fellow, Mercatus Center at George Mason
University; JAMES BAILEY, Assistant Professor of Economics,
Department of Economics and Finance, Creighton University,
Amici Supporting Appellants,
THE VIRGINIA HOSPITAL & HEALTHCARE ASSOCIATION; THE VIRGINIA
HEALTH CARE ASSOCIATION; THE STATE OF WASHINGTON; THE STATE
OF ARIZONA; THE STATE OF HAWAII; THE STATE OF MISSISSIPPI;
THE STATE OF VERMONT,
Amici Supporting Appellees.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. Claude M. Hilton, Senior
District Judge. (1:12-cv-00615-CMH-TCB)
Argued: December 10, 2015 Decided: January 21, 2016
Before WILKINSON, KING, and WYNN, Circuit Judges.
Affirmed by published opinion. Judge Wilkinson wrote the
opinion, in which Judge King and Judge Wynn joined.
ARGUED: Darpana Sheth, INSTITUTE FOR JUSTICE, Arlington,
Virginia, for Appellants. Stuart Alan Raphael, OFFICE OF THE
2
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.
3
WILKINSON, Circuit Judge:
Virginia’s certificate of need (CON) program governs the
establishment and expansion of certain medical facilities inside
the state. In this case two providers of medical imaging
services, Colon Health Centers of America and Progressive
Radiology, argue that the CON law unconstitutionally violates
the dormant aspect of the Commerce Clause. The district court
held that the certificate requirement neither discriminated
against nor placed an undue burden on interstate commerce, and
granted summary judgment to the Commonwealth. For the reasons
that follow, we affirm.
I.
A.
Much of the background and many of the claims in this case
have been set forth in our prior opinion. See Colon Health
Centers of Am., LLC v. Hazel, 733 F.3d 535 (4th Cir. 2013).
Virginia is one of thirty-six states that requires medical
service providers to obtain a “certificate of public need” in
order to establish or expand operations within its borders. Va.
Code Ann. §§ 32.1–102.1 et seq.; 12 Va. Admin. Code §§ 5–220–10
et seq. Virginia’s CON program applies to most health care
capital expenditures, including investments in new computed
tomographic (CT) and magnetic resonance imaging (MRI)
facilities. See Va. Code Ann. § 32.1-102.2. It does not,
4
however, cover the “[r]eplacement of existing equipment.” Id. at
§ 32.1–102.1. The program requires that an applicant show a
sufficient public need for its proposed venture in the relevant
geographic area. Virginia asserts that this preapproval
mechanism helps prevent the redundant accretion of medical
facilities, protect the economic viability of existing
providers, promote indigent care, and assist cost-effective
health care spending.
Firms that seek to obtain a certificate of need must file
their completed applications with the Department of Health and
the appropriate regional health planning agency. Id. at § 32.1–
102.6. Applicants pay a fee of one percent of the project’s
expected capital cost, but no less than $1,000 and no more than
$20,000. 12 Va. Admin. Code § 5-220-180(B). The submissions are
grouped into subcategories based on project type and evaluated
in a process called “batching.” The code mandates that the
review process be completed within 190 days of the start of the
applicable batch cycle. Va. Code Ann. § 32.1–102.6.
Five regional health planning agencies across the state are
charged with conducting, within 60 days, initial investigations
into their respective regions’ applications. During this stage
of review the agencies must hold a public hearing in the
vicinity of the proposed investment site, where interested
individuals and local governing bodies may submit comments to
5
assist the agencies in their evaluations. After examining the
data and reviewing the testimony before them, the agencies are
directed to provide the Department of Health with their
recommendations to approve or deny each application. Id.
The Department, concurrently with the regional health
planning agencies, reviews the completed applications upon the
commencement of the appropriate batch cycle. The Department is
required to assess whether an informal fact-finding conference
is warranted. Such a proceeding will be held if the Department
independently determines that it is necessary or if an
intervening party demonstrates that good cause exists to conduct
it. Va. Code Ann. § 32.1-102.6(E). The date on which the record
closes on the application varies depending on whether an
informal fact-finding conference is conducted.
The code instructs that a certificate may not be issued
unless the State Health Commissioner “has determined that a
public need for the project has been demonstrated.” Id. at §
32.1–102.3(A). The Commissioner’s decision is due forty-five
days after the record closes, but that period may be extended by
an additional twenty-five days. Id. at § 32.1-102.6(E). In
making his assessment, the Commissioner must consider a number
of factors, although no single factor is dispositive. Id. at §
32.1–102.3(B)(1)–(8). For example, the Commissioner evaluates
“[t]he extent to which the proposed service or facility will
6
provide or increase access to needed services for residents of
the area to be served,” and “[t]he relationship of the project
to the existing health care system of the area to be served,
including the utilization and efficiency of existing services or
facilities.” Id. at § 32.1–102.3(B)(1),(5). An application is
considered approved and a certificate is granted if the
Commissioner fails to issue a decision within seventy days after
the closing of the record.
Constructing new facilities or augmenting existing
operations without a certificate of need 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. Id. at § 32.1–
27.1. Applicants and other interested persons dissatisfied with
the Commissioner’s decision may seek judicial review under the
Virginia Administrative Procedure Act. See id. at § 32.1–24.
B.
Appellants Colon Health Centers and Progressive Radiology
are out-of-state medical providers who wish to establish,
through the use of private funds, specialized MRI and CT
services in Virginia. Appellants challenged the
constitutionality of the CON program, claiming that it violates
the dormant Commerce Clause as well as the Fourteenth
Amendment’s Equal Protection, Due Process, and Privileges or
Immunities Clauses. The district court dismissed appellants’
7
suit under Federal Rule of Civil Procedure 12(b)(6) for failure
to state a claim upon which relief may be granted. Colon Health
Centers of Am., LLC v. Hazel, No. 1:12CV615, 2012 WL 4105063, at
*11 (E.D. Va. Sept. 14, 2012).
On appeal, we affirmed the dismissal of appellants’
Fourteenth Amendment claims, reversed the dismissal of the
dormant Commerce Clause claim, and remanded the case for further
factual development on the Commerce Clause issue. Colon Health,
733 F.3d at 539. After careful consideration of the parties’
arguments, we made clear that this case is one of “heightened
importance,” and emphasized the “fact-intensive quality” of the
dormant Commerce Clause analysis. Id. at 545.
The district court conducted an extensive discovery process
on remand, and ultimately granted summary judgment in favor of
the Commonwealth. J.A. 1509-27. Colon Health and Progressive
Radiology now urge us to reverse that decision on two grounds.
First, appellants argue that Virginia’s CON requirement violates
the dormant Commerce Clause by discriminating against interstate
commerce in both purpose and effect. Second, appellants contend
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.
We address each of these arguments in turn.
8
II.
A.
The general framework of the law in this area is well
settled. The Commerce Clause gives Congress the power “[t]o
regulate Commerce . . . among the several States.” U.S. Const.
art. I, § 8, cl. 3. Although by its terms the clause speaks only
of congressional authority, “the [Supreme] Court long has
recognized that it also limits the power of the States to erect
barriers against interstate trade.” Dennis v. Higgins, 498 U.S.
439, 446 (1991) (quoting Lewis v. BT Inv. Managers, Inc., 447
U.S. 27, 35 (1980)). This implicit or “dormant” constraint is
driven primarily by concerns over “economic protectionism --
that is, regulatory measures designed to benefit in-state
economic interests by burdening out-of-state competitors.” New
Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273-74 (1988).
To that end, the Supreme Court has instructed that “[t]he
principal objects of dormant Commerce Clause scrutiny are
statutes that discriminate against interstate commerce.” CTS
Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 87 (1987) (emphasis
added). “[W]hen a state statute [] discriminates against
interstate commerce, it will be struck down unless the
discrimination is demonstrably justified by a valid factor
unrelated to economic protectionism.” Yamaha Motor Corp. v.
Jim’s Motorcycle, Inc., 401 F.3d 560, 567 (4th Cir. 2005)
9
(quoting Wyoming v. Oklahoma, 502 U.S. 437, 454 (1992)). While
discrimination “simply means differential treatment of in-state
and out-of-state economic interests that benefits the former and
burdens the latter,” Or. Waste Sys., Inc. v. Dep’t of Envtl.
Quality of State of Or., 511 U.S. 93, 99 (1994), not all
economic harms or anticompetitive choices can or should be
remedied through application of the dormant Commerce Clause. See
Brown v. Hovatter, 561 F.3d 357, 363 (4th Cir. 2009). Under the
prevailing framework courts must chart a narrow course between
“rebuff[ing] attempts of states to advance their own commercial
interests by curtailing the movement of articles of
commerce . . . [and] generally supporting their right to impose
even burdensome regulations in the interest of local health and
safety.” H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 535
(1949).
Recognizing this difficulty, the Supreme Court has advised
courts in this context to “eschew[] formalism for a sensitive,
case-by-case analysis.” W. Lynn Creamery, Inc. v. Healy, 512
U.S. 186, 201 (1994). In other words, courts are “not bound by
[t]he name, description or characterization given [the law] by
the legislature or the courts of the State.” Colon Health, 733
F.3d at 546 (quoting Hughes v. Oklahoma, 441 U.S. 322, 336
(1979)). “The principal focus of inquiry must be the practical
operation of the statute, since the validity of state laws must
10
be judged chiefly in terms of their probable effects.” Lewis,
447 U.S. at 37; see also Yamaha, 401 F.3d at 568. The
discrimination test can thus be described as both flexible and
finite: Courts are afforded some latitude to determine for
themselves the practical impact of a state law, but in doing so
they must not cripple the States’ “authority under their general
police powers to regulate matters of legitimate local concern.”
Maine v. Taylor, 477 U.S. 131, 138 (1986) (internal quotation
marks omitted).
B.
A state statute may discriminate against interstate
commerce in one of three ways: “facially, in its practical
effect, or in its purpose.” Envtl. Tech. Council v. Sierra Club,
98 F.3d 774, 785 (4th Cir. 1996). A discriminatory measure is
“virtually per se invalid,” and will survive strict scrutiny
only if it “advances a legitimate local purpose that cannot be
adequately served by reasonable nondiscriminatory alternatives.”
Or. Waste Sys., 511 U.S. at 99 (internal quotation marks
omitted).
Here, the parties are in agreement that Virginia’s CON law
is not facially discriminatory. The program applies to all firms
establishing or expanding covered health care operations within
the state, and makes no distinction between in-state and out-of-
state service providers. See, e.g., Va. Code Ann. § 32.1-102.6
11
(“[t]o obtain a certificate for a project,” every applicant,
regardless of geographic location, “shall file a completed
application”).
Appellants do, however, maintain that the CON program
discriminates in both purpose and effect. With regard to
purpose, they note that the law is intended to “protect the
economic viability of existing [service] providers” by impeding
the development of new medical facilities. Appellants’ Br. at 41
(citing 12 Va. Admin. Code § 5-230-30 (“[t]he [CON] program
discourages the proliferation of services that would undermine
the ability of essential community providers to maintain their
financial viability”)). Because current health care firms are
categorically in-state entities, the argument goes, the primary
goal of the certificate requirement is to shelter those
providers from competition at the expense of out-of-state
businesses seeking entry into the market.
That argument misses the main point. Certificate-of-need
regimes -- in place in many states across this country -- are
designed in the most general sense to prevent overinvestment in
and maldistribution of health care facilities. See Lauretta H.
Wolfson, State Regulation of Health Facility Planning: The
Economic Theory and Political Realities of Certificates of Need,
4 DePaul J. Health Care L. 261, 262 (2001). Indeed, as we
discuss in greater detail below, Virginia’s program serves an
12
array of legitimate public purposes: 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. See infra part III.B. Appellants
may be dissatisfied with the Virginia General Assembly’s policy
choices in this complex field, but we cannot discern a sinister
protectionist purpose in this straightforward effort to bring
medical care to all the citizens of the Commonwealth in the most
efficient and professional manner. We thus turn our attention to
the issue of discriminatory effect.
Appellants allege that in practice Virginia’s CON program
“systematically advantages established in-state providers at the
expense” of new, primarily out-of-state firms. Appellants’ Br.
at 13-14. Specifically, appellants claim that the CON
application process impermissibly grants current Virginia firms
the authority to thwart the market entrance of out-of-state
providers in three ways. First, the code allows interested
parties to request an informal fact-finding conference so that
the merits of a particular application can be further
scrutinized. See Va. Code Ann. § 32.1-102.6. This authorization,
according to appellants, can significantly lengthen the
administrative review period and increase the costs and
uncertainty borne by applicants. Second, the intervention
13
proviso also grants local firms, who may be in competition with
an applicant, the power to stymie the process through an
adversarial presentation at conference. Appellants assert that
despite the ”informal” label, fact-finding conferences “often
resemble full-blown litigation” and “[a]pplicants regularly
retain counsel.” Appellants’ Br. at 10. Finally, appellants
argue that the process gives a structural edge to established
interests: Because applications are grouped and reviewed in
batches, “Virginia-based entities [can] submit competing
applications [within the appropriate batch cycle] in order to
block applications they want to see denied.” Id. at 13.
We are unconvinced by appellants’ arguments. In order to
prove discriminatory effect, appellants must demonstrate that
Virginia’s CON law, “if enforced, would negatively impact
interstate commerce to a greater degree than intrastate
commerce.” Colon Health, 733 F.3d at 543 (quoting Waste Mgmt.
Holdings, Inc. v. Gilmore, 252 F.3d 316, 335 (4th Cir. 2001)).
“The fulcrum of this inquiry will be whether the certificate
requirement erects a special barrier to market entry by non-
domestic entities.” Id. at 546. Here, the Commonwealth’s expert,
Dr. John Mayo, revealed that over a fourteen-year period ending
in January 2014, “approval rates for applications submitted by
in-state and by out-of-state firms considered by the Virginia
Department of Health [were] virtually identical” at just under
14
eighty-five percent. J.A. 142-43. The State’s expert also
reported that obtaining a certificate took the same length of
time for both in-state and out-of-state applicants -- 154 to 167
days. Id. at 143. In short, both the application process and its
end result in Virginia showed no appreciable difference in the
treatment of in-state and out-of-state entities. This in
contrast to programs that revealed marked disparities in the
handling of in-state and out-of-state applications. See, e.g.,
Walgreen Co. v. Rullan, 405 F.3d 50, 56 (1st Cir. 2005) (in
which “[o]ver fifty percent of out-of-Commonwealth entities
[were] forced to undergo the entire administrative process
compared to less than twenty-five percent of local applicants”).
Appellants, for their part, condemn the state expert’s
approach. They argue that “the district court erred by crediting
the Commonwealth’s expert’s decision to base his analysis
entirely on whether a particular entity was legally incorporated
in Virginia or elsewhere.” Appellant’s Br. at 51. According to
appellants, “the inquiry should be practical, rather than
formal, and established service providers in Virginia should be
counted as ‘in-state’ regardless of their state of legal
incorporation.” Id. at 52.
We find no error in the approach taken by the district
court. It was plainly reasonable for the State’s expert to
consider an entity’s state of incorporation in demarcating the
15
boundary between in-state and out-of-state applicants. The
district court noted simply that “state of incorporation is
relevant to whether an entity is an out-of-state business
discriminated against by Virginia’s regulatory scheme.” J.A. 62.
And indeed it is relevant. Not only is the state of
incorporation an easily applied criterion. By choosing to
incorporate within a particular state, a corporation opts to
identify itself with both state law and state process in a way
that an out-of-state corporation does not. James D. Cox & Thomas
Lee Hazen, 1 TREATISE ON THE LAW OF CORPORATIONS § 3:2 (3d ed. 2015)
(“In selecting the state of incorporation, the [corporation]
makes a decision not only as to the relevant statutory law but
also as to the case law that will govern all corporate
questions, including the duties of the corporation’s officers
and directors and the rights of its stockholders”).
Appellants further contest the district court’s decision on
the ground that the court “improperly credited the testimony of
[the Commonwealth’s] expert over [their expert’s analysis].”
Appellants’ Br. at 56. They argue that their expert established
that the “Virginia law undisputedly and expressly favors
granting CONs to entities that have previously completed
projects” in the state. Appellants’ Br. at 55 (citing 12 Va.
Admin. Code § 5-230-60). In other words, appellants’ expert
concluded that the certificate requirement discriminates in
16
favor of incumbent health care providers at the expense of new,
predominantly out-of-state firms.
We reject appellants’ argument as a matter of law, for
incumbency bias in this context is not a surrogate for the
“negative[] impact [on] interstate commerce” with which the
dormant Commerce Clause is concerned. Colon Health, 733 F.3d at
543. The dormant Commerce Clause is exclusively designed to
address the “differential treatment of in-state and out-of-state
economic interests that benefits the former and burdens the
latter.” Granholm v. Heald, 544 U.S. 460, 472 (2005) (internal
quotation marks omitted). Thus, what appellants label as an
impermissible foray into a battle of the experts is a simple
recognition of the fact that incumbency is not the focus of the
dormant Commerce Clause.
Allowing incumbency to serve as the proxy for in-state
status would be a risky proposition. One can be, for example, an
incumbent recipient of some state contractual benefit without
necessarily being an in-state resident. In fact, the vitality of
interstate commerce relies upon the ability of one state to have
some allegedly incumbent companies of another state provide its
citizens with needed goods and services. As the district court
explained, “[u]nder [appellants]’ view, the success rate of new
out-of-state applicants should be measured against the success
rate of new in-state applicants combined with every previously-
17
successful entity currently operating in Virginia. This approach
tips the scales in favor of new out-of-state applicants; it does
not provide an accurate depiction of whether Virginia's []
program discriminates against interstate commerce.” J.A. 1523.
Finally, appellants specify that one-hundred percent of CT
scanner and MRI machine manufacturers are located outside the
state of Virginia. Appellants’ Br. at 31. Because medical
imaging manufacturers are by definition out-of-state entities,
appellants assert that “the burdens of Virginia’s CON
requirement are anything but evenhanded.” Id. at 32. But that
point is easily turned around. We think it axiomatic that there
can be no discrimination in favor of in-state manufacturers when
there are no manufacturers in the state. How are we to properly
assess, for example, “whether the certificate requirement erects
a special barrier to market entry by non-domestic entities,”
Colon Health, 733 F.3d at 546, when there is no domestic
business with which to compare those non-domestic entities?
We do not doubt that appellants are frustrated by the state
legislature’s decision to impose a certificate requirement in
this area. However, we will not take the potentially limitless
step of striking down every state regulatory program that has
some alleged adverse effect on market competition. We live in
such an interconnected economy that for any regulation some
effects are almost bound to be felt out of state. To accept
18
appellants’ arguments “would broaden the negative Commerce
Clause beyond its existing scope,” United Haulers Ass'n, Inc. v.
Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 348
(2007) (Scalia, J., concurring), such that “the States’ power to
engage in economic regulation would be effectively destroyed.”
See Am. Motors Sales Corp. v. Div. of Motor Vehicles, 592 F.2d
219, 224 (4th Cir. 1979).
III.
A.
Even where a law does not facially, in effect, or
purposefully discriminate against interstate commerce, we have
in past cases undertaken a second analytical step, asking
whether any of the law’s incidental burdens on interstate
commerce might still be “clearly excessive in relation to [its]
putative local benefits.” Sandlands C & D LLC v. Cty. of Horry,
737 F.3d 45, 53 (4th Cir. 2013) (quoting Pike v. Bruce Church,
Inc., 397 U.S. 137, 142 (1970)). Our previous opinion in this
case was skeptical of Pike’s balancing test. We noted that the
“discriminatory effects test represents [a] superior framework
of analysis” and that the Pike approach “is often too soggy to
properly cabin the judicial inquiry or effectively prevent the
district court from assuming a super-legislative role.” Colon
Health, 733 F.3d at 546. Because it so often casts judges into
disputes involving subjective or technically difficult decisions
19
properly committed to the discretion of state legislatures, Pike
balancing risks an unwarranted expansion of the judicial
function.
Pike balancing frequently requires judges to make highly
subjective calls. “[W]eighing or quantifying” a law’s benefits
and burdens may be “a very subtle exercise.” Dep’t of Revenue of
Ky. v. Davis, 553 U.S. 328, 354 (2008). The exercise is
complicated by the difficulty of determining by what criteria
benefits and burdens ought to be assessed. Sometimes “[i]t is a
matter not of weighing apples against apples, but of deciding
whether three apples are better than six tangerines.” Id. at 360
(Scalia, J., concurring). Making that decision often in turn
requires one to “decid[e] which interest is more important” – a
policy call of the kind ordinarily entrusted to representative
government. Id.
Judges are, for better or worse, not often economists or
statisticians. We are ill-equipped to “second-guess the
empirical judgments of lawmakers concerning the utility of
legislation.” CTS Corp., 481 U.S. at 92. Simply put, there are
cases in which “the Judicial Branch is not institutionally
suited to draw reliable conclusions of the kind that would be
necessary . . . to satisfy a Pike burden.” Davis, 553 U.S. at
353. The Supreme Court still “generally leave[s] the courtroom
door open to plaintiffs invoking the rule in Pike,” Davis, 553
20
U.S. at 353, and so we proceed to the merits of appellants’
argument. We do so only after recognizing our own institutional
limitations, however, and only after giving due deference to the
body whose primary responsibility it is to judge the benefits
and burdens of Virginia legislation: the Virginia legislature.
B.
While the Supreme Court applies a “virtual per se rule of
invalidity” to enforce the dormant Commerce Clause against plain
attempts at local protectionism, laws which do not so
discriminate face only “less strict scrutiny.” Wyoming v.
Oklahoma, 502 U.S. 437, 454-55 & n.12 (1992). In identifying the
“putative local benefits” to be weighed against incidental
burdens on interstate commerce, Pike, 397 U.S. at 142, we
therefore apply a rational basis standard of review. Colon
Health, 733 F.3d at 535.
Virginia advances a number of legitimate interests in
support of its CON program. First, it argues that the CON
program boosts healthcare quality. The Virginia Health
Department’s designee Erik Bodin noted in deposition testimony
that by reducing excess medical capacity, the CON program may
“increase the quality of the care that’s being provided because
the expertise of the people using the equipment and interpreting
the results is higher.” J.A. 639. A subcommittee of the Virginia
General Assembly similarly found that “studies provide strong
21
evidence that quantity and quality are closely related and
experience and practice with complex procedures are assumed to
increase skill and improve expertise.” J.A. 210. In other words,
practice makes perfect, or at least familiarity with
sophisticated medical devices is to be preferred to only
infrequent use of them. In this regard, the CON program helps
ensure that new entrants do not overly dilute the market and
thereby prevent medical personnel from practicing and performing
procedures on a regular basis.
Second, the CON program may help underserved and indigent
populations access needed medical care. Certificates of need may
be granted on the condition that the recipients provide a
certain level of indigent care each year. Va. Code Ann. § 32.1-
102.4(F); Va. Code Ann. § 32.1-102.2(C). And applicants for
certificates of need have at least on occasion “use[d] their
performance of charity care [] at a rate higher than the average
as a factor in why they should be approved” in the first place.
J.A. 640-41 (Bodin Dep.). The impact of all this may be
substantial – possibly “in excess” of “several hundred million
dollars” of care for needy patients each year. Id. at 634-35.
Such additional care would be impressive in any state, but it
may be all the more so in Virginia, which has few public
hospitals, principally the University of Virginia and Virginia
Commonwealth University Medical Centers. Without the assistance
22
of private caregivers serving indigent patients, service at
least in part motivated by the CON program, those hospitals
might be even more burdened than they already are.
A related purpose of the CON program is geographical in
nature. For reasons not difficult to discern, medical services
tend to gravitate toward more affluent communities. The CON
program aims to mitigate that trend by incentivizing healthcare
providers willing to set up shop in underserved or disadvantaged
areas such as Virginia’s Eastern Shore and far Southwest. “In
determining whether” to issue a certificate, for example,
Virginia considers “the effects that the proposed service or
facility will have on access to needed services in areas having
distinct and unique geographic, socioeconomic, cultural,
transportation, or other barriers to access to care.” Va. Code
Ann. § 32.1-102.3(B)(1).
The CON program may also aid underserved consumers in a
more indirect fashion. By reducing competition in highly
profitable operations, the program may provide existing
hospitals with the revenue they need not only to provide
indigents with care, but also to support money-losing but
nonetheless important operations like trauma centers and
neonatal intensive care units. Appellants’ expert agreed in his
deposition that full-service hospitals have “long been in the
practice of cross-subsidizing unprofitable services with the
23
profits from those that are profitable.” J.A. 392. It is perhaps
no accident that the CON applicants in this case sought to open
standalone gastroenterology and radiology facilities, not new
community health centers. Concerns that such practices could
drain needed revenue from more comprehensive general hospitals
providing necessary though unprofitable services are not
irrational.
Finally, Virginia argues that the CON program furthers its
legitimate interest in reducing capital costs and the costs to
consumers of medical services. By preventing untoward increases
in excess capacity, Virginia contends, the CON program can
reduce the healthcare system’s overall costs. Excess capacity
means that those extra hospital beds and additional medical
equipment must pay for themselves, thereby generating pressure
for hospital stays and diagnostic tests that patients really do
not need. See Brief for Va. Hospital & Healthcare Ass’n & Va
Health Care Ass’n (“Hospitals’ Brief”) at 21. And a former
Virginia Secretary of Health and Human Resources has observed
that Virginia experienced a significant increase in expenditures
for equipment and new services when it partially deregulated its
health care sector between 1989 and 1992. J.A. 211. It again is
not irrational for Virginia or any other state to credit its own
prior experience with deregulation.
24
C.
Appellants “bear[] the burden of proving that the burdens
placed on interstate commerce outweigh” the aforementioned local
benefits. LensCrafters, Inc. v. Robinson, 403 F.3d 798, 805 (6th
Cir. 2005). While they advance a number of arguments, we find
none persuasive. Several in particular warrant discussion.
First, appellants attack the wisdom of the CON program.
They argue that it is “a relic of a failed federal policy” that
once encouraged these sorts of programs, Appellants’ Br. at 7,
and that the application process imposes “[e]xtraordinary
costs . . . in terms of time and money.” Id. at 9. Appellants
also refer to a report of the Federal Trade Commission and the
U.S. Department of Justice, which found in 2004 that CON
programs “are not successful in containing healthcare costs” and
“pose serious anticompetitive risks that usually outweigh their
purported economic benefits.” J.A. 1153.
At the heart of appellants’ argument is the basic economic
maxim that barriers to entry like CON programs may reduce
competition and thereby allow entrenched incumbents to exert
market power and charge inefficiently high prices. Like
Virginia’s legitimate state interest arguments, we do not find
appellants’ countervailing argument to be unreasonable. The
points noted above, however, might be more persuasively made
before the Virginia General Assembly, not a panel of unelected
25
federal judges. The battle between laissez fairists and
regulators is as old as the hills. The fighting, however, is
more often over economics and politics than over law.
Legislators, not jurists, are best able to compare competing
economic theories and sets of data and then weigh the result
against their own political valuations of the public interests
at stake.
Appellants’ free market arguments also overlook the fact
that the health care market has its own idiosyncrasies.
Consumers, i.e. patients, often do not know the price of the
medical service they receive until after it has been provided.
Hospitals’ Br. at 8. For many reasons, patients, some of whom
are under intense time pressures and physical stress, face
difficulties in assessing the quality of medical services as
well. In this market, patients at all income levels often choose
a provider with private insurance or the government footing the
lion’s share of the bill; they thus lack the normal incentives
to shop for price. Providers are not free agents either.
Squeezed by insurers, regulation, and obligations to provide
indigent care at a financial loss, providers lack the customary
freedom of a seller of services to set its price. Unprofitable
but vital medical services do not reap providers the usual
market rewards. Id. at 10. Many of the classic features of a
free market are simply absent in the health care context, and
26
that fact counsels caution when courts are urged to dismantle
regulatory efforts to counter perceived gaps and inefficiencies
in the healthcare market.
“There was a time” when courts “rigorously scrutinize[d]
economic legislation” and “presumed to make such binding
judgments for society.” United Haulers, 550 U.S. at 347 (citing
Lochner v. New York, 198 U.S. 45 (1907)). But this is no longer
that time, and under rational basis review, reasonable debates
such as this one are resolved in favor of upholding state laws.
The states do, after all, play a crucial role in our
constitutional scheme. To override their judgments casually
would be to undermine a cornerstone of our federal system: the
state police power. Courts enforcing the dormant Commerce Clause
were “never intended to cut the States off from legislating on
[] subjects relating to the health, life, and safety of their
citizens.” Sherlock v. Alling, 93 U.S. 99, 103 (1876). That is
their lifeblood, and we shall not constrict it here.
Appellants, to their credit, are not done. They charge that
the entirety of Virginia’s evidence in support of its purported
interests amounts to mere “hearsay and speculation, unsupported
by any fact or expert testimony.” Appellants’ Br. at 40. They
also contrast Virginia’s lack of expert testimony on the general
effectiveness of CON programs with their expert’s declaration
27
that “CON laws produce little or no real benefits even as they
impose costs on taxpayers and patients.” J.A. 828.
Appellants’ empirical arguments are, again, more suited to
a legislature than a court. While we have held that the state
interests considered in Pike balancing must not be “entirely
speculative,” Medigen of Ky., Inc. v. Pub. Serv. Comm'n of W.
Va., 985 F.2d 164, 167 (4th Cir. 1993), Virginia’s are not so
here. The Commonwealth has supported them with reasonable
argument and the record testimony of individuals well versed in
the CON program’s aims. To require Virginia to submit expert
testimony or provide bullet-proof empirical backing for every
legislative judgment is a requirement bereft of any limiting
principle. Most legislation, after all, relies on assumptions
that can be empirically challenged. Were we to engage in an
exhaustive empirical battle in, for starters, every dormant
Commerce Clause case, there would be no end to judicial
interference with legislation touching no end of subject
matters. Our federal system would end up as the loser.
The same reasoning explains why we reject appellants’
argument that Virginia should have to prove that benefits flow
from the CON program’s “requirements for medical-imaging
devices” in particular, and not just from the CON program in
general. Appellants’ Br. at 39. That argument draws us deep into
the weeds. Were we to allow device-by-device litigation over
28
what medical equipment the CON program might constitutionally
cover and what it might not, litigation would become the main
arena and the undermining of legislation would have no end.
In Department of Revenue of Kentucky v. Davis, the Supreme
Court rejected arguments similar to those made here. That case
involved a challenge to a state method of taxing income earned
from state and local bonds. Kentucky, along with forty other
states, used a “differential tax scheme” in which interest
income derived from bonds issued by the state and its
subdivisions was not subject to a state income tax, even though
interest income earned from the bonds of other states was
taxable. Davis, 553 U.S. at 332-35. The Court rejected the
challenge to the law under Pike. It noted both the challengers’
argument that the law “blocks” other states from “access to
investment” and “harms the national municipal bond market . . .
by distorting and impeding the free flow of capital,” and the
countervailing possibility that the law might pose an
“advantage . . . for bonds issued by [] smaller municipalities,”
who without it might lack “ready access to any other bond
market.” Id. at 353-55. Under such circumstances, Pike balancing
lay beyond the judicial ken. Id. at 355. As in the case before
us, the “most significant” aspect of “these cost-benefit
questions [was] not even the difficulty of answering them . . .
but the unsuitability of the judicial process” for “reaching
29
whatever answers are possible at all.” Id. “[A]n elected
legislature is the preferable institution for incurring the
economic risks of any alteration in the way things have
traditionally been done.” Id. at 356. So too here.
D.
The Framers wisely aimed to “avoid the tendencies toward
economic Balkanization that had plagued relations among the
Colonies.” Hughes, 441 U.S. at 325-26. Our jurisprudence has
respected that fact. But every regulatory response to a complex
economic problem is not ripe for a Pike balancing challenge. The
healthcare market is infamously complicated, with patients,
providers, insurers, government, and many others all attempting
to come to terms over a particular service touching physical
wellbeing and sometimes even life itself. Here thirty-six
states, some of whom appeared before us as amici, have some
variety of CON program. Their combined ability to act as
“laboratories for experimentation” in such a complex field
warrants our respect. See United States v. Lopez, 514 U.S. 549,
581 (1995) (Kennedy, J., concurring). Here Virginia has
experimented not only by creating a CON program, but by tweaking
and modifying it over decades. None of the foregoing discussion
proves that the Commonwealth’s approach is the very best way to
deliver its citizens quality healthcare. It may or may not be.
It is anything but clear, however, that courts can lead the way
30
in providing a better path. While we cannot say whether
Virginia’s program is ultimately wise, it most certainly is
constitutional. The judgment is affirmed.
AFFIRMED
31
Colon Health Centers of America, LLC v. Hazel
Court: Court of Appeals for the Fourth Circuit
Date filed: 2016-01-21
Citations: 813 F.3d 145
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