Colon Health Centers of America, LLC v. Hazel

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

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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

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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.

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 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

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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

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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

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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

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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

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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

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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

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