State CON laws may be unconstitutional – 9th Circuit

UPDATED – the case remands back to the district court – see at the bottom

Certificate of Need (CON) laws are a holdover from President Nixon’s foray into health planning:

The concept of certificate of need regimes, which many states enforce, is to avoid private parties making socially inefficient investments in health-care resources they might make if left unregulated. A certificate of need program corrects the market by requiring preapproval for certain investments and, in theory, thereby ensures that providers will make only necessary investments in health care.  Yakima Valley Memorial Hospital v. Washington, 2011.

President Reagan signed the repeal of federal support for CONs in 1986, but many states kept CON statutes on the books (see the detailed 50-state survey by NCSL), including the State of Washington.

The Yakima Valley Memorial Hospital occasionally performed percutaneous coronary interventions (PCI) in emergencies, but wanted to offer the procedure on an elective basis.  Examples of PCIs include moneymakers such as stent implantation and laser angioplasty.

Responding to evidence that higher procedural volumes improve quality, the State of Washington gave PCI licenses only if it projected 300 procedures a year at the facility. For Memorial, that meant that the only local PCI license would remain in the hands of its competition, the for-profit Yakima Regional Medical and Cardiac Center.  Unless Memorial could prove an unmet need for at least 300 additional PCIs a year in Yakima, it will never get a license to compete.

Health care lawyers see situations like this every day, with CON laws essentially defending market power and preventing competition, but also arguably improving quality by concentrating complex procedures into focused factories. Memorial loses this case under state law.

But Memorial had exceedingly clever attorneys, who won last week at the 9th Circuit with a novel argument:  state CON laws violate the dormant commerce clause:

Here, the barrier to interstate commerce is the requirement of a certificate of need to offer elective PCI to all patients, instate or out-of-state. By virtue of the certificate of need requirement, the Department prevents Memorial from soliciting out-of-state patients and competing in an interstate market to offer elective PCI services, activities that clearly involve interstate commerce. See Summit Health, Ltd. v. Pinhas, 500 U.S. 322, 329-30 (1991). Under Pike such incidental effects on interstate commerce are an unconstitutional barrier to trade if they are “clearly excessive in relation to the putative local benefits.” Pike, 397 U.S. at 142.

Unless the Supreme Court takes the case, or the 9th Circuit reverses en banc (ie, the entire 9th Circuit agrees to hear the case instead of just the 3 judge panel), many CON laws are now unconstitutional in the 9th Circuit, which is a radical earthquake to many local health care markets.

UPDATE #2:  As pointed out in the comments, this case remands to the district court now, where the case will be reheard to see whether the PCI license restriction violates the dormant commerce clause under the standard articulated by the 9th Circuit. We’ll have to wait and see what the district court says, but the case opens a constitutional front for all CON litigation in the 9th Circuit (especially in Washington), which is still a big deal.  Apologies for my error and thanks for the comment.

UPDATED: To explain en banc


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