• 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


    • With sadness because I’m a great fan of this blog, I must say that you seem to have deeply misunderstood this opinion – it hasn’t declared CONs unconstitutional at all, just sent the case back to the district court to reconsider under a different rule. Right after your quote about Pike, it says:

      We must decide whether Memorial has standing to raise a dormant Commerce Clause challenge under Pike, and if so, whether the PCI regulations are immunized by congressional authorization. The ultimate question of whether the PCI regulations survive Pike scrutiny is not before us. (emphasis added)

      In other words, they’re not deciding whether or not CONs are “clearly excessive in relation to the putative local benefits” – that’s for future determination. The three things this case decided were:

      (1) The law isn’t illegal under the Sherman antitrust act (not a dormant commerce clause issue).
      (2) The hospital does have standing to bring a dormant commerce clause case (the district court had said this too).
      (3) The district court had dismissed the dormant commerce clause argument on grounds that even if this was a possible issue, Congress had implicitly authorized the states to do this with the National Health Planning and Resources Development Act of 1974 (that tied some funding to CON laws). The circuit court decided that this argument is no longer valid since the NHPRDA was repealed in 1986.

      It concludes with:

      We hold that there is no antitrust preemption because the PCI regulations are a unilateral restraint of trade not subject to preemption. We also hold that Memorial has standing to raise a dormant Commerce Clause challenge under Pike, because the PCI regulations burden the free flow of commerce to Memorial’s financial detriment. We reverse judgment on the dormant Commerce Clause claim, however, because the Department failed to prove congressional authorization for its PCI certificate of need regulations. We remand for further proceedings on Memorial’s dormant Commerce Clause claim consistent with this opinion. The parties shall bear their own costs. (emphasis added again)

      So not only is this case far from over, on the question of whether CON laws follow dormant commerce clause jurisprudence, it’s essentially not even begun.

      • You’re totally right on the remand – many thanks. I didn’t mention the Sherman Act discussion because it wasn’t novel.

        I’ll update the post, with thanks.

        • Thanks for your quick reply. I agree with your non-inclusion of the Sherman Act part.

          To the actual issue, it does open up interesting realms of jurisprudence. I read the opinion in the first place because I was rather shocked that such a decision could be made – I can understand the dormant commerce clause principle in general because it is against the spirit of the Constitution for the states to impede interstate commerce in ways other than the explicitly banned imposts or duties, but if CON laws could be struck down on that grounds, surely practically anything could be. Especially worrying considering the tendency of the current Supreme Court to interpret more or less arbitrarily toward whatever big business wants (http://prospect.org/cs/articles?article=the_right_to_double_speak).

    • “Especially worrying considering the tendency of the current Supreme Court to interpret more or less arbitrarily toward whatever big business wants ”

      Some big businesses, such as the ones I represent, like the CON laws just fine, because it’s not worth their while to invest in a small hospital only to see competing providers pop up.

    • Consider the violation of civil rights we place our physicians in today. We limit their rights to create and compete in the medical world. CON forces physicians to become employed by ardent bureaucrats who take larger compensation with less education because the law prevents competition and BETTER health care delivery from doctors. As we know, if you can’t compete pay politicians to protect you. Start identifying which politicians are being paid by which hospitals and their bureaucrats. We are beginning to win our battle of this argument by exposing the cronyism.