Filed: Oct. 23, 2013
Latest Update: Mar. 28, 2017
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-2272 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 Chairman of the Virginia State Board of Health; PAUL CLEMENTS, in his official capacity as member of the Virginia State Board of Health; KAY R. CURLING, in her
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-2272 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 Chairman of the Virginia State Board of Health; PAUL CLEMENTS, in his official capacity as member of the Virginia State Board of Health; KAY R. CURLING, in her o..
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-2272
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 Chairman of the Virginia State Board of Health; PAUL
CLEMENTS, in his official capacity as member of the Virginia
State Board of Health; KAY R. CURLING, in her official
capacity as member of the Virginia State Board of Health;
ERIC DEATON, in his official capacity as member of the
Virginia State Board of Health; JOHN DETRIQUET, in his
official capacity as member 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; H. ANNA JENG, in her official
capacity as member of the Virginia State Board of Health;
CHARLES K. JOHNSON, in his official capacity as member of
the Virginia State Board of Health; BENNIE MARSHALL, in his
official capacity as member of the Virginia State Board of
Health; MARY MCCLUSKEY, in her 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; GAIL TAYLOR, 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 Acting
Director of the Office of Licensure and Certification and
Director of the Division of Certificate of Public Need;
MAUREEN DEMPSEY, in her official capacity as State Health
Commissioner; JOHN W. SEEDS, in his official capacity as
member of the Virginia State Board of Health,
Defendants - Appellees.
------------------------------
PACIFIC LEGAL FOUNDATION; CURVEBEAM, LLC,
Amici Supporting Appellants.
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: September 19, 2013 Decided: October 23, 2013
Before WILKINSON and KING, Circuit Judges, and Samuel G. WILSON,
United States District Judge for the Western District of
Virginia, sitting by designation.
Affirmed in part, reversed in part, and remanded by published
opinion. Judge Wilkinson wrote the opinion, in which Judge King
and Judge Wilson joined. Judge Wilson wrote a concurring
opinion.
ARGUED: Robert McNamara, INSTITUTE FOR JUSTICE, Arlington,
Virginia, for Appellants. Earle Duncan Getchell, Jr., OFFICE OF
THE ATTORNEY GENERAL OF VIRGINIA, Richmond, Virginia, for
Appellees. ON BRIEF: William H. Mellor, Lawrence Salzman,
Darpana M. Sheth, INSTITUTE FOR JUSTICE, Arlington, Virginia,
for Appellants. Kenneth T. Cuccinelli, II, Attorney General of
Virginia, Michael H. Brady, Assistant Solicitor General,
Patricia L. West, Chief Deputy Attorney General, Wesley G.
Russell, Jr., Deputy Attorney General, OFFICE OF THE ATTORNEY
GENERAL OF VIRGINIA, Richmond, Virginia, for Appellees. Timothy
Sandefur, PACIFIC LEGAL FOUNDATION, Sacramento, California, for
Amicus Pacific Legal Foundation. Lewis S. Wiener, David W.
Arrojo, SUTHERLAND ASBILL & BRENNAN LLP, Washington, D.C., for
Amicus Curvebeam, LLC.
2
WILKINSON, Circuit Judge:
Appellants are out-of-state medical providers who seek to
open facilities in Virginia similar to those they operate in
other states. They are hindered by Virginia’s certificate-of-
need requirement, which they challenged in the court below under
a variety of constitutional theories. That court dismissed the
suit for failure to state a claim upon which relief could be
granted. We reverse the dismissal of appellants’ Commerce Clause
claims, affirm the dismissal of their Fourteenth Amendment
claims, and remand for further proceedings in accordance with
this decision.
I.
A.
In order to launch a medical enterprise in the state of
Virginia, a firm is required to obtain a “certificate of public
need.” Va. Code Ann. §§ 32.1-102.1 et. seq.; 12 Va. Admin. Code
§§ 5-220-10 et seq. Virginia’s certificate-of-need program
governs most medical capital expenditures undertaken in the
state, including the construction of new facilities and the
addition of new equipment or services to an existing facility.
It does not, however, apply to the replacement of existing
equipment. At its core, the program mandates that an applicant
demonstrate, within the relevant region, a public need for the
3
service that it seeks to offer. Va. Code Ann. § 32.1-102.3(A).
The primary purposes of the requirement are to preclude the
development of excess capacity, to ensure proper geographical
distribution of medical facilities, to protect the economic
viability of existing providers, and to promote the provision of
cost-effective medical services. Appellees’ Br. at 2-3.
In determining whether a particular applicant has
demonstrated a sufficient public need for its proposed services,
the State Health Commissioner is required to consider a variety
of factors. Va. Code Ann. § 32.1-102.3(B)(1)-(8). No single
factor is dispositive. The Commissioner must consider, for
instance, “[t]he extent to which the proposed service or
facility fosters institutional competition that benefits the
area to be served,” in addition to “[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. § 32.1-102.3(B)(4)-(5).
Firms that desire to obtain a certificate of need are
required to navigate a potentially lengthy, costly, and
unpredictable application process. The cost of applying is
pegged at one percent of the proposed expenditure, with a cap of
$20,000. In the review scheme, different types of submissions
are grouped into subcategories for simultaneous review in a
process referred to as “batching.” The statute facially requires
4
the review process to be completed within 190 days of the start
of the relevant batching cycle.
Following the submission of an application, the appropriate
regional health planning agency must complete its initial
investigation within 60 days. This stage of review includes a
public hearing in proximity to the site of the proposed
expenditure. Affected persons are permitted to submit data to
assist the agency in its task. Subsequent to this preliminary
examination, the agency must provide the Department of Health
with its recommendation regarding the disposition of the
application.
The Department is then required to determine whether an
informal fact-finding conference is warranted. Such a conference
will be held if the Department independently determines that it
is necessary or if an intervening party demonstrates that good
cause exists to hold such a hearing. Good cause exists if “(i)
there is significant relevant information not previously
presented at and not available at the time of the public
hearing, (ii) there have been significant changes in factors or
circumstances relating to the application subsequent to the
public hearing, or (iii) there is a substantial material mistake
of fact or law in the Department staff’s report on the
application or in the report submitted by the health planning
5
agency.” Id. § 32.1-102.6(G); see also 12 Va. Admin. Code § 5-
220-230(A).
The date on which the record closes varies depending on
whether an informal fact-finding conference is conducted. An
application is deemed approved if the Commissioner fails to
issue a decision within 70 days of the closing of the record.
Appellants allege that “[w]ithout an informal fact-finding
conference, the entire application process and review can take
six to seven months to complete. If an informal fact-finding
conference is requested by any person, the certificate-of-need
process can take significantly longer.” Compl. ¶ 136. In their
brief before this court, appellants elaborate on this claim by
asserting that the process “can take literally years.”
Appellants’ Br. at 11.
B.
Appellants, Colon Health Centers and Progressive Radiology,
are medical providers who seek to avoid the purportedly onerous
burdens imposed by the certificate application process. Each
desires to offer potentially valuable services in the Virginia
market. Colon Health “combines the advantages of the two
prevailing colon-cancer screening methods in a ‘one-stop shop’
that screens, diagnoses, and treats colon cancer.” Compl. ¶ 47.
Traditional colon-cancer screening involves an invasive
procedure referred to as optical colonoscopy. The alternative,
6
virtual colonoscopy, relies on noninvasive computed tomography
(CT) scans but, unlike optical colonoscopy, does not permit the
treating physician to immediately remove any detected polyps.
Instead, a second visit is typically required.
Colon Health circumvents this problem by exporting the
images captured via virtual colonoscopy to a team of
radiologists, who immediately scan the images for polyps. They
report their conclusions within an hour to an on-site
gastroenterologist, who is able to perform the necessary surgery
without recalling the patient for a second visit. This
streamlined approach reduces the cost and inconvenience of
colonoscopy, thus encouraging a higher percentage of at-risk
individuals to undergo screening.
Colon Health currently provides joint virtual colonoscopy
and treatment services at offices in Delaware and New Jersey.
Its attempts to enter the Virginia market, however, were stymied
after potential competitors intervened to oppose its
certificate-of-need application. Id. ¶ 140. It alleges that, in
the absence of the certificate requirement (which covers CT
scanners), it would open Virginia facilities offering its unique
package of services.
Progressive Radiology specializes in using magnetic
resonance imaging (MRI) to diagnose neurological and orthopedic
injuries. Id. ¶¶ 75-76. Progressive currently maintains
7
radiology facilities in Maryland and the District of Columbia.
It formerly operated a radiology business in Virginia, but
ceased to do so when the facility which had contracted for its
services was purchased and the contract subsequently terminated.
Like Colon Health, Progressive alleges that the certificate
requirement, which covers MRI machines, deters it from providing
its specialized services in the Commonwealth. Progressive
estimates that it would serve approximately 400 patients per
month if it were permitted to reenter the market.
Notably, Virginia does not contend that either Colon Health
or Progressive is unqualified to render the services that each
seeks to offer in the state, nor does it deny that the firms’
respective facilities would be financed entirely by private
sources of funding. It also makes no attempt to contest
appellants’ assertion that the proffered services are medically
uncontroversial and would be performed by state-licensed
physicians. Id. ¶ 41.
Appellants challenged the certificate program in the
district court, alleging that it violates the dormant Commerce
Clause in addition to the Fourteenth Amendment’s Equal
Protection, Due Process, and Privileges or Immunities Clauses.
The court concluded, with respect to the dormant Commerce
Clause, that the certificate-of-need program was
nondiscriminatory, served legitimate local purposes, and imposed
8
negligible burdens on interstate commerce. J.A. 142-47. With
respect to appellants’ Fourteenth Amendment challenges, the
district court held that the statute was supported by a rational
basis. Id. at 131-42. In an opinion that reproduced, almost
verbatim, appellees’ memorandum in support of their motion to
dismiss, the court dismissed the entire suit under Federal Rule
of Civil Procedure 12(b)(6) for failure to state a claim. Id. at
147. This appeal followed.
II.
Appellants’ most serious challenge to the certificate-of-
need requirement is predicated on the dormant aspect of the
Constitution’s Commerce Clause. The Commerce Clause authorizes
Congress “[t]o regulate Commerce . . . among the several
States.” U.S. Const. art. I, § 8, cl. 3. By its terms, the
clause does not explicitly restrain the conduct of the states.
It is “well-established,” however, “that this affirmative grant
of authority implies a ‘negative’ or ‘dormant’ constraint on the
power of the States to enact legislation that interferes with or
burdens interstate commerce.” Brown v. Hovatter, 561 F.3d 357,
362 (4th Cir. 2009) (citing Dennis v. Higgins,
498 U.S. 439, 447
(1991)). As relevant here, “[t]he dormant Commerce Clause is
implicated by burdens placed on the flow of interstate commerce
9
-- the flow of goods, materials, and other articles of commerce
across state lines.” Id. at 364.
Modern dormant Commerce Clause jurisprudence is motivated
primarily by a desire to limit “economic protectionism -- that
is, regulatory measures designed to benefit in-state economic
interests by burdening out-of-state competitors.” Dep’t of
Revenue of Ky. v. Davis, 553 U.S. 328, 337-38 (2008) (internal
quotation marks omitted). By invalidating statutes that
unlawfully impede interstate commerce, courts effectuate the
Framers’ desire to prevent the “economic Balkanization” “‘that
had plagued relations among the Colonies and later among the
States under the Articles of Confederation.’” Id. at 338
(quoting Hughes v. Oklahoma,
441 U.S. 322, 325-26 (1979)).
A.
As the Court’s concern with economic protectionism
suggests, “[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). “‘[D]iscrimination’ simply means
differential treatment of in-state and out-of-state economic
interests that benefits the former and burdens the latter.”
Oregon Waste Sys., Inc. v. Dep’t of Envtl. Quality,
511 U.S. 93,
99 (1994). A statute may discriminate “facially, in its
practical effect, or in its purpose.” Envtl. Tech. Council v.
10
Sierra Club, 98 F.3d 774, 785 (4th Cir. 1996) (citing Wyoming v.
Oklahoma,
502 U.S. 437, 454-55 (1992)).
The discrimination test thus has an empirical as well as a
formal dimension: merely noting a law’s facial neutrality is
insufficient under this analysis. “The principal focus of
inquiry must be the practical operation of the statute, since
the validity of state laws must be judged chiefly in terms of
their probable effects.” Lewis v. BT Inv. Managers, Inc., 447
U.S. 27, 37 (1980); see also Yamaha Motor Corp. v. Jim’s
Motorcycle, Inc.,
401 F.3d 560, 568 (4th Cir. 2005). In order to
prove discriminatory effect, for instance, plaintiffs must
demonstrate that the challenged statute, “if enforced, would
negatively impact interstate commerce to a greater degree than
intrastate commerce.” Waste Mgmt. Holdings, Inc. v. Gilmore,
252
F.3d 316, 335 (4th Cir. 2001).
In conducting the discrimination inquiry, a court should
focus on discrimination against interstate commerce -- not
merely discrimination against the specific parties before it.
See Exxon Corp. v. Governor of Md., 437 U.S. 117, 127 (1978)
(noting that the Commerce Clause “protects the interstate
market, not particular interstate firms”). The district court
opinion here appeared to contravene this principle at various
points. See J.A. 145-46 (declining to find a substantial burden
on interstate commerce in part because appellants are “two
11
relatively small businesses”). Focusing exclusively on
discrimination against individual firms, however, improperly
narrows the scope of the judicial inquiry and has the baneful
effect of precluding certain meritorious claims. For while the
burden on a single firm may have but a negligible impact on
interstate commerce, the effect of the law as a whole and in the
aggregate may be substantial.
B.
State laws that discriminate against interstate commerce in
any of the three ways identified by this court -- facially, in
practical effect, or in purpose -- are subject to “a virtually
per se rule of invalidity.” Wyoming, 502 U.S. at 454-55
(internal quotation marks omitted). Under this variant of
“strict scrutiny analysis,” Waste Mgmt. Holdings, 252 F.3d at
334, a court must invalidate the challenged law “unless the
state demonstrates ‘both that the statute serves a legitimate
local purpose, and that this purpose could not be served as well
by available nondiscriminatory means.’” Yamaha, 401 F.3d at 567
(quoting Maine v. Taylor, 477 U.S. 131, 138 (1986) (internal
quotation marks omitted)).
Here, appellants concede that Virginia’s certificate-of-
need law is not facially discriminatory. Appellants’ Br. at 21
n.3. The statute applies to all firms that seek to engage in the
covered activities (e.g., expansion of an existing facility or
12
construction of a new one), regardless of their geographical
location.
Appellants do, however, allege discrimination in both
purpose and effect. Compl. ¶¶ 200-07. With respect to purpose,
they declare that “[t]he primary goal of Virginia’s certificate-
of-need program is to provide current healthcare providers with
a government-backed shield from competition.” Id. ¶ 103. More
concretely, they point to an implementing regulation which
states that the certificate requirement is intended, at least in
part, to “‘discourage[] the proliferation of services that would
undermine the ability of essential community providers to
maintain their financial viability.’” Id. ¶ 104 (quoting 12 Va.
Admin. Code § 5-230-30). Under this theory, since current
medical providers are by definition in-state entities, a major
purpose of the certificate requirement is to protect them at the
expense of new out-of-state entrants, such as Colon Health and
Progressive. Id. ¶¶ 43, 103, 200.
Appellants’ allegations of discriminatory effect are rooted
in the administrative process prescribed by the statutory text.
As noted, the relevant code sections include a proviso
authorizing individuals to request an informal fact-finding
conference to further examine the implications of a particular
application. Va. Code Ann. § 32.1-102.6; see also 12 Va. Admin.
Code § 5-220-230(A). Appellants assert that the default process
13
requires between six and seven months to complete, but that the
addition of an informal fact-finding conference can result in
the process taking “significantly longer.” Compl. ¶ 136. Such a
prolonged delay may occur in part because, “[d]espite the
‘informal’ label, [fact-finding conferences] can resemble full-
blown litigation, involving attorneys, adversarial parties, and
expert witnesses.” Id. ¶ 134. Appellants further allege that,
“[u]pon information and belief, fact-finding conferences are
almost exclusively requested by entities that would be in
economic competition with” the applicant. Id. ¶ 137.
According to this characterization, Virginia’s certificate-
of-need program grants established, in-state economic interests
the power to obstruct the market entrance of new, primarily out-
of-state competitors in two ways. First, by requesting fact-
finding conferences, established interests can dramatically
lengthen the application process, thus increasing the costs and
uncertainty borne by the applicant. Second, objecting firms may
influence the substantive outcome of the process through an
effective adversarial presentation at the conference. Apart from
these practical advantages, the intervention proviso also grants
a structural edge to local firms: if an established, in-state
facility desires to expand its operations, it will necessarily
face one fewer objector than would an out-of-state firm that
seeks to enter the market de novo -- itself.
14
All these allegations raise practical questions of fact. It
is entirely possible that in-state interests frequently
commandeer the process to derail the applications of out-of-
state firms, but whether this outcome actually obtains cannot be
resolved without examining the functioning of the statute in
practice. Similarly, it may be that the Commissioner, although
charged with considering a variety of factors, focuses
exclusively on protecting existing businesses. See Walgreen Co.
v. Rullan, 405 F.3d 50, 55 (1st Cir. 2005) (“[T]he Act
discriminates against interstate commerce by permitting the
Secretary to block a new pharmacy from locating in its desired
location simply because of the adverse competitive effects that
the new pharmacy will have on existing pharmacies.”). Whether
this actually occurs, however, cannot be ascertained in the
absence of proper fact-finding.
Thus, determining whether Virginia’s certificate-of-need
law discriminates in either purpose or effect necessarily
requires looking behind the statutory text to the actual
operation of the law. This conclusion is confirmed by a host of
precedents which have repeatedly emphasized the factual nature
of the dormant Commerce Clause inquiry. The Supreme Court has
observed, for instance, that “when considering the purpose of a
challenged statute, [courts are] not bound by [t]he name,
description or characterization given it by the legislature or
15
the courts of the State, but will determine for [themselves] the
practical impact of the law.” Hughes, 441 U.S. at 336 (internal
quotation marks omitted). In this respect, the Court has
consciously “eschewed formalism for a sensitive, case-by-case
analysis of purposes and effects.” West Lynn Creamery, Inc. v.
Healy, 512 U.S. 186, 201 (1994).
The fact-intensive quality of the substantive inquiry
assumes heightened importance when considered in light of the
procedural posture of the instant dispute. “To survive a motion
to dismiss, a complaint must [merely] contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atlantic Corp. v. Twombly,
550 U.S. 544,
570 (2007)). Rule 12(b)(6) “does not countenance . . .
dismissals based on a judge’s disbelief of a complaint’s factual
allegations.” Neitzke v. Williams,
490 U.S. 319, 327 (1989).
Here, appellants’ claims of discrimination are sufficient “to
raise [their] right to relief above the speculative level.”
Twombly, 550 U.S. at 555. They therefore satisfy the standard
articulated in the above precedents. The district court gave a
serious claim the back of its hand. This was error.
C.
Even if Virginia’s certificate-of-need requirement
discriminates neither in purpose nor in effect, it may still be
16
unconstitutional under Pike v. Bruce Church, Inc., 397 U.S. 137
(1970), if it places an “undue burden” on interstate commerce.
Yamaha, 401 F.3d at 567. “Where [a] statute regulates even-
handedly to effectuate a legitimate local public interest, and
its effects on interstate commerce are only incidental, it will
be upheld unless the burden imposed on such commerce is clearly
excessive in relation to the putative local benefits.” Pike, 397
U.S. at 142.
Unlike the more exacting standard of review employed in the
context of discriminatory statutes, “[a] ‘less strict scrutiny’
applies under the undue burden tier.” Yamaha, 401 F.3d at 567
(quoting Wyoming, 502 U.S. at 455 n.12). The putative benefits
of a challenged law are evaluated under the rational basis test,
id. at 569, though “speculative” benefits will not pass muster,
Medigen of Ky., Inc. v. Pub. Serv. Comm’n, 985 F.2d 164, 167
(4th Cir. 1993). “The Pike test requires closer examination,
however, when a court assesses a statute’s burdens, especially
when the burdens fall predominantly on out-of-state interests.”
Yamaha, 401 F.3d at 569. The test is therefore deferential but
not toothless. See Davis, 553 U.S. at 339.
Appellants contend that Virginia’s certificate-of-need
program “does not actually achieve any legitimate local
benefits.” Compl. ¶ 208. To substantiate this claim, appellants
cite a joint report issued by the Department of Justice and the
17
Federal Trade Commission concluding that certificate “programs
are not successful in containing health care costs, and . . .
pose serious anticompetitive risks that usually outweigh their
purported economic benefits.” Id. ¶ 99. Appellants also allege
that the Virginia program substantially burdens the interstate
market for both medical devices and services. Id. ¶¶ 194-99,
202.
Appellants’ contentions find some support in the case law.
For example, with regard to putative local benefits, the Medigen
court invalidated a certificate-of-need program because
“[r]estricting market entry” not only fails to expand service
availability, but also “does nothing to [e]nsure that services
are provided at reasonable prices.” 985 F.2d at 167.
Furthermore, with respect to burdens on interstate commerce,
Virginia’s certificate program may be “uniquely anti-competitive
even as [certificate-of-need] laws go.” Yamaha, 401 F.3d at 571.
Apart from Virginia, only Connecticut and Michigan are said to
have similarly onerous certificate requirements for low-value
devices like CT and MRI scanners. Br. for Curvebeam, LLC as
Amicus Curiae at 23. Finally, this court has recognized that
when the burdens of a challenged law fall primarily on out-of-
state economic interests -- as appellants allege is the case
with respect to Virginia’s statute -- the state’s political
18
process cannot be relied upon to rectify legislative abuse.
Yamaha, 401 F.3d at 573.
The Pike inquiry, like the discrimination test, is fact-
bound. “If a legitimate local purpose is found, then the
question becomes one of degree. And the extent of the burden
that will be tolerated will of course depend on the nature of
the local interest involved, and on whether it could be promoted
as well with a lesser impact on interstate activities.” Pike,
397 U.S. at 142. We shall not attempt to forecast what further
investigation may demonstrate. The fact-intensive character of
this inquiry, however, counsels against a premature dismissal.
As noted above, in order to survive a motion to dismiss,
plaintiffs’ “[f]actual allegations must be enough to raise a
right to relief above the speculative level, . . . on the
assumption that all the allegations in the complaint are true
(even if doubtful in fact).” Twombly, 550 U.S. at 555. In the
instant case, appellants have succeeded in “nudg[ing] their
claims across the line from conceivable to plausible.” Id. at
570. This particular challenge too presents issues of fact that
cannot be properly resolved on a motion to dismiss. The district
court therefore erred in dismissing appellants’ Pike claim.
D.
On remand, the factual development of the dormant Commerce
Clause claims should focus primarily on the discriminatory
19
effects test. In particular, the proceedings must investigate
the differential burdens imposed on out-of-state and in-state
firms subject to the certificate-of-need process. The fulcrum of
this inquiry will be whether the certificate requirement erects
a special barrier to market entry by non-domestic entities. As
noted, the district court should not confine its focus to the
effect on appellants alone, but should instead survey the burden
imposed on interstate commerce generally.
The discriminatory effects test represents the superior
framework of analysis for two reasons. First, this standard,
although fact-intensive, has the virtue of providing a clearer
measure by which to gauge the challenged statute’s validity. The
Pike test is often too soggy to properly cabin the judicial
inquiry or effectively prevent the district court from assuming
a super-legislative role. See, e.g., Davis, 553 U.S. at 353
(declining to apply Pike because “the Judicial Branch is not
institutionally suited to draw reliable conclusions of the kind
that would be necessary for [plaintiffs] to satisfy a Pike
burden in this particular case”). Second, the factual material
relevant to the Pike standard largely overlaps with evidence
germane to the discrimination test. In both inquiries, the
effect of the challenged statute on out-of-state firms
constitutes the principal focus. Discovery on the issue of
20
discrimination should therefore substantially suffice with
respect to Pike, as well.
Although the precise effects of the certificate program can
only be uncovered via fact-finding, further inquiry is likely to
confirm that the requirement produces one of three possible
outcomes. First, the district court may discover that the
certificate program has significant, deleterious effects on
interstate commerce. The bureaucratic red tape foisted upon
businesses by the program may well be so cumbersome that, as a
functional matter, it imposes a major burden on interstate
commerce and discourages out-of-state firms from offering
important medical services in Virginia.
Second, it seems less likely, though conceivable, that the
requirement produces the opposite effect and actually stimulates
interstate commerce. In this scenario, firms are encouraged to
enter the market because the certificate program ensures that
they will have time to build patient goodwill, establish the
necessary business and referral relationships, and generally
acquire a market foothold before being economically submerged.
In essence, the certificate requirement theoretically grants
out-of-state firms a limited safe harbor to recoup the sizeable
capital investment that the establishment of a medical facility
requires.
21
Finally, the certificate program’s effect on interstate
commerce may be entirely neutral, or at least sufficiently
insubstantial to avoid implicating the dormant Commerce Clause.
The point is: we do not know. It is impossible to ascertain
which of these potential outcomes actually obtains without
examining the practical operation of the statute and the actual,
concrete effects it has on out-of-state firms seeking to enter
the Virginia market.
III.
Appellants also assert a battery of claims under the
Fourteenth Amendment. Specifically, they allege that Virginia’s
certificate-of-need requirement violates the Equal Protection,
Due Process, and Privileges or Immunities Clauses. Unlike the
Commerce Clause, the Fourteenth Amendment is not primarily
focused on commerce and economic discrimination against out-of-
state interests, and its general provisions provide
correspondingly less warrant for close judicial supervision. For
the reasons that follow, we affirm the district court’s
dismissal of each of these claims.
A.
First, appellants argue that the certificate requirement
violates the Equal Protection Clause of the Fourteenth
Amendment. This particular claim centers on the statute’s
22
treatment of nuclear cardiac imaging, which is exempted from the
certificate-of-need requirement. Compl. ¶ 110. Appellants
contend that nuclear cardiac imaging is “similarly situated to
other types . . . of medical imaging,” id. ¶ 111, and that the
differential treatment of the two is irrational and therefore
unconstitutional. See City of Cleburne v. Cleburne Living Ctr.,
473 U.S. 432, 439 (1985).
Non-suspect classifications -- such as the one at issue
here -- are “accorded a strong presumption of validity,” Heller
v. Doe, 509 U.S. 312, 319 (1993), and must be upheld “if there
is any reasonably conceivable state of facts that could provide
a rational basis” for the distinction, FCC v. Beach Commc’ns,
Inc.,
508 U.S. 307, 313 (1993). This deferential standard is
informed by the principle that “equal protection is not a
license for courts to judge the wisdom, fairness, or logic of
legislative choices.” Id.
Here, Virginia has articulated sufficient justifications
for the nuclear cardiac imaging exemption to survive rational
basis scrutiny. State legislators could reasonably have
concluded, for instance, that nuclear cardiac imaging services
are provided in a different market than other imaging services,
and thus less susceptible to the dangers of excess capacity or
geographical misallocation. Appellees’ Br. at 54; see also 12
Va. Admin. Code § 5-230-30. Moreover, appellants have provided
23
no general context or perspective to support their equal
protection challenge, and we are disinclined to pick apart the
Virginia statute specialty by specialty or to unravel a complex
medical regulatory scheme strand by strand. We thus affirm the
district court’s dismissal of appellants’ equal protection
claim.
B.
Second, appellants argue that the certificate requirement
violates the Fourteenth Amendment’s Due Process Clause.
Appellants’ specific claim, which seeks to import further
substantive rights into a clause whose focus is procedural,
rests on the contention that the certificate program
irrationally burdens appellants’ right to earn a living and
fails to advance any state purpose other than bald economic
protectionism. Compl. ¶¶ 221-25.
The certificate-of-need program does not infringe any
fundamental or enumerated right and is therefore subject to
rational basis review under the Due Process Clause. See
Washington v. Glucksberg, 521 U.S. 702, 719-20 (1997). Rational
basis scrutiny in the due process context -- as in the equal
protection context -- is quite deferential. See Star Scientific
Inc. v. Beales,
278 F.3d 339, 348-49 (4th Cir. 2002).
Here, appellants have failed to plausibly rebut the state’s
asserted justifications for the certificate-of-need program. The
24
state, both in its brief and its implementing regulations,
articulates a variety of legitimate purposes served by the
statute, including ensuring geographically convenient access to
healthcare for Virginia residents at a reasonable cost.
Appellees’ Br. at 49-50. Appellants’ cursory, unsubstantiated
assertion that the statute fails to advance this purpose or any
other is insufficient to merit further factual inquiry. As is
the case with their equal protection claim, appellants have
failed to state a plausible due process entitlement to relief.
Iqbal, 556 U.S. at 678. The district court’s dismissal of this
count is therefore affirmed.
C.
Finally, appellants contend that the certificate-of-need
program contravenes the “right to earn an honest living”
embodied in the Fourteenth Amendment’s Privileges or Immunities
Clause, which provides that “No State shall make or enforce any
law which shall abridge the privileges or immunities of citizens
of the United States.” They concede, however, that this
particular claim is foreclosed by the Supreme Court’s decision
in the Slaughter-House Cases, 83 U.S. 36, 79-80 (1872), which
confined the reach of that clause to a set of national rights
that does not include the right to pursue a particular
occupation. This court lacks the authority to disturb an
unimpeached precedent issued by a superior tribunal. State Oil
25
Co. v. Khan, 522 U.S. 3, 20 (1997). This is especially the case
where recognition of an unenumerated substantive right would
open the door to a host of textually dubious challenges to state
economic regulation of every sort. The district court’s
dismissal of appellants’ privileges or immunities claim is
therefore affirmed.
IV.
In sum, appellants’ Commerce Clause challenges require
closer scrutiny and further proceedings before the district
court, but the Fourteenth Amendment claims were properly
dismissed. We thus affirm in part, reverse in part, and remand
this case for further proceedings in accordance with this
decision.
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED
26
WILSON, District Judge, concurring:
Plaintiffs would like to render medical services in
Virginia with equipment they cannot utilize without first
proving to the Commonwealth that the competition they bring with
them will not harm established local health care providers. In
my opinion, little distinguishes such a regulatory system from
one that offends the dormant commerce clause by isolating local
interests from the national economy.
A handful of states initially developed certificate of need
regulations in the 1960s. Congress injected the certificate of
need regimen more broadly into national health care planning
when it enacted the National Health Planning and Resource
Development Act of 1974 (the “NHPRDA”), Pub. L. 93-641, 88 Stat.
2225, §§ 1-3, to control escalating health care costs and the
widely diverging availability of health care services. The
NHPRDA had the incidental effect of protecting the states’
certificate of need regimens from dormant commerce clause
scrutiny. But twelve years later, Congress repealed the NHPRDA,
Pub. L. 99-60, 100 Stat. 3743 (1986), after its failures had
become well past obvious. The NHPRDA’s repeal removed the
certificate of need’s shield from dormant commerce clause
scrutiny. Yet, twenty-seven years later, in Virginia, and
throughout much of the country, state certificate of need
regimens continue to grow and now regulate an enormous segment
27
of the national economy. The Virginia regimen explicitly
regulates its share of that economy by using the certificate of
need to “discourage[] the proliferation of services that would
undermine the ability of essential community providers to
maintain their financial viability.” 12 Va. Admin. Code § 5-230-
30 (2013). Stripped of its linguistic pretense, the
Commonwealth’s purpose is to protect established “community
providers” (i.e., established in-state interests) from the
effects of competition. Though this purpose or goal may be
legitimate, I find little difference in the means it employs to
accomplish that goal -- the limitation of competition -- from
illegitimate efforts to isolate local economic interests from
the national economy. Wyoming v. Oklahoma, 502 U.S. 437, 456-57
(1992) (noting the court has “often examined a ‘presumably
legitimate goal,’ only to find that the State attempted to
achieve it by ‘the illegitimate means of isolating the State
from the national economy’”). But even apart from its stated
purpose, in my view, a state regulatory system that chooses to
limit competition as its means to promote the delivery of health
care will still likely, if not inevitably, entangle itself with
the dormant commerce clause.
28
