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Suit challenging Va. health facility law revived

Larry o'Dell, Associated Press

RICHMOND, Va. (AP) -- A federal appeals court on Wednesday revived a lawsuit challenging a Virginia law that requires state approval for new or expanded medical facilities.

A three-judge panel of the 4th U.S. Court of Appeals unanimously ruled that a judge who dismissed the lawsuit must consider whether Virginia's "certificate of need" program violates the Commerce Clause of the U.S. Constitution by putting out-of-state health care providers at a competitive disadvantage.

The lawsuit was filed by Colon Health Centers of America and Progressive Radiology, two out-of-state companies that want to open clinics in Virginia. Under state law, applicants for new medical facilities must demonstrate a public need for the services. The purpose of the certificate of need program, which is administered by the Virginia health commissioner and the health department, is to prevent development of excess capacity and to protect the economic viability of existing providers.

According to the plaintiffs, the law allows local health care providers to stymie out-of-state competition by demanding and appearing at potentially lengthy and expensive fact-finding conferences.

U.S. District Judge Claude M. Hilton rejected that claim in September 2012. The appeals court said the law is not unconstitutional on its face because it also applies to in-state applicants, but a closer examination is required to determine whether it has the practical effect of discriminating against out-of-state competitors.

"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," Judge J. Harvie Wilkinson III wrote.

Attorneys for the Institute for Justice represented the plaintiffs in the lawsuit.

"The court today made clear that the Constitution prohibits this kind of economic protectionism and that courts have a duty to seriously engage with the facts of legal challenges like this," said institute attorney Darpana Sheth. "This is not just a victory for our clients, it's a victory for common sense. When private citizens want to invest in innovative and effective health care services, the last thing the government should be doing is stopping them."

The state attorney general's office did not immediately respond to a request for comment.

In their lawsuit, the out-of-state health care providers also claimed that the certificate of need law violates their equal protection and due process rights. The appeals court said Hilton properly rejected those claims, but not the Commerce Clause challenge.

"The district court gave a serious claim the back of its hand," Wilkinson wrote. "This was error."


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