Lawsuit challenges state CON laws

A second lawsuit has landed in the federal courts challenging the constitutionality of state certificate-of-need laws that regulate when and how healthcare providers operate.

The latest lawsuit, Colon Health Centers of America v. Bill Hazel (PDF) was filed in the eastern district of Virginia by a libertarian law firm, on behalf of two out-of-state physician practices that say they cannot overcome the regulatory hurdles the state has established to set up clinics and buy medical equipment.

The doctors claim that the state's unusually restrictive law violates the Constitution's Commerce Clause by favoring in-state businesses and inhibiting commerce across state lines. Hazel is the secretary of the state Department of Health and Human Resources.

This same type of so-called “dormant Commerce Clause” argument surprised some legal experts last year when the 9th U.S. Circuit Court of Appeals in Seattle ruled in August that hospitals' rights to engage in interstate commerce may trump the Washington state certificate-of-need law.

The circuit judges in Yakima Valley Memorial Hospital v. Washington State Department of Health sent that case back to the trial judge for a decision on whether Washington's certificate of need law was merely an “incidental” restraint on interstate commerce, which would be legal. That case is set for a bench trial on Sept. 4, court records say.

The legal principle is called the dormant Commerce Clause because it involves allegations that a state has violated Congress' sole powers to regulate interstate commerce, even though Congress has not chosen to exercise the power in that situation, making it a violation of a “dormant” power.

In Colon Health Centers, two plaintiffs are involved. One plaintiff is a Maryland-based orthopedic and neurological imaging group called Progressive Radiology, which sold its diagnostic testing center in Virginia to HealthSouth in 1995, and then watched as the center changed corporate hands several times and then terminated its contract to provide radiology services at the office, the lawsuit says. The company says it cannot afford the legal costs or time requirements to get state permission to purchase new magnetic-resonance imaging equipment from out-of-state companies.

The other plaintiff is Colon Health Centers of America, a Delaware firm that was denied permission to open three clinics in Virginia for colon cancer screening after state and regional officials ruled that additional centers were not needed—a position advocated in administrative filings by the established providers who would be Colon Health Centers' competitors in the cities, the lawsuit says.

The two physician offices are being represented by the Arlington, Va.-based not-for-profit Institute of Justice, which describes itself as a “libertarian public interest law firm.”

The lawsuit seeks to invalidate Virginia's entire certificate-of-need law on the basis that violates Congress' power to regulate interstate commerce, and several other grounds.