Steptoe & Johnson PLLC: 4th Circuit Rules CON Statute May Discriminate Against Providers

Steptoe & Johnson PLLC: 4th Circuit Rules CON Statute May Discriminate Against Providers

By Gordon H. Copland |

A recent decision suggesting that the Virginia Certificate of Need (“CON”) law may be unconstitutional has widespread implications for CON laws around the country, including West Virginia and Kentucky.  The surprising decision, by the Court of Appeals for the Fourth Circuit, held that the Virginia CON statute may be unconstitutional because it discriminates against out-of-state providers, or burdens interstate commerce, in violation of the Commerce Clause of the United States Constitution.  Colon Health Ctrs. Of America, LLC v. Hazel, No. 12-2272 (4th Cir. Oct. 24, 2013) [enhanced opinion available to lexis.com subscribers].

There was no final decision because the Fourth Circuit held that a more detailed factual record needed to be developed.  The Court, however, reversed the finding of a district court that Virginia’s CON laws did not violate the Commerce Clause.  The rationale of the Fourth Circuit and the factors the Court identified as constitutionally relevant, suggest a strong possibility that the law will be held unconstitutional.  One of the three judges, in a separate concurring opinion, suggested that CON laws in general had been proven to be failures and were facially invalid.

The decision is the first one to consider (at least at this level) a Commerce Clause challenge to a CON statute.  The Court discussed a number of potential problems but focused on the stated purpose of the statute to ensure “viability” of existing providers by preventing “excess capacity,” and the ability of existing providers to use their status as “affected parties” to suppress competition from new entrants, out-of-state.  CON statutes typically allow objections only from “affected parties,” and it is also a common feature to have, as a stated purpose, preventing “excess capacity,” either to ensure “viability” of existing providers or to ensure “access to care.”

The decision is likely to result in substantial challenges around the country, especially if the final decision (after the remand) invalidates the Virginia law.  The importance of the issue means it will likely reach the Supreme Court at some point.

Gordon Copland concentrates his practice in health care matters and complex litigation for health care and other clients. He routinely represents clients in matters before state and federal courts and agencies.

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