A federal appeals court on Wednesday breathed new life into a legal challenge of a Virginia law that governs the installation of new medical facilities and equipment in the state — instructing a district court to reconsider whether the statute unconstitutionally inhibits interstate commerce.
In a 26-page opinion that partly reversed a lower court’s decision, a three-judge panel for the U.S. Court of Appeals for the Fourth Circuit seemed to criticize Virginia’s “certificate of public-need” law, which requires that medical companies seeking to build new facilities or install new medical equipment go through a lengthy and expensive process to prove the necessity of the new buildings or devices.
Although the judges did not find the law unconstitutional, they allowed a lawsuit against it to go forward and told a lower court, which had earlier tossed the suit, to examine, in particular, possible “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,” Judge J. Harvie Wilkinson III wrote in the opinion.
A lawyer for Delaware-based Colon Health Centers of America and Maryland-based Progressive Radiology — whose lawsuit had challenged the law — hailed the appeals court’s ruling as “definitely a win for our clients and for patients really all across Virginia.” A spokesman for the Virginia attorney general’s office said the state will defend the statute in future proceedings.
Certificate of public-need laws are not new or unique to Virginia. Designed to keep medical costs down by ensuring that states allow only the medical facilities and equipment residents need, the laws require companies wanting to construct such facilities to seek a permit from the state’s health commissioner.
In Virginia, the process can cost tens of thousands of dollars and take years — often held up by health-care companies that object to new construction by competitors, according to lawyers and court filings in the case. Colon Health Centers of America — which wants to build three centers for a noninvasive cancer-screening technique — and Progressive Radiology — which runs MRI businesses in Maryland and the District and wants to reopen a facility in Virginia — filed a lawsuit last year challenging that process. After a federal district court judge threw the suit out, they appealed.
Darpana Sheth, an attorney for the companies, said the suit challenges both the certificate of need law as a whole and the specific provisions dealing with medical equipment. She said those laws — largely created in the 1970s to restrict the creation of publicly funded hospitals — have been perverted over time to “eliminate competition and actually drive up health-care costs.” And Virginia’s, she said, are particularly restrictive in that they govern not just facilities but also equipment.
“The commonwealth is erecting this huge wall where out-of-state medical equipment can’t go through,” she said. “There’s no health or safety justification for this.”
The appeals court left open the possibility that the law is constitutional, writing that it was “less likely, though conceivable” that the public-need laws stimulate business. It also said it was possible that the law has no real effect on interstate commerce.
“The point is, we do not know,” Wilkinson wrote. “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.”
The case now goes back to the federal district court in Alexandria for further proceedings.