Federal Court Revives Challenge to Certificate-of-Need Restrictions on Expanding Imaging Services

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A three-judge panel of the 4th U.S. Circuit Court of Appeals has reinstated a constitutional challenge to Virginia’s medical certificate-of-need program. The program makes it illegal to offer new medical services, or purchase certain types of medical equipment like CT scanners and MRI machines, without first obtaining permission from the government.

The saga started last year when the Institute for Justice (IJ) filed suit on behalf of a group of medical professionals, including Mark Monteferrante, MD, the head of Progressive Radiology. Monteferrante’s team of Virginia-licensed radiologists are currently barred by the law from opening an office to treat their patients in the state. 

Darpana Sheth, JD“At first we thought these certificates of need programs only applied to large health care facilities,” says Darpana Sheth, JD, an attorney with the Arlington, Va-based IJ who is representing the plaintiffs. “It was quite shocking to realize that in Virginia, Connecticut, Michigan, and a handful of small states, doctors are not allowed to purchase medical equipment such as CT scanners and MRI machines without obtaining what is essentially a government permission slip. Patients and doctors, not the government, are really in the best position to decide what medical services and equipment are needed.”

The original lawsuit alleged that Virginia’s requirement violated the Commerce Clause of the United States Constitution, which prevents states from discriminating against or unduly burdening interstate commerce, including interstate commerce in medicine. A federal district judge disagreed, however, and threw the case out of court on September 14, 2012.

It took more than a year, but the 4th U.S. Circuit ultimately agreed with IJ that the lawsuit should have never been thrown out in the first place. “The district court gave a serious claim the back of its hand,” wrote Circuit Judge J. Harvie Wilkinson III, in the ruling which reinstated the lawsuit. “This was error.”

Meanwhile, the Virginia certificate-of-need process is still in effect, and a resolution is a long way away. The actual litigation process of discovery will start soon, and Sheth expects a ruling on the merits before the end of 2014. If the lawsuit succeeds, Sheth says that the state would “most likely” appeal the ruling. And then, she says, “there is the potential to take it to the Supreme court.”

IJ and Progressive Radiology are only challenging the Virginia law, but there are 35 states with similar programs. At this point, IJ and physician activists are taking a one-step-at-a-time approach in hopes of establishing favorable precedents. “Certificate-of-need programs like Virginia’s are nothing more than certificates of monopoly for favored businesses,” says Robert McNamara, JD, senior attorney for IJ. “Today’s victory will allow us to prove that this requirement has nothing to do with public health or safety.”  

Under Virginia’s program, licensed medical professionals who want to invest their own money to offer new services must first persuade government officials that their new services will be “needed”—and they must do so in a process that IJ officials say verges on “full-blown litigation in which existing businesses are allowed to participate and oppose new competition.”

“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,” adds Sheth. “This is not just a victory for our clients, it’s a victory for common sense.”