Lawyers for Colon Health Centers of America and Progressive Radiology, which run clinical businesses in other states, are asking a federal appeals court in Richmond to let them challenge Virginia’s certificate of need law, one of the country’s most extensive, after a district court dismissed a lawsuit brought against the Virginia Department of Health.
The lawyers argue that Virginia’s certificate of need law runs afoul of an interpretation of the Constitution’s Commerce Clause that generally prohibits state laws from burdening out-of-state businesses to the benefit of local interests, and they argue that the system amounts to a violation of the equal protection law because it regulates similar services differently.
There is “no evidence that the exemption of nuclear cardiac imaging advances any legitimate state interest that would not apply equally to other kinds of nuclear imaging or other kinds of medical imaging,” the lawyers, from the libertarian law firm Institute of Justice, wrote in their complaint.
The “law bestows huge advantages on entities that are already established in the state,” the lawyers wrote in their appeal, noting that “no certificate is needed to purchase equipment replacing existing equipment, even if the existing equipment is underused or fails to meet the other criteria for granting a new certificate.”
The most recent challenge to a certificate of need law relied on similar arguments — rejected by another federal appeals court in Washington State — made by lawyers for the Yakima Valley Memorial Hospital, which proposed an unsuccessful application for expanded elective angioplasty services, a procedure added to the system in 2008.
In Virginia, government lawyers argued that the lawsuit failed to show how the law discriminates against out-of-state providers, and U.S. District Judge Claude Hilton dismissed the lawsuit, noting that in 2011 the Department of Health approved 45 certificate applications totaling $730 million, while denying eight proposals totaling $44 million.
Covering general acute, cardiac, perinatal and surgical care, imaging, organ transplants, nursing homes, rehabilitation services, psychiatric and substance abuse services, among other health services, Virginia’s certificate of need system is among the most comprehensive, and it’s one of a handful, including Connecticut and Michigan, that cover medical imaging.
“There have not been many challenges to the state laws on the federal level,” said Darpana Sheth, one of the lawyers representing the out-of-state doctors. Born out of a New York policy for hospital and nursing home construction in 1964, certificate of need laws spread nationwide after they were required as part of Medicaid, until 1986 — and that “was really about public money,” Sheth said.
“In this case and in most cases, its private citizens investing their own money,” Sheth said.
Mark Baumel, MD, the founder of Colon Health Centers of America, and executives at a Maryland-based company called Progressive Radiology, say Virginia’s certificate of need law has made it nearly impossible for them to open new businesses in the state — a criticism that even the federal government has made about states' laws.
In 1988, the Federal Trade Commission concluded that the market effects of many certificate of need laws led to no benefit for consumers, and in 2004 the FTC and the Department of Justice concluded that certificate of need programs contribute to rising healthcare prices because they restrain natural market trends.
Baumel, an internist, pulmonologist and former chief medical officer at Mercy Health System of Southeast Pennsylvania, founded Colon Health Centers in Delaware in 2007, as a “one-stop shop” for colonoscopies and an alternative to the standard procedure under sedation, where patients could get CT colon scans, and then have any polyps noticed removed the same day, offering the service through contracts with gastroenterology practices who buy the CT scanners.
Baumel expanded to New Jersey and then aimed for Virginia, where after recruiting three Virginia GI practices, he was denied applications for certificate of need for three CT scanners. Area physicians and other community providers sent letters of support, in part because CT scan colonoscopies weren’t readily available in Virginia, Baumel said in the lawsuit.
At the same time, a number of hospitals and radiology groups in Northern Virginia lobbied against the certificate, arguing that the regional market already had sufficient colonoscopy capacity.The state health commissioner eventually denied all three applications, following the advice of a regional health planning commission, on the grounds that the area’s existing CT scanners were fungible.
This article is based on reporting done originally for Healthcare Payer News.