Federal Appeals Court Rules Against Medical Protectionism

J. Justin Wilson
J. Justin Wilson · October 23, 2013

Richmond, Va.—This morning, a three-judge panel of the 4th U.S. Circuit Court of Appeals reinstated a major constitutional challenge to a Virginia law that prevents doctors from offering safe and accepted healthcare options to the state’s residents.

The lawsuit, brought by the Institute for Justice (IJ) on behalf of a coalition of medical professionals, is a challenge to Virginia’s medical certificate-of-need program, which makes it illegal to offer new medical services or purchase certain types of medical equipment without first obtaining a special permission slip from the government.

“Certificate-of-need programs like Virginia’s are nothing more than certificates of monopoly for favored businesses,” explained IJ Senior Attorney Robert McNamara. “Today’s victory will allow us to prove that this requirement has nothing to do with public health or safety. Virginia doesn’t mind our clients providing these services; it just minds them working for themselves.”

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 verges on full-blown litigation in which existing businesses are allowed to participate and oppose new competition. This process can take several years and cost hundreds of thousands of dollars and frequently results in new services not being allowed to enter Virginia at all.

On June 5, 2012, IJ filed suit on behalf of a group of medical professionals, including Dr. Mark Baumel, a physician and entrepreneur who is trying to bring an innovative colon-cancer screening and treatment service to Virginia, and Dr. Mark Monteferrante, the head of Progressive Radiology, a team of Virginia-licensed radiologists who are barred by the law from opening an office to treat their patients in the state. The 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.

Today’s decision makes clear that the case should never have been dismissed: “The district court gave a serious claim the back of its hand,” wrote Circuit Judge J. Harvie Wilkinson III. “This was error.”

“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,” said IJ Attorney Darpana Sheth. “This is not just a victory for our clients, it’s a victory for common sense. When private citizens want to invest in innovative and effective healthcare services, the last thing the government should be doing is stopping them.”

In a concurring opinion, Judge Samuel Wilson of the Western District of Virginia wrote that there was little mystery about the certificate-of-need program’s true purpose: “Stripped of its linguistic pretense, the Commonwealth’s purpose is to protect established ‘community providers’ (i.e., established in-state interests) from the effects of competition.”

“Virginia has one of the worst certificate-of-need programs in the entire country, and its results are predictable: fewer choices and higher prices for patients, and bigger paychecks for established businesses,” concluded Chip Mellor, IJ’s president and general counsel. “Today the court confirmed that courts have a duty to look seriously at the effects of laws like this and to strike laws down when they violate the Constitution. We look forward to putting the certificate-of-need requirement on trial and putting an end to it once and for all.”

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