Yakima Valley Memorial Hospital v. Washington State Department of Health

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

YAKIMA VALLEY MEMORIAL No. 12-35652

HOSPITAL, a Washington nonprofit

corporation, D.C. No.

Plaintiff-Appellant, 2:09-cv-03032-

EFS

v.

WASHINGTON STATE DEPARTMENT OPINION

OF HEALTH; MARY C. SELECKY, in

her official capacity as Secretary of

the Washington State Dept. of

Health,

Defendants-Appellees,

and

YAKIMA HMA, LLC, DBA Yakima

Regional Medical and Cardiac

Center,

Intervenor-Defendant.

Appeal from the United States District Court

for the Eastern District of Washington

Edward F. Shea, District Judge, Presiding

Argued and Submitted

June 4, 2013—Seattle, Washington

Filed September 23, 2013

2 YAKIMA VALLEY MEM’L HOSP. V. DEP’T OF HEALTH

Before: M. Margaret McKeown and Sandra S. Ikuta,

Circuit Judges, and Cormac J. Carney, District Judge.*

Opinion by Judge McKeown

SUMMARY**

Constitutional Law

Affirming the district court’s summary judgment, the

panel held that Washington State Department of Health

Certificate of Need regulations did not violate the dormant

Commerce Clause.

The regulations provided that hospitals without on-site

cardiac surgical facilities could perform elective percutaneous

coronary interventions, which are nonsurgical procedures

used to treat coronary heart disease, only if they obtained a

Certificate of Need demonstrating sufficient need in the

region to support an annual minimum volume. The panel

held that the regulations did not violate the dormant

Commerce Clause, which prohibits states from discriminating

against interstate commerce, because the impact on interstate

commerce, if any, was highly attenuated, and did not

outweigh the safety benefits of the regulations.

*

The Honorable Cormac J. Carney, District Judge for the U.S. District

Court for the Central District of California, sitting by designation.

**

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

YAKIMA VALLEY MEM’L HOSP. V. DEP’T OF HEALTH 3

COUNSEL

James L. Phillips (argued), Miller Nash LLP, Seattle,

Washington, for Plaintiff-Appellant.

Pamela Anderson (argued) and Richard A. McCartan,

Assistant Attorneys General, Olympia, Washington, for

Defendants-Appellees.

OPINION

McKEOWN, Circuit Judge:

This appeal involves a constitutional challenge under the

Commerce Clause to Washington State Department of Health

(“Department”) Certificate of Need (“Certificate”)

regulations. In particular, the challenge targets regulations

related to scheduled, or “elective,” percutaneous coronary

interventions (“PCIs”), which are nonsurgical procedures

used to treat coronary heart disease. Hospitals without on-site

cardiac surgical facilities may perform elective PCIs only if

they obtain a Certificate demonstrating sufficient need in the

region to support an annual minimum volume. Yakima

Valley Memorial Hospital (“Memorial”) claims the

requirement that elective PCIs be performed only at hospitals

that have a minimum annual volume of 300 procedures lacks

a reasonable basis and that its putative benefits, including

safety, are outweighed by the burdens it places on interstate

commerce, thus violating the dormant Commerce Clause.

We disagree. The impact on interstate commerce, if any, is

highly attenuated, and does not outweigh the safety benefits

of the regulations. We affirm the district court’s dismissal of

Memorial’s claims at summary judgment.

4 YAKIMA VALLEY MEM’L HOSP. V. DEP’T OF HEALTH

BACKGROUND

PCI, a nonsurgical procedure used to treat coronary heart

disease, includes balloon stenting and angioplasty. The

procedure involves removing arterial plaque, thereby clearing

out obstructed coronary arteries and ameliorating the effects

of heart disease. Elective PCIs are performed when the

patient is stable and no medical emergency requires

immediate action. Washington law requires healthcare

providers to obtain a Certificate1 in order to offer certain

facilities and services, including elective PCIs. Wash. Rev.

Code § 70.38.105. Before 2007, only hospitals that had on-

site surgical facilities were permitted to perform elective

PCIs. In 2007, the state legislature directed the Department

to promulgate elective PCI regulations for hospitals that, like

Memorial, do not otherwise perform on-site cardiac surgery.

Id. § 70.38.128. Factors to be considered included, among

others, “access to care, patient safety, [and] quality

outcomes . . . .” Id.

The Department worked with Health Management

Associates (“HMA”), an operator of acute-care hospitals, on

1

Earlier federal laws from the 1970s, now repealed, required states to

pass Certificate laws in order to qualify for federal healthcare funding.

Certificate laws allowed state health agencies to determine the need for

certain health services in each geographic area and to license only needed

services. Cmty. Psychiatric Ctrs. Of Or., Inc. v. Grant, 664 F.2d 1148,

1149–50 (9th Cir. 1981) (describing Congress’ creation of “areawide

‘health systems agencies’ . . . to oversee and assist state agencies in

planning and in the operation of state health programs,” including state

certificate of need programs for offering new institutional health services).

Washington law requires Certificates for any “specialized service that

meets complicated medical needs of people and requires sufficient patient

volume to optimize provider effectiveness, quality of service, and

improved outcomes of care.” Wash. Rev. Code § 70.38.025(14).

YAKIMA VALLEY MEM’L HOSP. V. DEP’T OF HEALTH 5

an “independent evidence-based review of the circumstances

under which elective [PCIs] should be allowed in Washington

at hospitals that do not otherwise provide on-site surgery.”

The September 2007 HMA report stated that “[e]lective

PCI[s] should not be performed in hospitals without on-site

surgery,” and recommended limiting approval to “program[s]

that serve[] a community or population with a fully

documented pattern of unmet need.” The report also

recommended that elective PCIs should be performed only at

hospitals that had a minimum annual volume of 300

procedures, noting that the “optimal” annual volume was 400

or more. The report recognized, however, that

“[p]ublications suggest or recommend minimum volumes

ranging from >200, 400, 500, to even 600.”

After receiving the HMA report, the Department met with

numerous additional stakeholders, who advised the

Department that hospitals with on-site surgery facilities

preferred a 400-PCI minimum, while those without on-site

facilities favored a 200-PCI minimum. The final regulations

elected the midpoint between the two positions: only

hospitals that can demonstrate that they will perform at least

300 PCIs annually will receive a Certificate permitting them

to perform elective PCIs. Wash. Admin. Code § 246-310-

720(1). The regulations apply statewide and do not single out

or target particular facilities.

Only one hospital in the Yakima Valley area has on-site

surgery facilities: Yakima Regional Medical and Cardiac

Care Center (“Regional”). Regional is a for-profit hospital

owned by a Florida corporation. As a holder of a PCI

Certificate, it performs both elective and emergency PCIs.

Regional requires a 20–30% prepayment before performing

an elective PCI, and it will not perform an elective PCI

6 YAKIMA VALLEY MEM’L HOSP. V. DEP’T OF HEALTH

without adequate reimbursement. In contrast, Memorial is a

nonprofit hospital that serves both uninsured and insured

residents of Yakima Valley. Unlike Regional, Memorial

would perform an elective PCI on an uninsured patient. In

2009, Regional performed 338 elective and emergency PCIs

and Memorial performed 132 emergency PCIs.

In February 2011, Memorial filed an application for a

Certificate to perform elective PCIs. The Department denied

the application, finding that Memorial had not demonstrated

a need for a second elective PCI program in the relevant

planning area. Memorial is unlikely to secure a PCI

Certificate until sometime around 2022, when the Yakima

Valley market’s projected unmet need will exceed 300

procedures.

In its complaint, Memorial alleged that the PCI

regulations are an unreasonable restraint of trade in violation

of the Sherman Act, 15 U.S.C. § 1, and unreasonably

discriminate against interstate commerce in violation of the

dormant Commerce Clause and 42 U.S.C. § 1983. The

district court previously granted the Department’s motion for

judgment on the pleadings, and on a prior appeal of that

ruling, we upheld the dismissal of the Sherman Act claims,

but reversed and remanded for further proceedings on the

constitutional claim. Yakima Valley Mem’l Hosp. v. Wash.

State Dep’t of Health (“Yakima I”), 654 F.3d 919 (9th Cir.

2011).

On remand, the Department moved for summary

judgment, arguing that under the dormant Commerce Clause,

Memorial could not show that the burden imposed on

interstate commerce by the 300 minimum volume standard

“is clearly excessive in relation to the putative local benefits.”

YAKIMA VALLEY MEM’L HOSP. V. DEP’T OF HEALTH 7

Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). We

review de novo the district court’s grant of the Department’s

motion. See Universal Health Servs., Inc. v. Thompson,

363 F.3d 1013, 1019 (9th Cir. 2004).

ANALYSIS

The Commerce Clause of Article I, § 8 of the United

States Constitution empowers Congress to “regulate

Commerce . . . among the several States.” Courts have long

read a negative implication into the clause, termed the

“dormant Commerce Clause,” that prohibits states from

discriminating against interstate commerce. See Dep’t of

Revenue of Ky. v. Davis, 553 U.S. 328, 337 (2008). “The

modern law of what has come to be called the dormant

Commerce Clause is driven by concern about ‘economic

protectionism—that is, regulatory measures designed to

benefit in-state economic interests by burdening out-of-state

competitors.’” Id. at 337–38 (quoting New Energy Co. of Ind.

v. Limbach, 486 U.S. 269, 273–74 (1988)).

The first inquiry under the dormant Commerce Clause is

whether the law treats in-state and out-of-state economic

interests differently, in which case it “it is virtually per se

invalid.” Or. Waste Sys., Inc. v. Dep’t of Envtl. Quality of

State of Or., 511 U.S. 93, 99 (1994). The regulations here do

not facially discriminate against out-of-state interests, but

instead act “evenhandedly,” with, at best, only “incidental”

impacts on interstate trade. Hughes v. Oklahoma, 441 U.S.

322, 336 (1979) (internal quotation marks omitted).

Regulations with incidental impacts are analyzed under the

balancing test set forth in Pike:

8 YAKIMA VALLEY MEM’L HOSP. V. DEP’T OF HEALTH

Where the statute regulates even-handedly to

effectuate a legitimate local public interest,

and its effects on interstate commerce are only

incidental, it will be upheld unless the burden

imposed on such commerce is clearly

excessive in relation to the putative local

benefits. If a legitimate local purpose is

found, then the question becomes one of

degree. And the extent of the burden that will

be tolerated will of course depend on the

nature of the local interest involved, and on

whether it could be promoted as well with a

lesser impact on interstate activities.

397 U.S. at 142 (internal citation omitted).

The Supreme Court has further emphasized that “a state’s

power to regulate commerce is at its zenith in areas

traditionally of local concern” and that “regulations that touch

upon safety . . . are those that ‘the Court has been most

reluctant to invalidate.’” Kassel v. Consol. Freightways

Corp. of Del., 450 U.S. 662, 679 (1981) (citation omitted)

(quoting Raymond Motor Transp., Inc. v. Rice, 434 U.S. 429,

443 (1978)).

I. THE MINIMUM PROCEDURE REQUIREMENT DOES NOT

BURDEN INTERSTATE COMMERCE

The PCI regulations do not treat in-state and out-of-state

actors differently, nor are they an even-handed law that

incidentally makes it harder for out-of-state actors to do

business in the state. Instead, the practical upshot of the

regulations is to restrict one in-state hospital—Memorial—

from expanding its PCI business, which ends up going to

YAKIMA VALLEY MEM’L HOSP. V. DEP’T OF HEALTH 9

Regional, another in-state hospital.2 Our prior opinion noted

that Memorial’s allegations involved the impact on interstate

commerce and directed the district court to apply the Pike

balancing test, but made no finding about the significance of

the alleged burden. Yakima I, 654 F.3d at 932 (“The ultimate

question of whether the PCI regulations survive Pike scrutiny

is not before us.”). The district court correctly interpreted our

holding and on remand inquired into the downstream impact

of the PCI regulations on interstate commerce. Accepting as

true Memorial’s arguments and evidence, the burden on

interstate commerce is obviously too minor and remote to

create a “substantial burden” under Pike.

We recently considered the dormant Commerce Clause in

relation to a California statute prohibiting licensed opticians

from offering prescription eyewear at the same location as

eye examinations. Nat’l Ass’n of Optometrists & Opticians

v. Harris, 682 F.3d 1144, 1147–48 (9th Cir. 2012). Looking

to Exxon Corp. v. Governor of Md., 437 U.S. 117, 128

(1978), we held that “there is not a significant burden on

interstate commerce merely because a nondiscriminatory

regulation precludes a preferred, more profitable method of

operating in a retail market.” Optometrists, 682 F.3d at 1153.

The decision of whether a nondiscriminatory regulation

nevertheless significantly burdens interstate commerce

depends “on the interstate flow of goods, not on where the

retailers were incorporated, what the out-of-state market

shares of sales and profits were, or whether competition

would be affected by the statute.” Id. The same analysis

2

Although it is not dispositive, we note that Regional is owned by an

out-of-state entity, and Memorial’s challenge reverses the traditional

dormant Commerce Clause framework where an out-of-state entity

challenges a law that disadvantages it relative to in-state competitors.

10 YAKIMA VALLEY MEM’L HOSP. V. DEP’T OF HEALTH

applies here. What is really at issue is the shifting of business

from one competitor to another, not a burden on interstate

commerce. The regulations do not “impair the free flow of

materials and products across state borders.” Id. at 1155. As

in Optometrists, a significant burden on interstate commerce

does not exist simply because the nondiscriminatory PCI

regulations affect the structure of the market. Id.

Memorial attempts to meet its burden of showing an

impact on interstate commerce by pointing to the interstate

transactions it must forego because of the PCI regulations—

recruiting out-of-state interventional cardiologists, purchasing

supplies from out of state, and providing service to and

receiving payment from out-of-state patients. But these

meager allegations do not show that the challenged

regulations impede those interstate transactions in general.

These transactions are collateral to Memorial having the

authorization to perform elective PCI procedures. It is

uncontroverted that the 300-procedure minimum instead

shifts PCI business, and associated interstate activity, from

Memorial to Regional, which will perform elective PCIs in

Memorial’s place. Memorial’s loss of business to Regional—

whatever the consequence to Memorial’s bottom line—does

not itself burden interstate commerce. See Exxon, 437 U.S.

at 127 (holding that “interstate commerce is not subjected to

an impermissible burden simply because an otherwise valid

regulation causes some business to shift from one interstate

supplier to another”); Optometrists, 682 F.3d at 1153.

Memorial also argues that the PCI regulations burden

interstate commerce by reducing the total number of PCIs

performed. We credit Memorial’s claim that the total number

of potential PCIs in the area may be reduced because 25% of

the area’s population is uninsured and some of those

YAKIMA VALLEY MEM’L HOSP. V. DEP’T OF HEALTH 11

uninsured residents would come to Memorial for the

procedure but are not eligible for treatment at Regional.

Memorial did not estimate how many of these uninsured

patients forego elective PCIs each year. However, regardless

of the size of this potential unserved market, we agree with

the district court that this speculative downstream impact is

“highly attenuated” and that a reduction in the total number

of elective PCIs performed in the Yakima Valley does not

place a significant burden on interstate commerce.3

Although Supreme Court precedent recognizes the burden

placed on individual entities arising from protectionist or

discriminatory regulations, no such protectionist motive or

effect exists here. See Pike, 397 U.S. at 145 (analyzing

economic burden imposed by requirement that cantaloupes

grown in Arizona be packed and processed there instead of in

existing California facilities); and Hunt v. Wash. State Apple

Adver. Comm’n, 432 U.S. 333, 350–54 (1977) (striking down

law that burdened Washington apple producers in favor of

North Carolina growers). Similarly, the absence of

protectionist impact makes this case unlike Walgreen v.

Rullen, 405 F.3d 50 (1st Cir. 2005), where the First Circuit

struck down a facially nondiscriminatory Certificate law that

in effect protected in-state incumbent pharmacies from out-

of-state competition.

3

We likewise reject Memorial’s argument that the district court erred by

failing to follow the instruction in Pike to consider alternatives with a

lesser impact on interstate commerce. In Optometrists we concluded that

“[b]ecause the challenged laws do not impose a significant burden on

interstate commerce, it would be inappropriate for us to set them aside

based on a conclusion that the State’s purposes could be served as well

with alternative laws.” 682 F.3d 1157.

12 YAKIMA VALLEY MEM’L HOSP. V. DEP’T OF HEALTH

Not only are the challenged regulations

nondiscriminatory, they are predicated on a safety-related

purpose. See Gen. Motors Corp. v. Tracy, 519 U.S. 278, 306

(1997) (“[T]he Commerce Clause . . . was never intended to

cut the States off from legislating on all subjects relating to

the health, life, and safety of their citizens, though the

legislation might indirectly affect the commerce of the

country.” (internal quotation marks omitted)); City of

Philadelphia v. New Jersey, 437 U.S. 617, 623–24 (1978)

(“[I]ncidental burdens on interstate commerce may be

unavoidable when a State legislates to safeguard the health

and safety of its people.”). In sum, neither the economic

impact on Memorial’s own operations, nor the alleged

downstream impact on uninsured patients, creates a

substantial burden on interstate commerce.

II. THE MINIMUM PROCEDURE REQUIREMENT PROTECTS

PUBLIC SAFETY

Our conclusion that the burden on interstate commerce is

insignificant would normally end the constitutional inquiry.

See Optometrists, 682 F.3d at 1155 (“If a regulation merely

has an effect on interstate commerce, but does not impose a

significant burden on interstate commerce, it follows that

there cannot be a burden on interstate commerce that is

‘clearly excessive in relation to the putative local benefits’

under Pike.”). Nonetheless, because Memorial claims that

the safety benefits of the 300-PCI minimum are not just

minimal, but illusory or nonexistent, we address this

argument.

Memorial’s argument is narrow, namely that the choice

of a 300-PCI minimum over a 200-PCI minimum is

constitutionally infirm. In Memorial’s view, because no

YAKIMA VALLEY MEM’L HOSP. V. DEP’T OF HEALTH 13

study establishes a difference between its proposed 200-PCI

minimum and the Department’s 300-PCI standard, the choice

of 300 was arbitrary and any benefit is illusory. We

recognize that “the incantation of a purpose to promote the

public health or safety does not insulate a state law from

Commerce Clause attack,” but the safety aspects here are

neither illusory nor a fig leaf masking discrimination. Kassel,

450 U.S. at 670.

Memorial’s position is weak and ignores the substantial

evidence linking minimum requirements to safety and

quality. The Department presented evidence that a facility’s

skills and competence and, accordingly, patient safety

increase with the number of PCIs, although the exact point

and rate at which those returns diminish is unclear (“Overall,

high volume operators had better outcomes . . . in low-risk

and high-risk patients.”). The 2007 HMA report to the

Department reviewed the relevant literature and

recommended that “PCI programs in hospitals with and

without on-site cardiac surgery should have minimum annual

PCI volumes of >300 and an optimal annual volume of

>400.” The report stated that a “minimum annual volume of

>300 was selected based on a balanced review of the

literature. Publications suggest or recommend minimum

volumes ranging from >200, 400, 500, to even 600. Most

experts recommend that PCI programs with <200 be

evaluated for closure. It is logical to recommend a minimum

that exceeds the closure set point.” Nothing suggests that the

Department took anything other than a comprehensive,

balanced view of the data, which, significantly, recommended

closing facilities that fell below the 200 procedure threshold.

Memorial is simply unhappy that the Department did not

adopt the lowest minimum mentioned in the HMA report.

14 YAKIMA VALLEY MEM’L HOSP. V. DEP’T OF HEALTH

The extensive HMA report, which Memorial does not

attack on the merits, distinguishes this matter from Kassel,

the primary case that Memorial invokes. In Kassel, the Iowa

regulation prohibited the use of particular large trucks (65-

foot “double” or “twin” trailers) within Iowa’s borders.

450 U.S. at 665. Iowa conceded that “it [could] produce no

study that establishes a statistically significant difference in

safety between the 65-foot double and the kinds of vehicles

[Iowa] permits.” Id. at 673. The Court struck down the

statute given the economic burdens of either complying with

the size regulations or re-routing interstate traffic around

Iowa. Id. at 674. Unlike in Kassel, the data here show that

the safety benefits of the 300-PCI minimum are not illusory.

The Department had ample justification to conclude that, if a

minimum volume of 400 is “safer” than a range of 200–400,

a 300-PCI minimum is “safer” than a 200-PCI requirement,

the minimum threshold under any recommendation.

Memorial further argues that the 300-PCI minimum was

chosen to protect incumbent providers of PCI procedures

instead of to meet a medical necessity. The Department held

five meetings with stakeholders in the process of the PCI

rulemaking. The stakeholders submitted a report in which

incumbent providers recommended a 400-PCI minimum and

providers seeking to provide elective PCIs recommended a

200-PCI minimum. The Department’s adoption of a 300-PCI

minimum—the midpoint between the two positions—does

not suggest “regulatory capture” by the incumbents. We also

note that the Department subsequently granted nine new PCI

Certificates, eight of them in areas where there was already

an incumbent provider, weakening any inference that the

standard is designed to block the entry of new market

participants.

YAKIMA VALLEY MEM’L HOSP. V. DEP’T OF HEALTH 15

Finally, Memorial claims that the 300-PCI minimum,

which derives in part from American College of Cardiology

Foundation (“ACCF”) recommendations, should be

invalidated because the Department does not uniformly

mandate that hospitals adhere to those guidelines in various

practice cases. This is an “apples to oranges” argument that

does nothing to invalidate the Department’s conclusion that

a 300-PCI minimum has real safety benefits above a

threshold of 200 PCIs.

Memorial offers no evidence that the benefits of the 300-

PCI minimum are illusory or manufactured. In view of the

substantial record supporting the safety requirement, we are

loath to insert ourselves into the medical debate. As the

Supreme Court has emphasized, “if safety justifications are

not illusory, the Court will not second-guess legislative

judgment about their importance in comparison with related

burdens on interstate commerce.” Kassel, 450 U.S. at 670

(internal quotation marks omitted); see also Kleenwell

Biohazard Waste and Gen. Ecology Consultants, Inc. v.

Nelson, 48 F.3d 391, 399–400 (9th Cir. 1995) (upholding

nondiscriminatory regulation of solid waste disposal based on

“ample evidence” that regulations protected the public).

CONCLUSION

Memorial did not establish that the challenged regulations

burdened interstate commerce or that the putative safety

benefits were illusory. We therefore affirm the district

court’s dismissal of all of Memorial’s remaining claims.

AFFIRMED.