Yakima Valley Memorial Hospital v. Washington State Department of Health

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

YAKIMA VALLEY MEMORIAL 

HOSPITAL, a Washington nonprofit

corporation,

Plaintiff-Appellant,

v. No. 10-35497

WASHINGTON STATE DEPARTMENT OF  D.C. No.

HEALTH; MARY C. SELECKY, in her 2:09-cv-03032-EFS

official capacity as Secretary of

the Washington State Dept. of

Health,

Defendants-Appellees.



YAKIMA VALLEY MEMORIAL 

HOSPITAL, a Washington nonprofit

corporation,

Plaintiff-Appellee,

No. 10-35543

v.

WASHINGTON STATE DEPARTMENT OF  D.C. No.

2:09-cv-03032-EFS

HEALTH; MARY C. SELECKY, in her

OPINION

official capacity as Secretary of

the Washington State Dept. of

Health,

Defendants-Appellants.



Appeal from the United States District Court

for the Eastern District of Washington

Edward F. Shea, District Judge, Presiding

Argued and Submitted

March 10, 2011—Seattle, Washington

11207

11208 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON

Filed August 19, 2011

Before: Raymond C. Fisher, Ronald M. Gould and

Richard C. Tallman, Circuit Judges.

Opinion by Judge Fisher

YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11211

COUNSEL

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

ington, for the appellant and cross-appellee.

Richard A. McCartan, Assistant Attorney General, Michael

Steven Tribble (argued), Assistant Attorney General, Wash-

ington State Office of the Attorney General, Olympia, Wash-

ington, for the appellee and cross-appellant.

OPINION

FISHER, Circuit Judge:

The Washington State Department of Health (Department)

will not license Yakima Valley Memorial Hospital (Memo-

rial) to perform certain procedures known as elective percuta-

neous coronary interventions (PCI), which are used to treat

11212 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON

diseased arteries of the heart. Examples of such procedures

include stent implantation and laser angioplasty.1 Although

Memorial already performs PCI in emergencies (no license

required), it cannot perform “elective” procedures without a

license that is required as part of the state’s broader “certifi-

cate of need” regulatory regime. See Wash. Admin. Code

§ 246-310-700.2 According to the Department, the community

Memorial serves does not need another PCI provider.

The concept of certificate of need regimes, which many

states enforce, is to avoid private parties making socially inef-

ficient investments in health-care resources they might make

if left unregulated. A certificate of need program corrects the

market by requiring preapproval for certain investments and,

in theory, thereby ensures that providers will make only nec-

essary investments in health care. One type of investment the

state of Washington regulates is the capacity to perform “terti-

ary health services,” which are specialized health-care ser-

vices including PCI. See Wash. Rev. Code § 70.38.105(4)(f).3

Congress made certificate of need regimes part of the federal

government’s national health planning policy in the National

1

See Wash. Admin Code § 246-310-705(4) (defining PCI as including,

but not limited to, seven “mechanical procedures and devices that are used

by cardiologists for the revascularization of obstructed coronary arteries”);

see also id. § 246-310-745(4) (defining PCI by reference to “diagnosis

related groups” developed under a Centers for Medicare and Medicaid

Services contract).

2

See Wash. Admin. Code § 246-310-705(2) (defining “elective” to

mean “a PCI performed on a patient with cardiac function that has been

stable in the days or weeks prior to the operation,” which is “usually

scheduled at least one day prior to the surgical procedure”). The licensing

requirement only applies to “adult” procedures, see id. § 246-310-700,

which includes only those “performed on the planning area residents over

fifteen years of age,” Id. § 246-310-745(10) (Step 1b).

3

For a statement of purpose, see Wash. Rev. Code §§ 70.38.015(2), 115;

Wash. Admin. Code § 246-310-001; Overlake Hosp. Ass’n v. Dep’t of

Health, 239 P.3d 1095, 1098-99, 1101 (Wash. 2010) (en banc) (¶¶ 9, 18).

For a description of tertiary health services, see Wash. Rev. Code

§ 70.38.025(14); Wash. Admin. Code §§ 246-310-010(58), -020(1)(d).

YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11213

Health Planning and Resources Development Act of 1974

(NHPRDA). See Nat’l Gerimedical Hosp. & Gerontology Ctr.

v. Blue Cross, 452 U.S. 378, 384 (1981) (noting that Congress

intended to “assist in preventing overinvestment in and mald-

istribution of health facilities”).4 The NHPRDA conditioned

federal funding on enforcement of certificate of need regimes

as part of the congressional effort to reduce health-care infla-

tion and achieve an adequate supply and distribution of health

resources. See id. at 385-86; 42 U.S.C. § 300k (1976); see

also Walgreen Co. v. Rullan, 405 F.3d 50, 52 (1st Cir. 2005).

In response, Washington enacted its current certificate of need

framework in 1979. See Wash. Rev. Code § 70.38.015.5

Although Congress repealed the NHPRDA in 1986, leaving

states free to abandon their certificate of need programs,

Washington has continued its program. Cf. Rullan, 405 F.3d

at 53 (noting that after 1986 “several states followed suit by

repealing their certificate of need laws”).

In 2007, the Washington legislature passed a law directing

the Department to promulgate regulations requiring a certifi-

cate of need for elective PCI. See Wash. Rev. Code

§ 70.38.128. The Department responded in 2008 by promul-

gating the PCI regulations Memorial now challenges. See

Wash. Admin. Code §§ 246-310-700-755. The PCI regula-

tions, which are explained in detail below, (a) require that a

licensed hospital perform at least 300 elective PCI procedures

per year; and (b) provide that the Department shall issue a

certificate of need only if projected demand in an applicant’s

geographic market exceeds the capacity of incumbent certifi-

cate holders by at least 300 procedures. Under this formula,

Memorial has no hope of receiving a certificate of need in the

4

See Pub. L. 93-641, 88 Stat. 2225, §§ 1-3 (1975) (formerly codified at

42 U.S.C. § 300k-300n-5) (repealed by Pub. L. 99-660, title VII, § 701(a),

100 Stat. 3743, 3799 (1986)).

5

Washington, along with 23 other states, had a certificate of need pro-

gram prior to 1979. However, Washington enacted its current program in

direct response to Congress’ enactment of the NHPRDA.

11214 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON

near future. Memorial operates a single nonprofit hospital in

Yakima, Washington. The surrounding market is already

served by the for-profit Yakima Regional Medical and Car-

diac Center, which holds an elective PCI certificate and is the

only competing hospital in the city of Yakima. The Depart-

ment does not contest Memorial’s assertion that the market’s

“need” will not exceed 300 procedures until 2022.

Memorial sued the Department after it promulgated the PCI

regulations, arguing that the certificate of need requirement

violates the dormant Commerce Clause by unreasonably bur-

dening interstate commerce. Memorial also claimed that the

Department’s methodology for defining “need” is anticompe-

titive and preempted by § 1 of the Sherman Act because it

allows incumbent certificate holders to expand their capacity

and preclude new certificates. The Department moved to dis-

miss the case for failure to state a claim and lack of standing

to raise a dormant Commerce Clause challenge. Although the

district court held that Memorial had standing, it dismissed

the case on the pleadings pursuant to Federal Rule of Civil

Procedure 12(c). See Yakima Valley Mem’l Hosp. v. Wash.

State Dept. of Health, 717 F. Supp. 2d 1159 (E.D. Wash.

2010).

The district court held that Memorial failed to state a claim

of antitrust preemption, holding that the PCI regulations were

a unilateral restraint of trade not barred by the Sherman Act.

With regard to the dormant Commerce Clause, the district

court found Memorial had standing because it alleged it

would participate in an interstate market for PCI patients, doc-

tors and supplies. Nevertheless, the district court found that

any burden on Memorial’s interstate commercial activity was

expressly authorized by Congress’ approval of certificate of

need regimes, making a dormant Commerce Clause violation

impossible. Memorial appeals the judgment, and the Depart-

ment cross-appeals the ruling on standing. We agree that

Memorial failed to state a claim of antitrust preemption

because the PCI regulations are a unilateral licensing require-

YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11215

ment rather than an agreement in restraint of trade. We also

agree that Memorial has standing under the dormant Com-

merce Clause, but we reverse the district court’s judgment on

that claim because the Department failed to prove congressio-

nal authorization for the PCI regulations.

Discussion

The district court ruled on the pleadings under Federal Rule

of Civil Procedure 12(c), so we assume the facts alleged in the

complaint are true and review de novo whether Memorial

stated a claim under the Sherman Act or dormant Commerce

Clause. See United States ex rel. Cafasso v. Gen. Dynamics

C4 Sys., Inc., 637 F.3d 1047, 1053 (9th Cir. 2011).6 “In

reviewing the dismissal of a complaint, we inquire whether

the complaint’s factual allegations, together with all reason-

able inferences, state a plausible claim for relief.” Id. at 1054

(citing Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949

—50 (2009)). We also review de novo whether the plaintiff

has standing. See Sierra Forest Legacy v. Sherman, ___ F.3d

___, 2011 WL 2041149, at *9 (9th Cir. May 26, 2011); Bar-

num Timber Co. v. EPA, 633 F.3d 894, 905 n.3 (9th Cir.

2011).

6

In granting the Rule 12(c) motion, the district court declined to con-

sider two expert reports submitted by Memorial months after briefing and

argument on the motion had concluded, because the reports were outside

of the pleadings. Memorial appeals that decision, but the argument merits

little discussion. Judgment on the pleadings is limited to material included

in the pleadings. See Schneider v. California Dept. of Corrections, 151

F.3d 1194, 1197 n.1 (9th Cir. 1998); see also Ranch Realty, Inc. v. DC

Ranch Realty, LLC, 614 F. Supp. 2d 983, 987-88 (D. Ariz. 2007). Other-

wise, the proceeding is converted to summary judgment. See Fed. R. Civ.

P. 12(d). The district court had discretion not to convert the motion for

judgment on the pleadings into a summary judgment motion, see Hamilton

Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1207 (9th Cir. 2007),

and did not abuse its discretion here. To the extent Memorial’s expert

reports contain factual information, the district court reasonably found

them unhelpful when submitted after the hearing on the motion to dismiss.

11216 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON

A. The Sherman Act

1. Antitrust Preemption Requires a Per Se Violation

Memorial argues that the PCI regulations are preempted by

Sherman Act § 1, which declares “[e]very contract, combina-

tion in the form of trust or otherwise, or conspiracy, in

restraint of trade . . . to be illegal.” 15 U.S.C. § 1. There are

two primary modes of analysis under Sherman Act § 1:

The Supreme Court has repeatedly recognized that

by the language of the Sherman Act, “ ‘Congress

intended to outlaw only unreasonable restraints.’ ”

Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006) (quoting

State Oil Co. v. Khan, 522 U.S. 3, 10 (1997)).

“[M]ost antitrust claims are analyzed under a ‘rule of

reason,’ according to which the finder of fact must

decide whether the questioned practice imposes an

unreasonable restraint on competition, taking into

account a variety of factors. . . .” State Oil, 522 U.S.

at 10. . . .

“Some types of restraints, however, have such pre-

dictable and pernicious anticompetitive effect, and

such limited potential for procompetitive benefit,

that they are deemed unlawful per se.” State Oil, 522

U.S. at 10. Such restraints “ ‘are conclusively pre-

sumed to be unreasonable and therefore illegal with-

out elaborate inquiry as to the precise harm they

have caused or the business excuse for their use.’ ”

Nw. Wholesale Stationers[, Inc. v. Pac. Stationery

and Printing Co.], 472 U.S. [284,] 289

[(1985)](quoting N. Pac. Ry. Co. v. United States,

356 U.S. 1, 5 (1958)).

California ex rel. Harris v. Safeway, Inc.,___ F.3d ___, 2011

WL 2684942 at *11 (9th Cir. 2011) (en banc). The blanket

condemnation of per se analysis applies only where the “chal-

YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11217

lenged practice [has] ‘manifestly anticompetitive’ effects and

lack[s] ‘any redeeming virtue.’ ” Id. (quoting Con’l T.V., Inc.

v. GTE Sylvania Inc., 433 U.S. 36, 58-59 (1977)). Otherwise,

the rule of reason is the default mode of analysis. See id.

[1] The distinction between the rule of reason and per se

analysis is important for federal preemption, which requires

“an irreconcilable conflict between the federal and state regu-

latory schemes.” Rice v. Norman Williams Co., 458 U.S. 654,

659 (1982). Sherman Act § 1 preempts state law only “when

the conduct contemplated by the statute is in all cases a per

se violation” — without per se illegal conduct, there can be

no certainty that the regulation conflicts with the Sherman

Act. Id. at 661 (quoted by Sanders v. Brown, 504 F.3d 903,

910-11 (9th Cir. 2007)). Conduct “contemplated” by the regu-

lation is that which it “mandates,” “authorizes,” or “places

irresistible pressure” on a private party to commit. Id; Sand-

ers, 504 F.3d at 910 (quoting Rice); see also Costco Whole-

sale Corp. v. Maleng, 522 F.3d 874, 885-86 (9th Cir. 2008)

(“[T]o be struck down, the regulation or restraint must effect

a per se violation of the Sherman Act.”). Importantly, a state

regulation is not preempted simply because it has anticompe-

titive effects. See Fisher v. City of Berkeley, 475 U.S. 260,

264 (1986).

[2] To determine whether a regulation facially conflicts

with Sherman Act § 1, we first consider whether the chal-

lenged regulation involves (1) unilateral action by the state

and is thus not subject to preemption (because there is no con-

certed action), see id. at 266-67 (citing Copperweld Corp. v.

Independence Tube Corp., 467 U.S. 752, 768 (1984))7; or (2)

7

See also Hoover v. Ronwin, 466 U.S. 558, 567-68 (1984) (“When the

conduct is that of the sovereign itself, . . . the danger of unauthorized

restraint of trade does not arise.”); Parker v. Brown, 317 U.S. 341, 350-51

(1943) (“We find nothing in the language of the Sherman Act or in its his-

tory which suggests that its purpose was to restrain a state or its officers

or agents from activities directed by its legislature.”).

11218 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON

a hybrid of state and private action and is thus potentially sub-

ject to preemption, see id. at 267-69.8 See also Costco, 522

F.3d at 887-89 (distinguishing between unilateral and hybrid

regulations).

A regulation is a unilateral restraint when “[n]o further

action is necessary by the private parties because the anti-

competitive nature of [the] restraint is complete upon enact-

ment.” Costco, 522 F.3d at 890. “[P]ublic officials deter-

mine[ ] the nature and extent of the resulting consumer injury,

with no degree of discretion delegated to private actors.” Id.

Consequently, any anticompetitive effects are the “logical and

intended result” of the state’s action, rather than the result of

private parties being empowered to “ ‘dictate market condi-

tions to others.’ ” Id. at 887 (quoting Sanders, 504 F.3d at

918). Because the state acts alone in creating the restraint,

there is no concerted action to be evaluated for consistency

with Sherman Act § 1. See Fisher, 475 U.S. at 267.

8

A hybrid regulation is only potentially preempted because the private

discretionary conduct it incorporates may not “in all cases [be] a per se

violation.” Sanders, 504 F.3d at 910-11; see also id. at 919 (holding that

to be preempted as a per se illegal “hybrid restraint,” a regulation must

involve “a delegation of market power to private parties that is per se ille-

gal” because “[o]therwise, the hybrid restraint could not be attacked as

facially invalid”); Fisher, 475 U.S. at 270 (holding that where regulations

lacked “the element of concerted action needed before they can be charac-

terized as a per se violation,” there could be no preemption). Not all dele-

gations of discretion will amount to per se illegal restraints of trade — for

example, the delegation might resemble a vertical non-price restraint uni-

formly analyzed under the rule of reason. See Rice, 458 U.S. at 661-62;

Costco, 522 F.3d at 891 n.11.

Even a per se illegal hybrid restraint may be saved from preemption by

the “state action” immunity doctrine. See Fisher, 475 U.S. at 265 (citing

Parker, 317 U.S. at 341). We do not need to reach the question of state-

action immunity, and thus our opinion should not be construed as an anal-

ysis of the state’s supervision of PCI providers, despite the suggestion in

Costco that state-action immunity and unilateral action analyses can be

conflated. See 522 F.3d at 887 (citing Snake River Valley Elec. Ass’n v.

PacifiCorp, 238 F.3d 1189, 1192 n.8 (9th Cir. 2001)).

YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11219

In contrast, a hybrid restraint “may be attacked under

[Sherman Act] § 1” as per se unreasonable. 324 Liquor Corp.

v. Duffy, 479 U.S. 335, 345 n.8 (1987) (quoting Fisher, 475

U.S. at 268) (quotation marks omitted). The “hallmark” of a

hybrid restraint is the “delegation of discretion to private

actors.” Costco, 522 F.3d at 898 n.20. The key distinction is

that the regulation leaves a gap in the restraint of trade for pri-

vate parties to fill at their discretion. A regulation is not

hybrid “solely because it produces an effect that could not be

produced by agreement of private parties without violating the

antitrust laws.” Id. at 889 (emphasis added). Rather, hybrid

regulations “merely enforce private marketing decisions,”

granting “a degree of private regulatory power” to the regu-

lated parties. Fisher, 475 U.S. at 268 (citing Rice, 458 U.S. at

665 (Stevens, J., concurring in judgment)).9

[3] In light of the foregoing principles, we must decide

whether the PCI regulations go beyond the anticompetitive

tendencies of a licensing requirement and actually delegate a

degree of regulatory power to incumbent licensees.10 Memo-

rial argues that the PCI regulations grant regulatory power to

incumbent licensees by calculating the need for a new certifi-

cate based in part on the number of PCI procedures they per-

9

General statements that a restraint is hybrid because “the federal anti-

trust laws pre-empt state laws authorizing or compelling private parties to

engage in anticompetitive behavior,” 324 Liquor, 479 U.S. at 345 n.8, or

because regulations “creating unsupervised private power in derogation of

competition are subject to preemption,” Costco, 522 F.3d at 889, must be

understood in context. Not all potentially anticompetitive conduct creates

an irreconcilable conflict with federal law, either because it is subject to

the rule of reason or because it is unilateral action by private parties cov-

ered by Sherman Act § 2’s fact-specific analysis. See id. at 891 n.11 (rec-

ognizing that a regulation “akin to a non-price vertical restraint” would be

analyzed under the rule of reason).

10

See Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d 1421, 1439 &

n.11 (1995) (“It is well known that some of the most insuperable barriers

in the great race of competition are the result of government regulation.”

(quoting United States v. Syufy Enters., 903 F.2d 659, 673 (9th Cir. 1990)

(quotation marks omitted))).

11220 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON

form, thereby allowing the incumbent licensees to manipulate

the number of PCIs they perform so as to exclude competing

hospitals from the elective PCI market. We disagree, for rea-

sons explained below. We begin with an analysis of the regu-

lations.

2. The PCI Regulations Impose a Barrier to Entry

The Washington legislature ordered the Department to pro-

mulgate a certificate of need requirement for elective PCI

addressing, “at a minimum, factors related to access to care,

patient safety, quality outcomes, costs, and the stability of

Washington’s cardiac care delivery system and of existing

cardiac care providers.” Wash. Rev. Code § 70.38.128 (2007).

In response, the Department promulgated regulations setting

forth a variety of requirements for an elective PCI certificate

of need. See Wash. Admin. Code §§ 246-310-700-755.

Memorial challenges only the PCI regulations’ methodology

for calculating a community’s need for an additional elective

PCI provider. See Wash. Admin. Code § 246-310-745. As is

apparent from the regulations, once the Department grants a

hospital a certificate of need to perform elective PCI, the

requirement that there be an unmet demand for 300 proce-

dures before granting another certificate of need creates a bar-

rier to entry for potential competing hospitals.

The Department calculates need based on dividing the state

into 14 geographical markets (planning areas). See id. §§ 246-

310-705(5), -745(10). A hospital applies for a certificate of

need to serve a particular planning area. The Department then

forecasts whether the planning area will have unmet demand

for elective PCI procedures within five years. See id. § 246-

310-745(10) (explaining a five-step numeric methodology). A

planning area “needs” another provider of elective PCI only

if projected demand exceeds current capacity by 300 proce-

dures. See id. (Steps 4-5).11

11

See also Wash. Admin. Code §§ 246-310-010(58), -715(2). If a plan-

ning area’s net need is negative, the Department may revoke existing cer-

tificates of need. See Wash. Admin. Code §§ 246-310-715(2), -755(a).

YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11221

Projected demand is based on the planning area’s current

“use rate” (procedures per 1,000 residents) in the “base year”

and the planning area’s estimated population in the “forecast

year,” five years into the future. Id. §§ 246-310-745 (1), (3),

(5) & (10) (Steps 1-2). Assuming a constant use rate, the

Department projects demand in the forecast year. That is, the

projected demand is the current “use rate” multiplied by the

forecasted population. If the projected demand sufficiently

exceeds the planning area’s current capacity, the Department

will issue a certificate of need.

Current capacity is based on the volume of procedures per-

formed by the planning area’s existing certified PCI providers

in the base year. The planning area’s current capacity is “as-

sumed to remain constant over the forecast period.” Id. § 246-

310-745(10) (Step 3). The Department calculates the planning

area’s net need for an additional provider by subtracting the

current capacity from the projected demand. See id. (Step 4).

If the difference exceeds 300 procedures, the Department will

issue one certificate of need for every 300 excess procedures.

That is, if there is excess demand from 301 to 599 procedures,

the Department will issue only a single additional certificate

of need. Similarly, if there is excess demand up to 299 proce-

dures, the Department will not issue any new certificates. See

id. (Step 5). The regulations’ limitation on when hospitals

may offer elective PCI procedures serves as a barrier to mar-

ket entry for hospitals who, but for the certificate of need

requirement, would begin offering elective PCI procedures

and competing for those patients.

3. The PCI Regulations are a Unilateral Restraint Not

Subject to Preemption

Memorial’s challenge focuses on Step 3, which relies on

incumbent certificate holders’ “current capacity” to define

whether need exists for an additional licensee. Memorial

argues that, because incumbent hospitals can expand their

11222 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON

current capacity to meet demand, they can forestall entry of

a competing PCI provider.

[4] Memorial mistakes the barrier to entry created by the

licensing requirement, and its attendant anticompetitive

effects, for a hybrid restraint. The Department licenses the

first certificate of need holder in a planning area to perform

as many PCI procedures as it wishes. The logical and

intended result of the PCI regulations is that the Department

will issue a second certificate of need only if the incumbent

does not expand its capacity to meet growing demand. The

PCI regulations create market power, but that is different from

a hybrid regulation that delegates regulatory power.

That the Department leaves open the number of procedures

that an incumbent licensee may perform does not mean it del-

egates regulatory power to licensees. The restraint of trade is

the licensing requirement — a barrier to entry — and it is

complete upon enactment. The state imposes the licensing

requirements. The state decides what the licensing require-

ments will be and whether they are met. The state does not

delegate any aspect of need calculation to private parties.

Admittedly, the state takes notice of whether incumbent pro-

viders are meeting the needs of the planning area, but that

responsiveness to private activity does not amount to a hybrid

restraint. See Fisher, 475 U.S. at 269 (holding that despite the

power of tenants to trigger enforcement of a regulated rent

ceiling, the rent levels were set exclusively by the state and

the ceiling thus was a unilateral restraint).

[5] Rather, the Department has decided that monopoly is

preferable in the market for elective PCI; otherwise it would

grant a second certificate when a planning area’s demand

exceeded 600 procedures annually — that is, when the market

would support two competing providers both able to perform

the minimum 300 procedures annually. That a licensee meets

the Department’s expectation and supplies all demand is the

logical and intended consequence of the PCI regulations, not

YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11223

a delegation of regulatory power to the incumbent. Entry is

prohibited by the Department’s decision to grant an unlimited

license and then withhold additional licenses until the incum-

bent can no longer meet demand, not the incumbent’s natural

inclination to capitalize on the market power the licensing

requirement creates.

[6] Moreover, an incumbent provider’s discretion to

increase supply unilaterally to meet demand is neither per se

illegal nor recognizable as an element of a per se illegal agree-

ment.12 The only facet of the PCI regulations that could be

equated with a per se illegal agreement is the division of the

state into planning areas, but the licensees have no role in

drawing the dividing lines.13 It is true that within a planning

area the incumbent certificate holders might conspire to

jointly keep current capacity within 300 procedures of pro-

jected demand, but the PCI regulations neither require,

encourage nor condone collusion. In short, nothing about the

PCI regulations involves private discretion to engage in per se

anticompetitive conduct.

Although this case deals with a barrier to entry, the case

law on hybrid and unilateral restraints involving price-fixing

is instructive. For instance, horizontal price fixing is per se

illegal. See Dagher, 547 U.S. at 5. Agreements to post and

hold prices have been found to be such prohibited horizontal

12

At worst, capacity expansion, if motivated by a specific intent to

monopolize with a dangerous probability of success, might be attempted

monopolization under Sherman Act § 2, but that could not be decided on

a facial challenge and thus could not warrant preemption. See Fisher, 475

U.S. at 270 n.2 (holding that an allegation of monopolization or attempted

monopolization would “go[ ] beyond the scope of the facial [preemption]

challenge presented here”); Copperweld, 467 U.S. at 774-75 (explaining

Congress intentionally subjected unilateral, private conduct to a less

demanding standard under Sherman Act § 2 than agreements under Sher-

man Act § 1).

13

Horizontal market division is a “classic per se antitrust violation.”

United States v. Brown, 936 F.2d 1042, 1045 (9th Cir. 1991).

11224 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON

conduct. See Catalano, Inc. v. Target Sales, Inc., 446 U.S.

643, 649-50 (1980) (discussing Sugar Inst. v. United States,

297 U.S. 553, 601-02 (1936)). Thus, we held in Costco that

a state regulation requiring competing wholesalers to post

their prices and hold to those posted prices for a fixed period

was a hybrid restraint. Such regulatory post-and-hold require-

ments do not mandate, authorize or compel the concerted

action necessary to make a private post-and-hold system per

se illegal. But the regulations do have the effect of delegating

to private parties the discretion to set the posted price to be

held — an anticompetitive arrangement they could not

achieve legally by explicit agreement. See Costco, 522 F.3d

at 895-96; see also 324 Liquor, 479 U.S. at 345 n.8 (“Our

decisions reflect the principle that the federal antitrust laws

pre-empt state laws authorizing . . . private parties to engage

in anticompetitive behavior.”).14

If the state fixes the price, however, the requirement that

private parties adhere to the fixed price is a unilateral

restraint. For example, in Fisher, the Supreme Court held that

a regulation requiring private landlords to adhere to a maxi-

mum rent ceiling fixed by the state was a unilateral restraint.

See Fisher, 475 U.S. at 269 (“Not just the controls themselves

but also the rent ceilings they mandate have been unilaterally

imposed on the landlords by the city.”). The anticompetitive

effects were the same as if the landlords had conspired, but

the extent of the harm to competition was decided by the state

and complete upon enactment of the regulation.

14

The Supreme Court reached a similar result in holding preempted a

regulation that compelled vertical resale price maintenance but allowed

wholesalers to fix the price. See 324 Liquor, 479 U.S. at 341-42 (discuss-

ing Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S.

97, 102-03 (1980)); Fisher, 475 U.S. at 268-69 (same); Rice, 458 U.S. at

659 (same). Although vertical resale price maintenance is no longer per se

illegal, Midcal remains instructive. See Leegin Creative Leather Prods.,

Inc. v. PSKS, Inc., 551 U.S. 877, 889 (2007) (overturning the per se rule

against vertical resale price maintenance announced in Dr. Miles Med. Co.

v. John D. Park & Sons Co., 220 U.S. 373 (1911)).

YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11225

Memorial argues that incumbent certificate holders’ control

over their PCI capacity makes them like the wholesalers in

Costco (who were free to set their own prices), not the land-

lords in Fisher (for whom rent was fixed by regulation).

Memorial fails to recognize that in a post-and-hold regime the

restraint of trade is that private parties hold to their prices,

whereas here the restraint is not that licensees are allowed to

expand their capacity, but rather that the Department requires

licenses and doles them out based on a standard skewed

toward monopoly.

We made a similar distinction in Costco, which in addition

to holding that a post-and-hold regulation was a hybrid

restraint, held that a regulation requiring wholesalers to

charge at least a 10-percent mark-up was a unilateral restraint.

Although the minimum mark-up regulation “gave” private

parties discretion to mark up higher than the minimum, the

state did not create that discretion. Wholesalers could already

mark up their prices unilaterally. The regulation simply cre-

ated a floor on price competition without allowing private

parties any role in setting what the floor would be. The regu-

lated market was less competitive, but the restraint of trade

was complete upon enactment of the regulation. Significantly,

the state did not grant “to private parties a means to manipu-

late, and therefore control, the pricing decisions of other

firms,” in contrast to post-and-hold regulations. Costco, 522

F.3d at 899.

[7] In sum, “[t]he distinction between unilateral and con-

certed action is critical here” because the state unilaterally

imposes the barrier to entry and unilaterally determines when

to issue a new PCI license. Fisher, 475 U.S. at 266. Any anti-

competitive effect from allowing the first licensee the option

of holding a monopoly in the planning area is “part-and-

parcel of the state-imposed licensing scheme.” Costco, 522

F.3d at 890. There is neither a per se illegal agreement nor its

functional equivalent to turn the PCI regulations into a hybrid

restraint. Absent a hybrid restraint or other per se violation of

11226 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON

the antitrust laws, there is no preemption and the district court

properly granted judgment on the pleadings.15

B. The Dormant Commerce Clause

[8] Memorial’s complaint alleges that the PCI regulations

violate the dormant Commerce Clause by placing an undue

burden on interstate commerce.16 If it were not for the licens-

ing requirement, Memorial would offer elective PCI to out-of-

state patients, as well as hire out-of-state doctors and import

medical supplies from out-of-state to perform the procedures.

There is no allegation of intentional discrimination against

interstate commerce, but “[e]ven laws that are applied even-

handedly and impose only an incidental burden on interstate

commerce can be unconstitutional.” Shamrock Farms Co. v.

Veneman, 146 F.3d 1177, 1179 (9th Cir. 1998); see also C&A

Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 389

(1994) (“It is well settled that actions are within the domain

of the Commerce Clause if they burden interstate commerce

or impede its free flow.”). Where a law only incidentally bur-

dens interstate commerce, it “will be upheld unless the burden

imposed on interstate commerce is clearly excessive in rela-

tion to the putative local benefits.” Dep’t of Revenue of Ky.

v. Davis, 553 U.S. 328, 338-39 (2008) (quoting Pike v. Bruce

15

Memorial complains that by rejecting its allegation that the PCI regu-

lations are a hybrid restraint of trade, the district court did not construe the

facts alleged in the complaint in its favor. Whether a regulation is a hybrid

restraint of trade is a question of law, see Phillip E. Areeda & Herbert

Hovenkamp, Antitrust Law, vol. XI ¶ 1909b (2d ed. 2000) (explaining that

identification of per se illegal restraints is a question of law, citing Arizona

v. Maricopa Cnty. Med. Soc’y, 457 U.S. 332, 337 n.3 (1982)), so there was

no need to construe that allegation in Memorial’s favor.

16

The Commerce Clause of the Constitution explicitly grants Congress

authority to regulate interstate commerce. See U.S. Const. art. I, § 8, cl.

3. As a corollary, the Commerce Clause implicitly limits the regulatory

authority of the states over interstate commerce. This inference is com-

monly referred to as the dormant Commerce Clause. See Nat’l Ass’n of

Optometrists & Opticians LensCrafters, Inc. v. Brown, 567 F.3d 521, 523

(9th Cir. 2009).

YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11227

Church, Inc., 397 U.S. 137, 142 (1970)) (quotation marks and

alteration omitted).

We must decide whether Memorial has standing to raise a

dormant Commerce Clause challenge under Pike, and if so,

whether the PCI regulations are immunized by congressional

authorization. The ultimate question of whether the PCI regu-

lations survive Pike scrutiny is not before us.

1. Memorial has standing to raise a dormant Commerce

Clause challenge

[9] Standing includes two components: Article III constitu-

tional standing and prudential standing. See City of L.A. v.

Cnty. of Kern, 581 F.3d 841, 845 (9th Cir. 2009). The Depart-

ment challenges only Memorial’s prudential standing.17 As

relevant here, prudential standing requires that “the plaintiff’s

complaint must ‘fall within the zone of interests to be pro-

tected or regulated by the statute or constitutional guarantee

in question.’ ” Individuals for Responsible Gov’t, Inc. v.

Washoe Cnty., 110 F.3d 699, 702-03 (9th Cir. 1997) (quoting

Valley Forge Christian Coll. v. Ams. United for Separation of

Church & State, Inc., 454 U.S. 464, 474 (1982)). The zone-

of-interests test “denies a right of review if the plaintiff’s

interests are . . . marginally related to or inconsistent with the

purposes implicit in the relevant constitutional provision.” Id.

at 703 (quoting Wyoming v. Oklahoma, 502 U.S. 437, 469

(1992) (Scalia, J., dissenting)) (omission in original) (quota-

tion marks and alteration omitted). Thus, we must first iden-

tify the purpose of the dormant Commerce Clause.

“The chief purpose underlying [the Commerce] Clause is to

17

Recognizing that Article III standing is jurisdictional and can neither

be waived by the parties nor ignored by the court, we are independently

satisfied that Memorial has Article III standing under Lujan v. Defenders

of Wildlife, 504 U.S. 555, 560-61 (1992). See Cnty. of Kern, 581 F.3d at

845.

11228 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON

limit ‘the power of the States to erect barriers against inter-

state trade.’ ” Washoe Cnty., 110 F.3d at 703 (quoting Dennis

v. Higgins, 498 U.S. 439, 446 (1991)). The intent is to pro-

mote a national market and “the free flow of goods and ser-

vices through the several states; it is the economic interest in

being free from trade barriers that the clause protects.” S.D.

Myers, Inc. v. City & Cnty. of S.F., 253 F.3d 461, 471 (9th

Cir. 2001) (citing C&A Carbone, 511 U.S. at 390; On the

Green Apartments L.L.C. v. City of Tacoma, 241 F.3d 1235,

1238 (9th Cir. 2001)). The ultimate question, therefore, is

whether Memorial’s claims “bear more than a marginal rela-

tionship to claims addressing a state or county’s effort to erect

barriers to interstate commerce.” Cnty. of Kern, 581 F.3d at

847 (quotation marks omitted).

[10] “As the name implies, the zone of interests test turns

on the interest sought to be protected, not the harm suffered

by the plaintiff.” Id. at 848. Any alleged injury “must some-

how be tied to a barrier imposed on interstate commerce.” Id.

Here, the barrier to interstate commerce is the requirement of

a certificate of need to offer elective PCI to all patients, in-

state or out-of-state. By virtue of the certificate of need

requirement, the Department prevents Memorial from solicit-

ing out-of-state patients and competing in an interstate market

to offer elective PCI services, activities that clearly involve

interstate commerce. See Summit Health, Ltd. v. Pinhas, 500

U.S. 322, 329-30 (1991). Under Pike such incidental effects

on interstate commerce are an unconstitutional barrier to trade

if they are “clearly excessive in relation to the putative local

benefits.” Pike, 397 U.S. at 142.

[11] The Department contends that Memorial lacks stand-

ing because it operates only an in-state hospital. The Com-

merce Clause, however, protects the vitality of the national

market for goods and services, not the location of a particular

participant, and thus a state burdens the rights of its own resi-

dents as well as those of other states when it burdens inter-

state commerce. Although the dormant Commerce Clause

YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11229

primarily targets discrimination against out-of-state economic

activity, under Pike it prohibits all unjustifiable burdens on

interstate commerce. See Kleenwell Biohazard Waste and

Gen. Ecology Consultants, Inc. v. Nelson, 48 F.3d 391, 392,

398-99 (9th Cir. 1995) (reviewing a facially neutral licensing

regime under Pike where the plaintiff was an in-state “corpo-

ration with all of its facilities located within the state”).

Memorial’s alleged injury is thus tied to an alleged violation

of the dormant Commerce Clause. The district court correctly

held that prudential standing is satisfied.

2. Congress has not authorized the 2008 PCI regulations

[12] “It is well established that Congress may authorize the

States to engage in regulation that the Commerce Clause

would otherwise forbid.” Maine v. Taylor, 477 U.S. 131, 138

(1986) (citing S. Pac. Co. v. Ariz. ex rel. Sullivan, 325 U.S.

761, 769 (1945)); see Ne. Bancorp, Inc. v. Bd. of Governors

of the Fed. Reserve Sys., 472 U.S. 159, 174 (1985). Congres-

sional authorization must be “ ‘unmistakably clear’ ” and “un-

ambiguous.” Taylor, 477 U.S. at 139 (quoting South-Central

Timber Dev. Inc. v. Wunnicke, 467 U.S. 82, 91 (1984)). Con-

gress must clearly evince its intent “to alter the limits of state

power otherwise imposed by the Commerce Clause.” Id.

(quotation marks omitted) (quoting United States v. Pub.

Utils. Comm’n of Cal., 345 U.S. 295, 304 (1953); see South-

Central Timber, 467 U.S. at 91 (requiring clear evidence that

Congress “affirmatively contemplate[d] otherwise invalid

state legislation”). Congressional authorization is a defense

that the state must prove. See Wyoming, 502 U.S. at 458.

[13] The district court granted judgment on the pleadings

to the Department because it concluded Congress had autho-

rized certificate of need programs in the National Health Plan-

ning and Resources Development Act of 1974 (NHPRDA).

See supra n.4. Although recognizing that the NHPRDA had

been repealed in 1986 before the Department promulgated the

challenged regulations in 2008, the district court accepted the

11230 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON

repealed statute as a prima facie authorization and erroneously

put the burden on Memorial to prove the significance of

repeal. We reverse because the Department has failed to show

that the NHPRDA, a statute repealed without a savings

clause, provides the requisite clear statement of authorization

for the 2008 PCI regulations.18 We do not decide whether the

NHPRDA is sufficient authorization for certificate of need

requirements established prior to repeal.

[14] The Department argues that the NHPRDA was a clear

statement of authorization for certificate of need regimes

because the statute made them a condition of federal funding.

Memorial disputes whether this suffices as a sufficiently clear

statement of authorization, but we need not decide the ques-

tion. Whatever the NHPRDA authorized prior to 1986, after

Congress repealed the statute there was no NHPRDA left to

authorize a regulation promulgated in 2008. For more than a

century, “the general rule . . . [has been] that when an act of

the legislature is repealed, it must be considered, except as to

transactions past and closed, as if it never existed.” Ex Parte

McCardle, 74 U.S. 506, 514 (1868) (quotation marks omit-

ted). Even in a pending action, “no judgment could be ren-

dered . . . after the repeal of the act under which it was

brought and prosecuted.” Id. A statute that Congress snuffed

out of existence by repeal leaves no residual clear statement

of authorization.

[15] Had Congress meant to perpetuate its alleged authori-

zation for certificate of need programs, it could have included

a savings clause in the repeal.19 The savings clause would then

18

The burden did not fall on Memorial to rebut the alleged clear state-

ment in the NHPRDA because there was no NHPRDA in force to make

a clear statement. A different situation arose in Central Valley Chrysler-

Jeep v. Witherspoon, 456 F. Supp. 2d 1160 (E.D. Cal. 2006), which put

the burden on the plaintiff to prove that an apparently clear statement of

authorization had in fact been implicitly revoked by subsequent legisla-

tion. See id. at 1185. Here, there is no doubt the NHPRDA was repealed.

19

The repeal stated:

Sec. 701. Repeal of Title XV

YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON 11231

itself be an unmistakably clear statement of authorization.

Savings clauses can be used to preserve state authority from

implied preemption when Congress passes a statute. See, e.g.,

Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1010 (9th Cir.

2010); Qwest Corp. v. Ariz. Corp. Comm’n, 567 F.3d 1109,

1117-18 (9th Cir. 2009). By the same token, Congress could

enact a savings clause to avoid the natural implication of

repealing an act. Cf. Daghlian v. DeVry Univ., Inc., 574 F.3d

1212, 1213 (9th Cir. 2009) (order) (dismissing for lack of

jurisdiction because the California statute under which the

plaintiff sued “was repealed without a savings clause” to pre-

serve pending claims). Instead, Congress repealed the

NHPRDA with terse language that, at best, leaves it ambigu-

ous whether Congress affirmatively contemplated the fate of

state certificate of need programs.

[16] To the extent there is ambiguity, the Department

offers no legislative history to inform our interpretation of it.

The district court relied on President Reagan’s signing state-

ment, but even if a presidential signing statement could estab-

lish an unmistakably clear legislative intent, President

Reagan’s opinion does not amount to an unmistakably clear

statement of authorization for the Department’s PCI regula-

tions. See Statement of President Ronald Reagan upon Sign-

ing S. 1744, 22 Weekly Comp. Pres. Doc. 1565, 1566 (Nov.

14, 1986).20 Ultimately, the Department is reduced to arguing

(a) Repeal — Title XV of the Public Health Services Act is

repealed effective January 1, 1987.

(b) Funds — The repeal made by subsection (a) shall not affect

any funds obligated for the purposes of title XV of the Public

Health Service Act before January 1, 1987.

Pub. L. No. 99-660, tit. VII, § 701, 100 Stat. 3743, 3799 (1986).

20

President Reagan said:

It is also with great pleasure that I can finally lay to rest the Fed-

eral health planning authorities. I have sought their repeal since

11232 YAKIMA VALLEY MEMORIAL HOSPITAL v. WASHINGTON

that we can infer authorization from congressional silence —

that Congress could not have meant to pull the rug out from

under the states after inducing their transition to certificate of

need programs, so Congress must have meant to leave undis-

turbed its authorization for certificates of need. As the district

court’s agreement demonstrates, that may be a reasonable

inference. Congressional silence is not a clear statement, how-

ever. See Sossamon v. Texas, ___ U.S. ___, 131 S. Ct. 1651,

1660 (2011). Accordingly, we hold that the repealed

NHPRDA does not provide congressional authorization for

the 2008 PCI certificate of need regulation.

CONCLUSION

[17] We hold that there is no antitrust preemption because

the PCI regulations are a unilateral restraint of trade not sub-

ject to preemption. We also hold that Memorial has standing

to raise a dormant Commerce Clause challenge under Pike,

because the PCI regulations burden the free flow of com-

merce to Memorial’s financial detriment. We reverse judg-

ment on the dormant Commerce Clause claim, however,

because the Department failed to prove congressional authori-

zation for its PCI certificate of need regulations. We remand

for further proceedings on Memorial’s dormant Commerce

Clause claim consistent with this opinion. The parties shall

bear their own costs.

AFFIRMED IN PART, REVERSED IN PART,

REMANDED.

I assumed office. These authorities, while perhaps well-intentioned when

they were enacted in the 1970’s, have only served to insert the Federal

Government into a process that is best reserved to the marketplace. Health

planning has proved to be a process that was costly to the Federal Govern-

ment, in the last analysis without benefit, and even detrimental to the ratio-

nal allocation of economic resources for health care.