Yakima Valley Mem'l Hosp. v. Wash. State Dep't of Health

• Decision Date: 19 August 2011
• Docket Number: Nos. 10–35497,10–35543.,s. 10–35497
• Citation: 654 F.3d 919,11 Cal. Daily Op. Serv. 10762,2011 Trade Cases P 77577,2011 Daily Journal D.A.R. 12684
• Parties: YAKIMA VALLEY MEMORIAL HOSPITAL, a Washington nonprofit corporation, Plaintiff–Appellant,v.WASHINGTON STATE DEPARTMENT OF HEALTH; Mary C. Selecky, in her official capacity as Secretary of the Washington State Dept. of Health, Defendants–Appellees.Yakima Valley Memorial Hospital, a Washington nonprofit corporation, Plaintiff–Appellee,v.Washington State Department of Health; Mary C. Selecky, in her official capacity as Secretary of the Washington State Dept. of Health, Defendants–Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

654 F.3d 919

2011-2 Trade Cases P 77,577

11 Cal. Daily Op. Serv. 10,762

2011 Daily Journal D.A.R. 12,684

YAKIMA VALLEY MEMORIAL HOSPITAL, a Washington nonprofit corporation, Plaintiff–Appellant,

v.WASHINGTON STATE DEPARTMENT OF HEALTH; Mary C. Selecky, in her official capacity as Secretary of the Washington State Dept. of Health, Defendants–Appellees.Yakima Valley Memorial Hospital, a Washington nonprofit corporation, Plaintiff–Appellee,

v.Washington State Department of Health; Mary C. Selecky, in her official capacity as Secretary of the Washington State Dept. of Health, Defendants–Appellants.

Nos. 10–35497

10–35543.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 10, 2011.Filed Aug. 19, 2011.

James L. Phillips (argued), Miller Nash, LLP, Seattle, WA, for the appellant and cross-appellee.Richard A. McCartan, Assistant Attorney General, Michael Steven Tribble (argued), Assistant Attorney General, Washington State Office of the Attorney General, Olympia, WA, for the appellee and cross-appellant.Appeal from the United States District Court for the Eastern District of Washington, Edward F. Shea, District Judge, Presiding. D.C. No. 2:09–cv–03032–EFS.Before: RAYMOND C. FISHER, RONALD M. GOULD and RICHARD C. TALLMAN, Circuit Judges.

OPINION

FISHER, Circuit Judge:

The Washington State Department of Health (Department) will not license Yakima Valley Memorial Hospital (Memorial) to perform certain procedures known as elective percutaneous coronary interventions (PCI), which are used to treat 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 “certificate 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 inefficient 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 necessary investments in health care. One type of investment the state of Washington regulates is the capacity to perform “tertiary health services,” which are specialized health-care services 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 Health Planning and Resources Development Act of 1974 (NHPRDA). See Nat'l Gerimedical Hosp. & Gerontology Ctr. v. Blue Cross, 452 U.S. 378, 384, 101 S.Ct. 2415, 69 L.Ed.2d 89 (1981) (noting that Congress intended to “assist in preventing overinvestment in and maldistribution 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 inflation and achieve an adequate supply and distribution of health resources. See id. at 385–86, 101 S.Ct. 2415; 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 certificate of need for elective PCI. See Wash. Rev.Code § 70.38.128. The Department responded in 2008 by promulgating the PCI regulations Memorial now challenges. See Wash. Admin. Code §§ 246–310–700–755. The PCI regulations, 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 certificate holders by at least 300 procedures. Under this formula, Memorial has no hope of receiving a certificate of need in the 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 Cardiac Center, which holds an elective PCI certificate and is the only competing hospital in the city of Yakima. The Department 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 burdening interstate commerce. Memorial also claimed that the Department's methodology for defining “need” is anticompetitive 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 dismiss 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, doctors 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 Department 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 requirement rather than an agreement in restraint of trade. We also agree that Memorial has standing under the dormant Commerce Clause, but we reverse the district court's judgment on that claim because the Department failed to prove congressional 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 reasonable inferences, state a plausible claim for relief.” Id. at 1054 (citing Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949–50, 173 L.Ed.2d 868 (2009)). We also review de novo whether the plaintiff has standing. See Sierra Forest Legacy v. Sherman, 646 F.3d 1161, 1176–77 (9th Cir.2011); Barnum Timber Co. v. EPA, 633 F.3d 894, 905 n. 3 (9th Cir.2011).

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, combination 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, 126 S.Ct. 1276, 164 L.Ed.2d 1 (2006) (quoting State Oil Co. v. Khan, 522 U.S. 3, 10, 118 S.Ct. 275, 139 L.Ed.2d 199 (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, 118 S.Ct. 275....

“Some types of restraints, however, have such predictable 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, 118 S.Ct. 275. Such restraints “ ‘are conclusively presumed to be unreasonable and therefore illegal without 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, 105 S.Ct. 2613, 86 L.Ed.2d 202 [ (1985) ](quoting N. Pac. Ry. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958)).

California ex rel. Harris v. Safeway, Inc., 651 F.3d 1118, 1132–34 (9th Cir.2011) (en banc). The blanket condemnation of per se analysis applies only where the “challenged 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, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977)). Otherwise, the rule of reason is the default mode of analysis. See id.

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 regulatory...