[Posted October 23, 2013] The Fourth Circuit today hands down an opinion that will have plenty of folks in Richmond, and in the health-care industry, checking their hole cards. The case is Colon Health Centers of America v. Hazel.

First, let’s raise the hackles of the libertarians among us. In Virginia, health care is emphatically not a free-market commodity, at least from the supply side. If you want to build a new Walgreens or IHOP, you just buy the land and start building. But if you want to start a new hospital or other medical enterprise here, you have to ask the state for permission. Specifically, you have to apply for and obtain a “certificate of public need,” setting forth that your new facility is needed in the area where you want to plop it down. The evaluation process can be lengthy and costly, before you lay the first brick.

(If the COPN requirement existed for drug stores and cell-phone retailers, I suspect that ¾ of the existing ones wouldn’t be there. But I digress.)

The plaintiffs are two out-of-state health-care providers who wanted to open up shop here in Virginia. The Commonwealth didn’t have any real fuss with either entity:

Notably, Virginia does not contend that either Colon Health or Progressive is unqualified to render the services that each seeks to offer in the state, nor does it deny that the firms’ respective facilities would be financed entirely by private sources of funding. It also makes no attempt to contest appellants’ assertion that the proffered services are medically uncontroversial and would be performed by state-licensed physicians.

Despite all these concessions, the prospective providers still had to go through with the COPN process. Instead, they went to federal court, contending that Virginia’s COPN framework violated the dormant Commerce Clause and various provisions of the Fourteenth Amendment. They argued that the regulatory scheme basically amounts to protectionism of existing (and therefore by definition in-state) businesses from competition by carpetba- I mean, by out-of-state companies.

The district judge dismissed all of these claims, but the Fourth breathes new life into two of them, both based on the dormant Commerce Clause. Judge Wilkinson authors today’s unanimous opinion, which holds that the plaintiffs state a claim that is at least plausible. Indeed, you don’t have to read too closely between the lines to conclude that today’s panel thinks that the plaintiffs are likely to succeed on the merits. They even direct the district court to review the plaintiffs’ claims expansively on remand, instructing the lower court to consider the effect of the regulations on interstate commerce as a whole, not merely their effect on these two plaintiffs.

Now you see what I mean about checking hole cards. If the out-of-state providers succeed here, Virginia’s entire COPN process may be ruled unconstitutional. And while I don’t regularly swim in this pool, I can’t see any way to restructure it in such a way that it’s salvageable. (Smarter minds than mine may be able to adapt the regulations to whatever ruling eventually comes down in this case.) Anyone for nice, healthy competition between rival hospitals, a couple of blocks apart?