The Eleventh Circuit Court of Appeals recently ruled on a lawsuit filed in 2003 against the Florida Department of Health and its allopathic and osteopathic medical boards, alleging Florida’s Patient Self-Referral Act of 1992 is unconstitutional. The plaintiffs in this case are Fresenius, DaVita and DVA Renal Healthcare, three companies that specialize in providing dialysis care. They want their physicians to be able to refer post-dialysis blood work to laboratories in which the companies have a financial interest. A district court found in favor of the defendants, and the plaintiffs appealed to the Eleventh Circuit Court of Appeals.
The federal Stark Law, which allows two exemptions for physician self-referral that are relevant to this case, takes center stage in this case. The first exemption allows physicians to self-refer lab work for patients with end stage renal disease (ESRD). The second allows a physician to self-refer lab work to a publicly traded company in which the physician is a shareholder if the company’s value is greater than $75 million.
Originally the Florida law also contained the same ESRD exemption as the Stark law, but the Florida law was amended in 2002 to get rid of the exemption.
Florida passed its law because it felt physician self-referral (emphasis added):
…may limit or eliminate competitive alternatives in the health care services market, may result in overutilization of health care services, may increase costs to the health care system, and may adversely affect the quality of health care.
The part I bolded is particularly interesting for me, because I often hear proponents of in-office pathology labs and client billing say just the opposite: That forbidding self-referral is anti-competitive. But I digress.
The companies claim sending lab work to their vertically-integrated laboratories is better for patient care, but the physicians who work for them are prohibited by Florida’s law to do so. In addition, there is apparently only one competing independent laboratory in Florida that performs ESRD laboratory testing, and that the 2002 amendment was passed to benefit this competitor.
The companies challenged Florida’s law as unconstitutional in that it is:
(1) preempted by federal law, (2) violative of the dormant Commerce Clause, and (3) violative of substantive due process.
The courts found that, among other things, the Stark law was not intended to trump more restrictive state laws. Evidence for this was found in a House conference report about amendments to Stark that, “[f]ederal law [should] not preempt State laws that are more restrictive.” This of course relates just to the Stark law. The courts had to resort to congressional intent on this matter because there is no explicit language in the Stark law itself that discusses the issue of preemption.
The Commerce Clause, as we all know, deals with Congress’ power to regulate interstate commerce. But did you know there is also a “dormant” component as well that “prohibits economic protectionism—that is, regulatory measures designed to benefit in-state interests by burdening out-of-state competitors.” Neither did I.
The companies argue that, while the Florida law does not expressly discriminate against out-of-state commerce, it has the practical effect of doing so. The court was not convinced, and found Florida’s law does not violate the Commerce Clause.
The court also found the companies’ were not deprived of their right to due process.
Needless to say, the appellate court found in favor of the defendants.
In conclusion, because we are persuaded that the district court properly granted Florida’s motion for summary judgment on Appellants’ preemption, dormant Commerce Clause, and substantive due process claims, we affirm its judgment.
A link to the full decision is here.