Ending Certificate of Need Laws: In It For the Long Haul

Jaimie Cavanaugh · June 15, 2023

At IJ, we’re always working to eliminate government barriers that block people from following their calling—whether that’s starting a business or helping people in need. Sometimes it’s both. That’s often the case for clients in our certificate of need (CON) cases. Most of them want to offer solutions to healthcare challenges they’ve identified in their communities, but government regulation stands in their way.

Take our CON case in Kentucky. In 2020, we challenged a Kentucky law that blocked new home health agencies from opening in most of the state. Our clients were immigrants from Nepal with plans to open a modest agency to help the sizable Nepali-speaking population in Louisville. But the CON law shut them out. After they filed their CON application, a $2 billion healthcare conglomerate intervened to argue that the state should deny their application. The state did just that.

A CON is a government mandated permission slip to compete. It has nothing to do with health and safety—licensing laws regulate that. In Washington D.C. and the 35 states with CON laws, a provider must prove to the government there is a need for a medical service before opening or expanding a healthcare facility. And during the expensive and lengthy application process, an applicant’s direct competitors normally get to oppose the application. In some states, even if you get a CON, your competitors can appeal and tie you up in court for years.

This wouldn’t be tolerated in almost any other context; McDonald’s doesn’t get to block new burger joints from opening. But healthcare CON laws have remained fixed in many states, mostly because their true beneficiaries (hospitals that profit from their monopoly power) fight to keep these laws on the books. As the district court explained when it denied the state’s motion to dismiss in the Kentucky case:

[I]magine if a [CON] system had said: . . . no need for Disneyland (1955) because of Knott’s Berry Farm (1941); . . . no need for Google (1998) because of Yahoo (1994); no need for iPhones (2007) because of Blackberries (1999) . . . . As important as innovation-through-competition has been to those industries, it’s arguably even more important in health care, where the stakes are life and death.

Tiwari v. Friedlander, 2020 WL 4745772, *1–2 (W.D. Ky. Aug. 14, 2020).

Despite the important and needed service our clients wanted to offer the Nepali-speaking community, we later lost at the district court. On appeal, the Sixth Circuit agreed and affirmed. The panel noted “[w]ere we Kentucky legislators ourselves, we would be inclined to think that certificate-of-need laws should be the exception, not the rule, and perhaps have outlived their own needs.” Tiwari v. Friedlander, 26 F.4th 355, 365 (6th Cir. 2022). Still, the panel felt its only choice under the government-friendly rational basis test was to uphold the law.

Undeterred, we continue to litigate CON cases, but we also support CON repeal by any means—including legislatively. In fact, in 2020, we published a national survey of CON laws with the express goal of convincing legislators to repeal CON laws.

The battle at statehouses is often just as difficult as the battle in courtrooms. It takes years and an army of advocates to overcome objections from hospitals. But it’s possible. This year, South Carolina repealed virtually all of its CON laws. All that remains is the CON for nursing homes, and the CON for urban hospitals will sunset in three years. Everything else is gone.

To continue making progress, we’re always looking for allies to join the fight. Earlier this month, I connected with an enthusiastic new group. I hope to continue working with them often. I attended a CON research conference hosted by the Knee Center at West Virginia University and the Pacific Legal Foundation in Morgantown, WV. Most of the speakers were PhD healthcare economists who publish cutting edge research on CON laws. Because nearly 40% of the U.S. population live in a state without CON laws, they are able to compare health outcomes, cost, availability, and other metrics in CON and non-CON states.

I learned there are more than 120 peer-reviewed studies on CON laws with more than 400 unique tests. Unsurprisingly, the bulk of the research shows negative outcomes in CON states or neutral outcomes. If that’s the case, then there’s no reason to keep CON laws in place. While there are limited studies that found positive associations with CON laws, there aren’t enough positive results to persuade economists that CONs offer any benefits.

These academics don’t publish CON research just for the sake of publishing. They have more practical concerns. They wanted to learn how their research could be used by more legislators and judges. Given their deep knowledge of the problems with CON laws, they want to be part of the solution. They volunteered to assist in answering legislators’ questions or to testify at hearings. Having their insight is critical. All too often hyperbole is presented as fact at legislative hearings and no one is there to dispute this rhetoric.

The engagement and collaborative energy between the researchers, public policy advocates, and attorneys at the conference felt rare. There aren’t many issues, especially in healthcare, where there is so much consensus. For me, it was refreshing to learn that people who devote years to studying these issues want to ensure their research leads to real change. And the conference reminded me that I should make an effort to connect with people outside the legal field. Lawyers do themselves a disservice by staying in a legal cocoon.

Ultimately, we’re all working on this issue because repealing CON laws would help millions of Americans access healthcare, afford care, or find better quality care. Sure, ending CON laws for good might sound daunting, but at IJ, we don’t think in years—we think in decades.

Jaimie Cavanaugh is an attorney with the Institute for Justice