First-Round Victory: Judge Clears Way For Lawsuit Against Iowa’s Certificate of Need Laws

Institute for Justice · February 13, 2018

Arlington, Va.—Late yesterday, a federal court judge denied the Iowa Department of Health’s motion to dismiss a constitutional challenge to a law that makes it a crime for doctors to open new outpatient surgery centers without first obtaining special permission—called a “certificate of need”—from the government. In a first-round victory for a group of medical providers represented by the Institute for Justice (IJ), the court ruled that protecting an industry group from competition is not a legitimate government interest.

“This decision correctly holds that governments cannot pass laws simply to protect entrenched businesses from competition,” said IJ Attorney Joshua House, who argued the case. “We look forward to showing that Iowa’s certificate of need (CON) scheme unconstitutionally favors existing businesses at the expense of our clients and other medical providers.”

In June 2017, IJ and Dr. Birchansky, a Cedar Rapids-based ophthalmologist, sued the Department of Health, alleging that Iowa’s CON scheme is unconstitutional because it does not further public health or safety and serves only to protect existing medical providers from competition. Doctors must persuade state officials that their new service is “needed” through a cumbersome process that resembles full-blown litigation and allows existing businesses, like established hospitals, to oppose their applications. And even after a certificate of need is granted, existing medical providers can appeal the decision. On top of all that, existing businesses are exempt from the requirement and can open their own surgery centers without having to go through the process.

In her detailed, 42-page opinion, Judge Rebecca Ebinger first rejected each of the government’s arguments:  “[I]f accepted, [the government’s position] would likely make it practically impossible to bring any claim challenging Iowa’s CON requirement.” The court emphasized that “naked economic protectionism is an illegitimate state interest . . . under the Equal Protection and Due Process clauses.” The court then “found Plaintiffs have identified and countered the conceivable bases for the CON requirement,” focusing on how existing facilities do not need government permission if the new facility costs less than $1.5 million.

“The court’s opinion makes clear in no uncertain terms that Iowa’s loophole for existing facilities rests on thin ice,” added IJ Senior Attorney Darpana Sheth, lead counsel for Dr. Birchansky. “Iowa must now defend its protectionist program that has limited the rights of Iowans to access safe, convenient and cost-effective medical care.”

Dr. Lee Birchansky said, “I am very happy that our case will continue. Iowa’s anti-competitive CON law has been driving up healthcare prices for patients, limiting their medical care options and handing a bigger paycheck to established businesses by preventing lower-priced and safer surgery centers from opening.”

Dr. Birchansky, recognized as one of the top ophthalmologists in the country, wants to open an outpatient surgery center right next to his office in Cedar Rapids to perform cataract and other eye surgeries. But Iowa has denied him a certificate of need four times. Two local hospitals that control 100 percent of the existing facilities have opposed Dr. Birchansky’s efforts by consistently intervening in his application process. In July 2017, the Iowa Health Facilities Council granted Dr. Birchansky a certificate of need, but in January 2018, the Surgery Center of Cedar Rapids appealed the CON grant to an Iowa state court. The appeal is pending.