Institute for Justice · June 14, 2017

Arlington, Va.—For years, there has been an ongoing debate about the federal government’s role in our healthcare system. But the debate has largely ignored little-known state laws that do nothing more than increase healthcare costs and limit medical options while lining the pockets of established medical businesses. A new federal lawsuit filed by two doctors and the Institute for Justice seeks to change those laws in Iowa and throughout the nation.

Iowa makes it a crime for doctors to open up a new outpatient surgery center without first obtaining special permission—called a “certificate of need”—from the government. But these laws have nothing to do with protecting health or safety. Instead, 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 application.

“Certificate of need laws are simply a government permission slip that lets already established businesses decide which new businesses can open,” explained IJ Senior Attorney Darpana Sheth. “But the United States Constitution protects the right to earn an honest living and it protects a patient’s right to seek approved medical treatment from licensed doctors. And it prohibits laws that only further economic protectionism.”

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IJ client Dr. Lee 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.

The process to get a certificate of need is incredibly burdensome: Medical professionals like Dr. Birchansky have to file a letter of intent with the Iowa Department of Public Health, complete an extensive application form and pay a fee of up to $21,000 to open a new outpatient center. The Department must then notify all “affected persons,” including would-be competitors, who can show up to testify at a mandatory public hearing. The Department must consider 18 non-exhaustive factors when determining whether an applicant receives a certificate, including whether established businesses have objected to the application. And even if the Department grants a certificate, those established businesses may legally appeal the grant.

“It is ridiculous that I have an outpatient surgery center that is already built, already equipped and all ready to go, but I have been denied a certificate of need four times because established hospitals do not want competition,” said Dr. Birchansky.

Iowa has no objection to doctors offering any of these services. It just wants them to do so by working for an already-established Iowa business instead of owning their own practice. Iowa has separate laws governing who is licensed to practice medicine. And both federal and state laws already regulate what medical treatments doctors may use. In other words, Iowa’s certificate-of-need requirement applies to licensed professionals who want to offer medical services that are perfectly legal under state law.

“Iowa is one of 28 states that require someone like Dr. Birchansky to ask permission from the government before opening a new outpatient surgery center,” said IJ Attorney and co-counsel for the case Joshua House. “Patients and doctors—not the government—are in the best position to decide what medical services are needed.”