ARLINGTON, Va.—Americans are entrepreneurial, especially immigrants. One out of four start-ups are founded by people not born in the country. Yet many states have laws that effectively shut new entrants out of a sector that could stand to benefit from innovation: health care. These “certificate of need” or CON laws let large health care companies effectively monopolize certain health services and prevent people from exercising their right to earn an honest living.
Dipendra Tiwari saw an urgent need for Nepali speakers to receive home health care from providers who understood their language and culture. With thousands of Nepali immigrants living in the Louisville area, he hoped to open a modest business that would employ nurses and health aides qualified to offer services to both the Nepali community and anyone else needing quality care in their homes. But his dream was ended by Kentucky’s CON law, which says that there is no need for new home health agencies in most of the state.
Dipendra’s CON application was formally opposed by the $2 billion Baptist Health conglomerate, which operates its own home health agency. After Dipendra, his business partner Kishor Sapkota and the Institute for Justice (IJ) sued, the Kentucky Hospital Association intervened to defend the law and protect its members from new competition.
The 6th U.S. Circuit Court of Appeals upheld Kentucky’s protectionist law, but questioned whether the U.S. Supreme Court should rethink how federal courts consider cases where the right to earn a living is at stake. “Many thoughtful commentators, scholars, and judges,” the court wrote “have shown that the current deferential approach to economic regulations may amount to an overcorrection.”
Yesterday, IJ asked the U.S. Supreme Court to consider the case.
“Everyone has the right to earn an honest living, and your competitors should not get to stop you from opening a new business,” said IJ Attorney Andrew Ward. “One appellate judge called the law outrageous at oral argument but ruled he couldn’t do anything under the current legal standard. The Supreme Court has the power to change that.”
Dipendra came to the United States in 2008, earned an MBA and became a certified public accountant. He owns and operates Grace CPA outside Louisville. Kishor currently works in home health care and is married to a nurse. The two were rejected in January 2019 because Kentucky uses a crude formula to determine need for home health services county by county. In Jefferson County, which contains Louisville and its suburbs, the state has determined that there is no need, so no new home health agencies can serve patients. Today, new agencies are allowed to open in just eight of the state’s 120 counties.
The CON application process does not consider whether existing providers are doing a good job or whether a new entrant might offer innovative or niche services. And existing home health agencies, many of which are attached to large hospital companies, can shut out competitors from the market. Providers that have a CON are more easily allowed to expand their services, ensuring that the state’s calculations never show that a new home health agency is needed.
“Because of Kentucky’s certificate of need law, the big sharks can keep the small fish out of the market,” said Dipendra. “We hope that the Supreme Court recognizes that Kentucky’s CON law is un-American and unconstitutional. We simply want to provide people in our community with a better option for home health care.”
The federal government encouraged states to pass certificate of need laws in the 1970s as a move to control costs. However, after a decade of experience, it became apparent that the laws were not working as policymakers intended. The federal government dropped the requirement. But with the encouragement of existing health care providers, many states kept their CON laws on the books. Currently, 18 states require a CON to open a home health agency.
The overwhelming evidence shows that CONs do not reduce health costs and may serve as a barrier to patients getting the care they need. In 2013, a national consulting firm hired by the commonwealth of Kentucky recommended “suspending / discontinuing the CON program for Home Health Agencies.” However, that recommendation was never acted upon by Kentucky legislators.
The COVID-19 pandemic exposed the flaws of CON laws. Dozens of states suspended CON requirements for a variety of services, including limits on hospital beds. This has led at least some states to reconsider their CON laws. IJ released a comprehensive nationwide survey of CON laws, “Conning the Competition,” in 2020.
“Certificate of need laws failed to control health care costs but have succeeded in protecting established health care companies,” said IJ Attorney Jaimie Cavanaugh. “There is abundant evidence that CON laws are nothing but pure protectionism and courts should be able to weigh the evidence and determine whether these laws violate the Constitution.”
The Institute for Justice is a non-profit public interest law firm that protects economic liberty, property rights, the First Amendment and educational choice nationwide. IJ is also representing a North Carolina doctor challenging his state’s CON laws, a Jordanian immigrant fighting against Colorado’s transportation monopolies, and a Texas mother trying to run a home day care.