Shifting Purpose: Why Iowa's Certificate of Need Law is a Form of Economic Protectionism for Certain Iowa Health Care Providers and Should Be Repealed

Shifting Purpose: Why Iowa’s Certificate of Need Law is a Form of Economic Protectionism for Certain Iowa Health Care Providers and Should Be Repealed Chad A. Heiman * ABSTRACT: The Iowa Legislature enacted the Iowa Certificate of Need (“CON”) law in 1977 after Congress passed the National Health Planning and Resource Development Act (“NHPRDA”). The NHPRDA more or less forced states to adopt CON laws as a prerequisite to receiving federal funding. The federal government repealed the NHPRDA in the 1980s after concluding that the statute, and the CON requirement it imposed on the states, did not control health care costs, but rather, contributed to increasing health care cost across the country. Fifteen states have repealed their respective CON law in response to the NHPRDA’s repeal, but Iowa has not. This Note argues that Iowa should follow those states, thus the Iowa Legislature should repeal, or significantly amend, the Iowa CON statute because in its current form, the statute does not control cost, but results in economic protectionism and contributes to the continual increase in health care cost for Iowans. I. INTRODUCTION ........................................................................... 386 II. THE ORIGINS OF CERTIFICATE OF NEED ...................................... 389 A. F EDERAL H EALTH P LANNING ’ S O RIGINS .................................. 389 1. The Hill–Burton Act of 1946 ...................................... 389 2. Federal Concern with Health Care Cost Containment—Section 1122 of the Social Security Amendment of 1972 ..................................... 390 B. M ANDATING S TATE H EALTH P LANNING A GENCIES T HROUGH THE NPHRDA ...................................................... 392 1. NHPRDA and the Proliferation of CON .................... 392 2. Federal Repeal of the NHPRDA ................................. 395 * J.D. Candidate, The University of Iowa College of Law, 2019; B.A., The University of Northern Iowa, 2013. Thank you to my fiancé Sarah, our furry companion Kevin, and my family and friends for their unwavering love, support, and patience throughout law school. I would also like to thank my colleagues at the Iowa Law Review for guiding me through the publication process. 385 386 IOWA LAW REVIEW [Vol. 104:385 C. T HE I OWA C ERTIFICATE OF N EED P ROGRAM ............................ 396 1. Iowa’s Implementation of the NHPRDA, the Creation of the State Health Facilities Council, and Iowa CON Legislation .......................................... 396 2. Application, Review, and Appeal Process ................... 397 III. IOWA’S CON STATUTE DOES NOT ACHIEVE ITS PRIMARY PURPOSE ..................................................................................... 402 A. N ATIONAL AND S TATE E CONOMIC A NALYSIS OF CON ............... 403 B. I OWA ’ S CON P ROCESS I S U NDULY B URDENSOME , U NPREDICTABLE , AND S UBJECT TO P OLITICAL I NFLUENCE ............................................................................ 406 C. I OWA ’ S CON S TATUTE IS A F ORM OF E CONOMIC P ROTECTIONISM .................................................................... 408 IV. SOLUTION ................................................................................... 412 A. F ULL R EPEAL ........................................................................ 413 B. A MENDING THE I OWA CON S TATUTE ...................................... 414 V. CONCLUSION .............................................................................. 415 “Patients and doctors—not state officials—are in the best position to decide what healthcare services are needed.” 1 I. INTRODUCTION In February of 2012 a patient, twenty-four weeks pregnant, entered LewisGale Medical Center in Salem, Virginia, bleeding and in pain. 2 The patient was suffering from placental abruption. 3 Placental abruption occurs when “the placenta detaches from the inner walls of the uterus and triggers premature labor” and can be deadly for the mother and baby. 4 The doctor at LewisGale rushed to call a neighboring hospital six miles away that had a special treatment center for premature babies, and an ambulance equipped to transport newborns. 5 Before placing the call the doctor thought, “We’ve got a chance.” 6 Unfortunately, the doctor’s optimism quickly evaporated. The 1. Lee Birchansky, Iowa’s CON Job: How the State Prevents Competition in Health Care , DES MOINES REG. (June 22, 2017, 1:14 PM), http://www.desmoinesregister.com/story/opinion/columnists/iowa-view/2017/06/22/iowas-con-job-how-state-prevents-competition-health-care/420390001. 2. Eric Boehm, How Virginia’s Hospital Licensing Laws Led to an Infant’s Death , REASON (Jan. 25, 2017), http://reason.com/archives/2017/01/25/virginia-certificate-of-need-hospital. 3 . Id. ; see also Placental Abruption , AM. PREGNANCY ASS’N, http://americanpregnancy.org/ pregnancy-complications/placental-abruption (last visited July 2, 2018). 4. Boehm, supra note 2 . 5 . Id. 6 . Id. 2018] IOWA’S CERTIFICATE OF NEED LAW 387 only ambulance capable of transporting the baby was not available because it was out responding to another call. 7 The doctor had to tell the mother, who was fighting for her life, that an ambulance that could potentially save her baby was not coming. 8 Ultimately the mother survived, but the baby tragically passed away. 9 Unfortunately, the baby’s fate was foreseeable. In July of 2010 LewisGale applied to the Virginia Department of Health seeking permission to build a neonatal specialty care unit. 10 The Department denied the application. 11 As a part of the denial, the Department concluded that a neonatal specialty care unit at LewisGale “would foster institutional competition.” 12 It was competition—or at a minimum, the notion of avoiding competition—that contributed to a baby’s death. Virginia is not the only state that requires certain health care providers to obtain government permission before opening a medical facility. 13 Dr. Lee Birchansky is an ophthalmologist in Cedar Rapids, Iowa, offering patients cataract and other outpatient surgeries. 14 Dr. Birchansky operates his medical practice, Fox Eye Laser & Cosmetic Surgery Institute, and offers outpatient cataract surgeries in a surgery center he constructed and equipped next to his medical office. 15 Before offering new services, Iowa law requires health providers to obtain a Certificate of Need (“CON”). 16 Essentially, a CON is a permission slip from the government signifying that, after its determination , a need exists in the market for the services that the health provider intends to offer. In addition to requiring the government’s permission, the process also requires the government to inform the applicant’s potential competitors, who then have the opportunity to offer opposing testimony for the project at a public hearing. 17 A simple example illustrates the difficult barriers to entry inherent in the CON process. Imagine you would like to own a fast-food restaurant. You have decided to open a restaurant in the same area as a potential competitor. If CON applied to the fast-food industry, 18 you would have to approach the state government and plead your case that a need exists for your restaurant. Then, 7 . Id. 8 . Id. 9 . Id. 10 . Id. 11 . Id. 12 . Id. (emphasis added). 13 . See infra notes 91–93 and accompanying text. 14 . Birchansky, supra note 1. 15 . Id. ; see also Cindy Hadish, Cedar Rapids Doctor, State Clash Over Cataract Surgeries , GAZETTE (Mar. 6, 2012), http://www.thegazette.com/2012/03/06/cedar-rapids-doctor-state-clash-over-cataract-surgeries. 16 . IOWA CODE § 135.63(1) (2017). 17 . See infra Section II.C.2. 18 . Luckily, in Iowa, CON is only applicable in the health care industry. 388 IOWA LAW REVIEW [Vol. 104:385 your competitors could show up to a public hearing and claim that demand does not exist for your business and that the market does not need your restaurant. Moreover, the government might decide, after hearing from your competitor, that there is no need for an additional restaurant in the area and deny your request. Returning to Dr. Birchansky, the Iowa Health Facilities Council (“Council”) denied his request for a CON on four separate occasions. 19 Each time that Birchansky applied for a CON, two local hospitals, that collectively control 100% of the existing operating facilities in Cedar Rapids, have opposed Birchansky’s application. 20 The two hospitals opposing Birchansky opening his facility claimed that no need existed for an additional outpatient surgery center, but because of a significant loophole in the Iowa law, one of the hospitals that opposed Birchansky’s facility later opened a new outpatient surgery center, just four miles from Birchansky’s already constructed facility. 21 A baby’s tragic death in Virginia and Dr. Birchansky’s initial inability to open his outpatient surgery center illustrate the spectrum of outcomes that result because of CON. Considering these outcomes, this Note reviews CON’s origin and addresses the current framework of Iowa’s CON process and argues (perhaps optimistically) that the Iowa Legislature should fully repeal the Iowa CON program, or at a minimum address the statute’s significant loophole that violates the U.S. Constitution’s Equal Protection Clause. 22 First, Part II explains the origins of CON and federal health planning which led to the creation of Iowa’s CON program. Next, Part III takes an in-depth review of Iowa’s CON process, highlighting the program’s significant deficiencies. This Note then evaluates (1) the economic realities that have developed because of CON’s implementation across the United States and why CON has failed to achieve its primary purpose; (2) the negative influence of politics on the CON process; and (3) why an aspect of Iowa’s CON statute violates the U.S. Constitution’s Equal Protection Clause. Part IV offers two solutions for the Iowa Legislature: (1) Repeal CON in Iowa; or, more realistically given the current...