Iowa Eye Surgeon Wants to Open His Own Clinic. For 14 Years, His Competitors Have Stopped Him.

A lawsuit challenging Iowa's Certificate of Need laws goes before a federal judge today.


Photo courtesy Institute for Justice

It's been 14 years since Lee Birchansky first sought to open a cataract surgery center in Iowa. Today a federal court will finally hear the doctor's challenge to the law that let his competitors keep him out of business all that time.

Birchansky is one of four plaintiffs—the others are a second doctor and two patients—challenging the constitutionality of Iowa's Certificate of Need (CON) laws, which require that the state approve the opening of new medical facilities. These laws are supposed to protect patients by preventing medical providers from clustering services in certain areas while leaving others underserved, but in practice they limit the supply and raise the price of health care. Powerful special interests, such as hospitals, often use them to limit competition.

That's what happened to Birchansky, who's been unable to get the state's permission to do cataract surgery in his fully equipped Cedar Rapids office. Hundreds of thousands of dollars of medical equipment sits unused because nearby hospitals objected to his clinic.

The kicker is that Birchansky worked for six years in the exact same facility and the state had no problem with that. Before setting off on his own in 2004, Birchansky operated on patients as part of an agreement with a local hospital. Under a weird loophole in Iowa's CON laws, existing CON-holders are allowed to expand and open new facilities without seeking new permission from the government.

The existence of that loophole—which blatantly favors existing medical providers over new competitors, without any benefits for patients when it comes to the safety or availability of medical care—is at the center of Birchansky's lawsuit. The plaintiffs are represented by the Institute for Justice, a libertarian law firm (where, full disclosure, my significant other is employed).

"Through its loophole for existing health care facilities, Iowa's certificate of need scheme unconstitutionally favors existing businesses at the expense of our clients and other medical providers while also limiting the rights of Iowans to access safe, convenient, and cost-effective medical care," says Darpana Sheth, the attorney who will argue the plaintiffs' case.

While Iowa's laws are particularly onerous, 35 states have CON statutes of some sort on the books. Though primarily focused on health care, some state-level CON laws require permission to start moving companies or taxi businesses.

The consequences are always the same: These laws benefit special interests and limit competition. Patients end up losing. In a 2016 paper published by the Mercatus Center at George Mason University, Thomas Stratmann and Davild Wille show that hospitals in states with CON laws have higher mortality rates than hospitals in non-CON states. The average 30-day mortality rate for patients with pneumonia, heart failure, and heart attacks in states with CON laws is between 2.5 percent and 5 percent higher even after demographic factors are taken out of the equation.

Sometimes, those costs are acute. A Reason investigation last year showed how Carilion Clinic, a major hospital in Roanoke, Virginia, used the state's CON licensing process to stop a nearby hospital from building a neo-natal intensive care unit. Even after a premature infant died at the second hospital, the Virginia Department of Health (at the urging of Carilion's executives) refused to grant permission.

In Iowa, two local hospitals have worked together to block Birchansky's applications—four of them—to open his own surgery center. In a statement to the Cedar Rapids Gazette, Birchansky said it was "ridiculous" that the state would prevent him from seeing patients in a surgery center "that is already built, already equipped and all ready to go."

The hospitals have also blocked reforms to the state's CON system. As Reason has previously reported, Iowa hospitals successfully killed a proposal backed by Gov. Terry Branstad that would have exempted several medical services—including surgical centers and medical imaging clinics—from the CON process.

Perhaps Friday's court case will accomplish what Iowa's governor and legislature have failed to do. Maybe, after 14 years of trying, Birchansky is a little bit closer to being able to use his surgical skills to improve a patient's life.