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.

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  1. If only the free market had a mechanism for dealing with unneeded services.

    1. Oh, like a twitter storm of bogus bad reviews from socialists opposed to free enterprise?

    2. The crazy thing is how many people don’t understand this. I hear all the time about how we need to make sure that certain services (health care, internet service providers, etc.) are available in rural, under-served areas. As if we need to proactively manage that from the highest levels (i.e. through laws, either coercive, like these CON laws, or other market distortions like subsidies).

      But as you say, a free market already solves this problem, just not in the way that allows for maximum convenience for the consumer. A rural town of 500 residents will support things like a convenience store/dollar store, a restaurant or two, a small engine repair shop, etc. No laws are needed other than supply and demand to ensure that these things come into existence.

      1. But when a resident needs to be airlifted to the nearest hospital, this will have to come from another town, reducing efficiency and increasing cost for those rural residents. There are certain advantages to living in small, rural communities, but these are disadvantages, and everyone who lives in such places knows this (or ought to). If the advantages of living in rural areas are outweighed the disadvantages for someone, then this person should consider moving to a more suburban area, even if that means changing careers.

        If people understood this, then that would help with the consumer-driven portion of the impulse to support such laws. The provider-driven impulse is obvious, to thwart competition and setup monopolistic environments to increase profit and reduce the burden to continually innovate. But the consumer-driven impulse is the one always advertised to the public, as well as many of the useful idiots in control of the lawmaking process.

  2. >>>to stop a nearby hospital from building a neo-natal intensive care unit

    evil. neo-natal babies need care, not mafia tactics

  3. The plaintiffs are represented by the Institute for Justice, a libertarian law firm (where, full disclosure, my significant other is employed)

    Dude! I send them money every month! You OWE me!

  4. Will the government let him open the clinic if he promises to abort fetuses there?

    1. Or -not- as the other “half” demands that women don’t have rights to their bodies. Just depends on who has control. I’m guessing in Iowa it is the other “half”.

  5. Just dirty politics as usual.

  6. But government’s *PROTECTING* you! From evil market competition, greater availability, and lower prices!

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