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Certificate of Need Law is a Form of Economic Protectionism for Certain Iowa Health Care Providers and Should Be Repealed

• Author: Chad A. Heiman
• Position: J.D. Candidate, The University of Iowa College of Law, 2019; B.A., The University of Northern Iowa, 2013
• Pages: 385-416

385

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Care Providers and Should Be Repealed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 th e Iowa Certificate of Need

(“CON”) law in 1977 after Congres s passed the National Health Pla nning

and Resource Development Act (“NH PRDA”). The NHPRDA more or less

forced states to adopt CON laws as a prerequisite to receiving federal funding.

The federal government repealed the NH PRDA in the 1980s after concluding

that the statute, and the CON requirement it imp osed on the states, did not

control health care costs, but rath er, contributed to increasing health care cost

across the country. Fifteen states ha ve repealed their respective CON law in

response to the NHPRDA’s repeal, b ut Iowa has not. This Note argues that

Iowa should follow those states, th us the Iowa Legislature should repeal , or

significantly amend, the Iowa CON statute because in its current form, th e

statute does not control cost, but results in economic p rotectionism and

contributes to the continual increase i n health care cost for Iowans.

I. INTRODUCTION ........................................................................... 386

II. THE ORIGINS OF CERTIFICATE OF NEED ...................................... 389

A. FEDERAL HEALTH PLANNING’S ORIGINS .................................. 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. MANDATING STATE HEALTH PLANNING AGENCIES

THROUGH THE NPHRDA ...................................................... 392

1. NHPRDA and the Proliferation of CON .................... 392

2. Federal Repeal of the NHPRDA ................................. 395

* J.D. Candidate, The Universi ty 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.

386 IOWA LAW REVIEW [Vol. 104:385

C. THE IOWA CERTIFICATE OF NEED PROGRAM ............................ 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. NATIONAL AND STATE ECONOMIC ANALYSIS OF CON ............... 403

B. IOWA’S CON PROCESS IS UNDULY BURDENSOME,

UNPREDICTABLE, AND SUBJECT TO POLITICAL

INFLUENCE ............................................................................ 406

C. IOWA’S CON STATUTE IS A FORM OF ECONOMIC

PROTECTIONISM .................................................................... 408

IV. SOLUTION ................................................................................... 412

A. FULL REPEAL ........................................................................ 413

B. AMENDING THE IOWA CON STATUTE ...................................... 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, ente red

LewisGale Medical Center in Sale m, Virginia, bleeding and in pa in.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 babie s, and an ambulance equipped

to transport newborns.5 Before placing the call the doctor thought, “We ’ve

got a chance.”6 Unfortunately, th e 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/42039000 1.

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-certifica te-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 permiss ion 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 a nd equipped

next to his medical office. 15 Before offe ring 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 e xample 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 t o 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. (emph asis added).

13. See infra notes 91–93 and accompanying text.

14. Birchansky, su pra 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-rapi ds-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 ap plicable in the health care industry.