Lawsuit challenges Iowa's certificate of need process

Claims requirement stifles service options

Dr. Lee Birchansky is pictured in one of the operating rooms at Fox Eye Laser & Cosmetic Institute on H Avenue NE in Ced
Dr. Lee Birchansky is pictured in one of the operating rooms at Fox Eye Laser & Cosmetic Institute on H Avenue NE in Cedar Rapids on Wednesday, Aug. 10, 2016. The ambulatory surgical center was operated for five years with St. Luke’s, but has been unused for 12 years since the hospital backed out of the deal and area hospitals have objected to Birchansky obtaining his own certificate to continue cataract surgeries at the H Avenue NE facility. (Liz Martin/The Gazette)

DES MOINES — A Cedar Rapids physician and two other plaintiffs have joined forces with the Virginia-based Institute for Justice to file a federal lawsuit challenging the constitutionality of Iowa’s certificate-of-need law.

The law has been in place since 1977 to prevent duplication of expensive health services in communities.

Dr. Lee Birchansky, his patient, Michael Jensen, and another Iowa medical provider — Korver Ear Nose and Throat LLC — brought the lawsuit Wednesday after an effort by former Gov. Terry Branstad to revamp or eliminate the requirement failed during the 2017 session of the Iowa Legislature.

The lawsuit, against the Iowa Department of Public Health, challenges a state law that makes it a crime for doctors to open up a new outpatient surgery center without first obtaining special permission — a certificate of need, or CON — from the government.

That process has resulted in Birchansky being denied four times in applying for a certificate in his effort to open up an outpatient surgery center next to his office in Cedar Rapids to perform cataract and other eye surgeries. Two local hospitals that control 100 percent of the existing facilities have opposed Birchansky’s efforts by intervening in his application process, according to the lawsuit.

“It is ridiculous that I have an outpatient surgery center that is already built, already equipped and all ready to go, but I have been denied a certificate of need four times because established hospitals do not want competition,” Birchansky said in a statement issued by the institute handling the case.

Certificates of need can be a cumbersome process, but Iowa’s Hospital Association argues that it’s a necessary one. The group, which represents the state’s 118 hospitals, says that without statewide oversight, Iowa would experience a growth of for-profit health care services.

CON prioritizes community-based health care and ensures financial stability for hospitals — especially among rural hospitals. That’s because hospitals offer lots of services, some of which are more profitable than others, such as imaging and child delivery, the association says.

These services help balance out the charity or uncompensated care they provide and the low reimbursement rates they often receive for Medicaid patients, the association adds.

Institute of Justice lawyers, however, contend Iowa has no objection to doctors offering services. But the state wants them to do so by working for an existing Iowa business instead of owning their own practice.

“Iowa is one of 28 states that require someone like Dr. Birchansky to ask permission from hospitals before opening a new outpatient surgery center,” said Joshua House, an Institute of Justice lawyer and co-counsel for the case. “Patients and doctors — not the government — are in the best position to decide what medical services are needed.”

Iowa has separate laws governing who is licensed to practice medicine, House noted, and both federal and state laws already regulate what medical treatments doctors may use. That means Iowa’s CON requirement applies to licensed professionals who want to offer medical services that are legal under state law.

While Iowa makes it a crime for doctors to open up a new outpatient surgery center without first obtaining the special CON permission from the government’s State Health Facilities Council, state laws have nothing to do with protecting health or safety, according to Institute of Justice attorneys. Instead, doctors must persuade state officials that their new service is “needed” through a cumbersome process that resembles full-blown litigation and allows existing businesses, such as established hospitals, to oppose their application.

“Certificate-of-need laws are simply a government permission slip that lets already established businesses decide which new businesses can open,” said Darpana Sheth, Institute of Justice senior attorney. “But the United States Constitution protects the right to earn an honest living free and it protects a patient’s right to seek approved medical treatment from licensed doctors. And it prohibits laws that only further economic protectionism.”

The Health Facilities Council may grant a CON only if there aren’t “appropriate alternatives” or if other facilities providing similar services aren’t using them efficiently. That, critics say, opens the door for rival facilities to argue before the board that they already are meeting patients’ needs.

In his attempt over two decades to open his proposed clinic, Birchansky had to file a letter of intent with the Iowa Department of Public Health, complete an extensive application form and pay a fee of up to $21,000 to open a new outpatient center.

Iowa’s process then requires the department to notify all “affected persons,” including would-be competitors, who can testify at a mandatory public hearing. The department must consider 18 non-exhaustive factors when determining whether an applicant receives a certificate, including whether established businesses have objected to the application and, even if the department grants a CON, those established businesses may legally appeal the grant, according to IJ lawyers.

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