Tiwari v. Friedlander
| Decision Date | 14 August 2020 |
| Docket Number | CIVIL ACTION NO. 3:19-CV-884-JRW-CHL |
| Parties | DIPENDRA TIWARI, et al. PLAINTIFFS v. ERIC FRIEDLANDER, et al. DEFENDANTS and KENTUCKY HOSPITAL ASSOCIATION INTERVENING DEFENDANT |
| Court | U.S. District Court — Western District of Kentucky |
1. The Court GRANTS in part and DENIES in part the motion to dismiss filed by Eric Friedlander and Adam Mather, in their official capacities at the Kentucky Cabinet for Health and Family Services ("Kentucky") (DN 18).
2. The Court GRANTS in part and DENIES in part the motion to dismiss filed by the Intervening Defendant Kentucky Hospital Association (DN 42).
3. Under the Slaughter-House Cases, 83 U.S. 36 (1873), the Court DISMISSES Count III of the Amended Complaint with prejudice.
4. There is no question about Plaintiff Grace Home Care's standing. But the Court ORDERS Plaintiffs Dipendra Tiwari and Kishor Sapkota to show cause for why they have standing as individuals to pursue the remaining claims. Their deadline for filing a notice dismissing those claims or a brief addressing the individuals' standing is September 10. Responses and replies, if any, are due in accordance with the Local Rules.
MEMORANDUM OPINIONPlaintiffs Dipendra Tiwari and Kishor Sapkota are immigrant entrepreneurs. They started a home health company called Grace Home Care to serve Nepali-speaking patients. But competitors convinced Kentucky to block them from doing business, denying them a "Certificate of Need."
Under Kentucky's Certificate of Need laws, some health care companies must get permission from the government before they do business. If Kentucky decides the new services aren't needed, the new health care business can't open. Kentucky can deny a Certificate of Need even if the new health care company will reduce patients' costs or deliver higher quality care than Kentuckians can currently access.
Under this system, the government - not doctors, not patients - decides if a community has enough hospitals. And enough hospital beds. And enough rehab centers. And enough mental health facilities. And enough nursing homes. And enough hospices. And enough outpatient surgery centers. And enough drug treatment. And, here, enough home health care businesses.
It's hard to picture this kind of central planning in most other American industries. Consider, for example, if Michigan had told Henry Ford he couldn't build a Model T factory because the market had enough Buicks. Just think how different our Commonwealth would look if Kentucky had told the innovators behind Louisville Slugger, Churchill Downs, and Kentucky Fried Chicken we already had enough baseball bats, race tracks, and fast food. And imagine if a Certificate of Need system had said:
As important as innovation-through-competition has been to those industries, it's arguably even more important in health care, where the stakes are life and death.9 Sure, health care differs from other industries in important ways. But Plaintiffs argue that the health care industry's unique qualities do not mean that requiring a Certificate of Need for a home health company serves a legitimate state interest.
On Plaintiffs' side are four decades of academic and government studies saying Certificate of Need laws accomplish nothing more than protecting monopolies held by incumbent companies. They also say these laws worsen the problems of cost, access, and quality of care that the laws are supposed to help fix.
If requiring a Certificate of Need for a home health company worsens all problems it purports to fix, the law is irrational. And if it's irrational, it's unconstitutional. At this point, Plaintiffs have plausibly alleged that it is.
If you've ever been close to an elderly relative who couldn't take care of herself, your loved one may have depended on the talent and dedication of a home health worker.10
Take, for example, an aging parent with early-onset dementia. Perhaps she's lived alone since her spouse died a decade ago. She doesn't want to impose on her kids and grandkids. And aswilling as those kids and grandkids may be, they might not be able to provide the full-time care she requires.11 She also doesn't want, and may not yet need, to move into a nursing home. But living alone twenty-four hours a day isn't an option because she can no longer keep her medicine straight, cook safely, or bathe without assistance.
For many seniors in that situation, home health care is their "first choice."12 In-home aides help patients with "personal care and basic household tasks," take them to the doctor, and sometimes provide medication and physical therapy.13 It is cheaper than a nursing home,14 and patients "often have better outcomes."15
Of course, seniors aren't the only ones who hire home health aides. But seniors use them the most.16 And as you can imagine, not every combination of patient and aide is the right match. In the home health context, the quarters are close, and personalities matter. Often, tranquility depends on a compassionate home health aide with the right mix of patience and communication skills.17
In Kentucky, the government, not the market, decides whether there's a need for more home health services. That's because home health companies are among the health care providersthat cannot serve patients until they obtain a Certificate of Need,18 which says the company will serve an unmet need in a particular county.19
In deciding whether to grant a Certificate of Need to a home health company, Kentucky's Cabinet for Health and Family Services ("Kentucky") applies a complicated formula using target rates, age cohorts, and county populations.20 The formula determines a county's "need" for more home health services.21 Then, Kentucky applies the following rules:
Thus, "the need requirement is applied unequally depending on who the applicant is."25
That's not so bad if you want to start a home health company in Boone, Campbell, Daviess, Fayette, McCracken, or Oldham counties.26 Kentucky's formula says those 6 counties have at least 250 untreated patients in need. But Kentucky has 114 other counties. And the doors to those 114 counties are closed to start-up home health businesses, even though a report commissioned byKentucky and submitted here by the Intervening Defendants shows an unmet need for home health services across the Commonwealth.27
It's an understatement to say Kentucky's Certificate of Need laws favor incumbents.28 Since 2000, in the home health context, Kentucky granted approximately 50 Certificates of Need when incumbents applied for the them.29 But when a start-up files an application contested by an incumbent,30 Kentucky either "always or almost always" rejects the start-up's application "on the basis that a lack of need existed."31 According to Plaintiffs, "it is impossible for a new health agency to open in most counties in Kentucky because existing home health agencies and hospitals prevent the need determination for home health services from ever reaching the 250-person threshold."32
In other words, the deck is stacked against start-ups because of incumbents' successful "rent-seeking," with the "rents" referring to monopoly profits. Rent-seeking businesses make a sort-of "extralegal" contract with politicians: money and votes for the politicians, regulations that ensure a monopoly for the interest group.33 Meanwhile, consumers lose out. Without the market competition that normally regulates businesses' behavior, the monopoly can charge otherwise unsustainably high prices for otherwise unsustainably mediocre products.
Plaintiffs don't argue that the politicians who created Kentucky's Certificate of Need regime intended to harm patients. Certificate of Need laws were originally "based on the premise that restricting the supply of health care would somehow lead to greater control over health care costs."34 Congress mandated these laws, and 49 states followed suit.35 But as a general matter, imposing an artificial shortage on a service simply causes its price to rise. So, predictably, Certificate of Need laws were "not successful in containing health care costs."36
In response, in 1986, Congress repealed its mandate for states to create Certificate of Need regimes.37 38
In 2013, Kentucky asked the consulting firm Deloitte to study its health care capacity.39 It recommended that Kentucky consider suspending or discontinuing the home health Certificate of Need requirement.40 Had Kentucky done so, it would have joined the majority of states, whichdon't subject home health services to a Certificate of Need regime.41 And it would have moved in the direction of states that have eliminated Certificate of Need laws altogether.42
Plaintiffs Dipendra Tiwari and Kishor Sapkota are Nepali immigrants who speak Nepali.43 Tiwari is a certified public accountant who previously worked for a different home health company.44 Sapkota is a home health aide.45 As...
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