Tiwari v. Friedlander

• Decision Date: 14 February 2022
• Docket Number: No. 21-5495,21-5495
• Parties: Dipendra TIWARI; Kishor Sapkota; Grace Home Care, Inc., Plaintiffs-Appellants, v. Eric FRIEDLANDER, in his official capacity as Secretary of the Kentucky Cabinet for Health and Family Services ; Adam Mather, in his official capacity as Inspector General of Kentucky, Defendants-Appellees, Kentucky Hospital Association, Intervenor Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

26 F.4th 355

Dipendra TIWARI; Kishor Sapkota; Grace Home Care, Inc., Plaintiffs-Appellants,

v.Eric FRIEDLANDER, in his official capacity as Secretary of the Kentucky Cabinet for Health and Family Services ; Adam Mather, in his official capacity as Inspector General of Kentucky, Defendants-Appellees,Kentucky Hospital Association, Intervenor Defendant-Appellee.

No. 21-5495

United States Court of Appeals, Sixth Circuit.

Argued: January 27, 2022

Decided and Filed: February 14, 2022

ARGUED: Andrew H. Ward, INSTITUTE FOR JUSTICE, Arlington, Virginia, for Appellants. David T. Lovely, CABINET FOR HEALTH AND FAMILY SERVICES, Frankfort, Kentucky, for Appellees Friedlander and Mather. David M. Dirr, DRESSMAN BENZINGER LA VELLE PSC, Crestview Hills, Kentucky, for Appellee Kentucky Hospital Association. ON BRIEF: Andrew H. Ward, INSTITUTE FOR JUSTICE, Arlington, Virginia, Jaimie N. Cavanaugh, INSTITUTE FOR JUSTICE, Minneapolis, Minnesota, for Appellants. David T. Lovely, CABINET FOR HEALTH AND FAMILY SERVICES, Frankfort, Kentucky, for Appellees Friedlander and Mather. David M. Dirr, Christopher B. Markus, DRESSMAN BENZINGER LA VELLE PSC, Crestview Hills, Kentucky, for Appellee Kentucky Hospital Association.

Before: SUTTON, Chief Judge; GUY and DONALD, Circuit Judges.

SUTTON, Chief Judge.

Dipendra Tiwari and Kishor Sapkota sought to establish a home healthcare company, called Grace Home Care, that would focus on serving Nepali-speaking individuals in the Louisville area. Like other companies that provide healthcare services, home healthcare companies face a number of regulations. One of them is a certificate-of-need requirement, which restricts the number of such companies that may serve each county in Kentucky. When the Commonwealth denied their certificate-of-need application, Tiwari and Sapkota filed this lawsuit. They claim that the regulation violates their Fourteenth Amendment right to earn a living, serves only the illegitimate end of protecting incumbent home healthcare companies from competition, and through it all lacks a rational basis. At the motion to dismiss stage, the district court allowed the case to proceed to discovery. On summary judgment, the district court upheld the law. We affirm.

I.

Certificate-of-need laws control the number of healthcare resources in a geographical area. Unlike other licensing laws, these programs require the applicant to demonstrate a public need for its service in a given area to "prevent overinvestment in and maldistribution of health care facilities." Colon Health Ctrs. of Am., LLC v. Hazel , 813 F.3d 145, 153 (4th Cir. 2016). While certificate-of-need laws have fallen out of favor in the last few decades, many States still use them to regulate different parts of the healthcare industry. See id. ; Emily Whelan Parento, Certificate of Need in the Post-Affordable Care Act Era , 105 Ky. L.J. 201, 256 (2017). At least 16 States today have certificate-of-need laws for home healthcare services. See Parento, supra , at 256 ; Certificate of Need State Laws, Nat'l Conf. of State Legislatures, https://www.ncsl.org/research/health/con-certificate-of-need-state-laws.aspx#Interactive% 20Map (last visited Feb. 9, 2022).

Anyone wishing to establish a "health facility" or to make certain substantial changes to an existing health facility in Kentucky must obtain approval from the State. Ky. Rev. Stat. § 216B.061(1) ; see also id. § 216B.020. A "health facility" broadly includes "any institution, place, building, agency, or portion thereof" that is "used, operated, or designed to provide medical diagnosis, treatment, nursing, rehabilitative, or preventive care," among other services. Id. § 216B.015(13). A covered entity must apply for a certificate of need to Kentucky's Cabinet for Health Services, the agency that administers the program. Id. § 216B.062; see also id. §§ 216B.040(1), 216B.015(6). The application goes through a review process, id. §§ 216B.040, 216B.095, which requires public notice with the opportunity for "affected persons"—often the applicant or a competitor—to request a hearing, id. § 216B.085(1)–(2); 900 Ky. Admin. Regs. 6:060.

By statute, the State looks at several factors in reviewing an application: (1) "interrelationships and linkages" to existing care; (2) "costs, economic feasibility, and resources availability"; (3) "quality of services"; (4) "need and accessibility" in the desired geographic area; and (5) "consistency with" the State Health Plan as determined by the Health Services agency. Ky. Rev. Stat. § 216B.040(2)(a)(2) ; see 900 Ky. Admin. Regs. 5:020.

The last two factors—"need and accessibility" and "consistency with plans"—tend to be the primary guideposts. In calculating need, the Plan compares the forecasted demands of the population to the number of people already receiving the service. The State Health Plan also contains guidelines and regulations for each type of facility or service. Ky. Rev. Stat. § 216B.015(28).

Dipendra Tiwari and Kishor Sapkota sought to establish a home healthcare company in Louisville. Named Grace Home Care, the company would provide healthcare services at the patient's home and serve, among other patients, those who spoke Nepali. Home healthcare, as Kentucky defines it, includes skilled nursing; therapeutic services such as physical, speech, or occupational therapy; and home healthcare support: bathing, using the bathroom, and taking medication. Kentucky's Health Plan requires new entrants to show that at least 250 patients need the service while it requires existing companies to show that at least 125 patients need the expanded service.

Unique among home healthcare companies, Grace Home Care wishes to focus its services on Louisville's Nepali residents. Because positive health outcomes often occur when the patient is comfortable with the provider, Tiwari and Sapkota thought Grace Home Care could deliver superior care for these Kentuckians by pairing them with home healthcare workers who spoke their language and understood their culture.

In March 2018, Grace Home Care submitted its certificate-of-need application. As permitted under state law, Baptist Health, which also runs a home healthcare company in Louisville, intervened and argued that Grace Home Care's application did not fit the State's Health Plan because Jefferson County's need calculation fell below the threshold for new providers. Grace Home Care did not respond, and the State denied the application.

At that point, Tiwari, Sapkota, and Grace Home Care could have challenged this administrative decision in state court. Under Kentucky law, they could have claimed that the decision was "[a]rbitrary," unsupported by substantial evidence, or otherwise unlawful. Ky. Rev. Stat. § 13B.150. But they did not file such a challenge.

They instead filed this lawsuit against various Kentucky agencies and officials in federal court. They claim that the certificate-of-need law, as applied to home healthcare companies, violates the Due Process, Equal Protection, and Privileges or Immunities Clauses of the Fourteenth Amendment. The Kentucky Hospital Association successfully moved to intervene as a defendant.

At the outset, the State and the Hospital Association moved to dismiss the complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure. The district court rejected the motions in a thoughtful and thorough opinion. In the absence of discovery, it found plausible the complaint's allegations that the statutory scheme did not serve a rational purpose, reasoning that the law seemed to inhibit rather than further the law's proposed justifications, including lower costs and better care. Tiwari v. Friedlander , No. 19-CV-884, 2020 WL 4745772, at *5–14 (W.D. Ky. Aug. 14, 2020). As a result, the court ruled, the plaintiffs adequately stated a claim for relief under the Fourteenth Amendment's Due Process and Equal Protection Clauses. Id.

The lawsuit proceeded to discovery and before long dueling summary judgment motions, which featured competing expert reports. In the face of this expanded record, the court determined that the State's justifications for the law rationally supported it. Tiwari v. Friendlander , No. 19-CV-00884, 2021 WL 1407953, at *13 (W.D. Ky. Apr. 14, 2021).

II.

Due Process. The Due Process Clause of the Fourteenth Amendment prevents a State from "depriv[ing] any person of life, liberty, or property, without due process of law." U.S. Const. amend. XIV. The textual focus of the clause is procedural—to require elemental process before the State takes the property of its citizens, infringes on their liberty, or deprives them of life. But this case does not implicate a process dispute. Tiwari and Sapkota do not complain about the nature of the State's procedures for obtaining a license in the sense of fair notice, an opportunity to be heard, or other procedures for determining who gets a license and who doesn't.

Tiwari and Sapkota instead complain about something else—the substance of Kentucky's certificate-of-need law. They claim that it violates the liberty guarantee of the Due Process Clause. Over time, some substantive due process guarantees have become anchored in the language of the Bill of Rights. If, for example, Kentucky had denied this certificate-of-need application based on the applicant's unwillingness to speak favorably about the Governor, that denial would violate substantive due process, namely the free-speech guarantee of the First Amendment as incorporated through the liberty clause of the Fourteenth Amendment. But Tiwari and Sapkota do not rest their substantive due process claim on any of the first eight provisions of the Bill of Rights, nearly all of which the U.S. Supreme Court has incorporated into the Due Process Clause.

That leaves another possibility—that the certificate-of-need requirement violates a fundamental right unanchored in the Bill of Rights but recognized by the U.S. Supreme Court all the same. Infringements on such fundamental rights receive...