Eighth Circuit Upholds Iowa’s Certificate of Need Requirements
- April 17, 2020
The Eighth Circuit upheld certificate of need (CON) requirements in Iowa, rejecting a challenge that argued the regime violated due process and equal protection.
According to the appeals court, applying the CON requirement to protect hospitals from outpatient surgery centers that draw away profitable business was rationally related to a legitimate state interest in ensuring the viability of full-service hospitals that provide other needed services that aren’t profitable.
Two health care providers that wanted to expand their outpatient surgery practices sued the state arguing its CON requirement was unconstitutional.
Under Iowa law, opening a new outpatient surgery center requires a CON, which is a long and expensive process, requiring the applicant to establish a need for the services and allowing existing businesses to oppose the issuance of a CON. The appeals court noted that existing hospitals often are successful in opposing the issuance of a CON.
The statute includes a capital expenditure exemption that allows CON-holders to expand or open new facilities without a new CON if the cost is $1.5 million or less annually and the new facility is located in the facility’s existing county or a contiguous county. A second exemption allows the CON-holder to sell an existing outpatient center to a new party or existing partner, which may then own and operate the surgery center without a new CON.
The providers in the case wanted to open outpatient surgery centers in a non-contiguous county without having to obtain a new CON. They alleged the CON laws violated due process and equal protection.
The district court upheld the CON requirements, and the Eighth Circuit affirmed.
The appeals court refused to apply strict scrutiny because the state’s CON regime didn’t implicate a fundamental right. The CON requirement passed constitutional muster under a rational-basis review, the Eighth Circuit held.
“Iowa could rationally conclude that its full-service hospitals would be at risk if its regulatory scheme allowed competitors to cherry pick more lucrative medical services like outpatient surgery,” the appeals court said. “We find that Iowa’s CON requirement is rationally related to a legitimate state interest in full-service hospital viability,” the appeals court concluded.
The Eighth Circuit also found it wasn’t unreasonable for Iowa to permit a limited amount of competition through the capital expenditure exemption as a way to strike a balance between protecting full-service hospitals and promoting continual improvement in hospital services.
Birchansky v. Clabaugh, No. 18-3403 (8th Cir. Apr. 14, 2020).