Business & Economics

The Real Cost of CON Laws: Imperiling the American Dream

A family-owned company learns how certificate-of-need laws can stand in the way of growing their business and meeting the urgent needs of customers

Image Credit: Judith Haeusler/Getty Images

“I think all businesses lose, not just our business and the ones that contested us. Truthfully and honestly, we all need each other, because there’s no way that one service or two services can keep up with the demand of the patients that need transport.” —Phillip Truesdell

When Aberdeen, Ohio, resident Phillip Truesdell decided to go into the ambulance transport business in 2017, he started modestly, with just one ambulance and two family members on staff. “We’d been working at a coal power plant, but it shut down,” says Truesdell. “I could have gone into construction, but I didn’t want to spend my life traveling. I wanted my children to raise their babies and be close to home. I wanted to watch my grandbabies grow up.”

In the state of Ohio, and throughout the country, there is a high demand for non-emergency ambulance transport, which helps to take some of the pressure off of EMS providers. Many patients are not able to drive themselves from their residence or nursing home to a hospital or other healthcare facility for critical services such as dialysis or chemotherapy, especially if they have mobility issues or need to be stabilized on a stretcher or connected to an IV bag.

Today, Legacy Medical Transport has a fleet of 9 ambulances and employs a regular staff of four. Before the COVID pandemic, the Truesdell family estimates they were making about 1,900 transports a year. The company is clearly meeting an urgent demand for ambulance transport in the state of Ohio.

But the Truesdells ran into trouble when they tried to expand their services to another state. The Truesdell business is on the border between Ohio and Kentucky, just one mile from the Kentucky state line. Because of certificate-of-need (CON) laws in Kentucky, the Truesdells are allowed to transport a patient from Ohio to a hospital in Kentucky but are barred from taking them back. This is because Kentucky law requires that anyone in the state who wants to open a new health facility or service must obtain a CON from the Kentucky Cabinet for Health and Family Services. When someone applies for a CON, existing businesses are notified of the application and can challenge it. If an incumbent business protests, then the applicant must attend a hearing and prove to state officials that the new business is needed. In almost all cases, an application that is challenged is not given the green light. In fact, according to a recent Wall Street Journal article about the Truesdell case, it is common for ambulance companies to agree to limit the type of services they offer or to operate only in one portion of the state. They make these concessions to secure the protesting party’s assent to their CON.

So, in September 2019, Truesdell filed a lawsuit at the federal court in Lexington, arguing that the Kentucky law acts as a “competitor’s veto” and restricts his right to earn a living. As Truesdell explained, “If I’m running a business, and I’m qualified to do the job, what gives politicians the right to tell me I can’t work? We’re supposed to want people to work in this country. If I get a license and have a successful business, I ought to be able to work anywhere. We shouldn’t tell people they can’t work.”

The Truesdell family

Soon after they applied for a CON, the Truesdells realized what they were up against. “They just drill you with questions and make you feel that you’re on trial for drug possession,” says Hannah Howe, Phillip’s daughter. “They ask things like, ‘What makes you think you can provide services to these people?’ ‘What makes you think you’re not cutting into these companies’ pockets?’ ‘How much revenue will you be taking away from this company?’ The fact is, it is not about taking money away from someone else, and it is not about whether we have the capability to provide the service. Anyone can find out whether we have the equipment, the means and the employees. The cross-examination at that hearing had nothing to do with actual need at all.”

At first the Truesdells thought they would simply try again in a few months, but not too long after being denied their application, they were approached by a public interest law firm—Pacific Legal Foundation—to take on their case and file a lawsuit against the Cabinet of Health and Family Services.

“When the Truesdells showed up for their hearing, they were never asked what effect their business was having on the community, nor were they asked about what their business was achieving for consumers,” says Anastasia Boden, the lawyer representing the Truesdells on behalf of the Pacific Legal Foundation. “That’s because CON laws exist to protect incumbent businesses. We’ve seen over the last 30 years that they do not achieve their goals. In fact, they do the opposite. They reduce supply, they cause shortages, they increase costs, they drive down quality. It is our position that laws cannot be on the books simply to protect an interest group from competition.”

As Boden and her team prepare to take their case to court, their legal strategy has shifted. Because the court dismissed their “right to work” argument, they are now maintaining that Kentucky’s CON law violates the US Constitution’s Commerce Clause because it unduly limits commerce between the states. Meanwhile, as patients continue to endure long wait times between transports, the Truesdell family waits for a court date and, hopefully, a ruling that will allow them to take patients from Ohio to Kentucky and back again.

“In my experience, a lot of time the businesses that are denied a CON are mom-and-pop shops like the Truesdells,” Boden says. “Here you have a person of modest means who dropped out of school at an early age and has been able to make something of himself—to employ his son and daughter so they can all live in the same state. He is being denied the opportunity to climb the economic ladder, so to speak . . . to succeed in America, not because he’s unqualified, but because the courts say he didn’t prove that his service was needed. That has nothing to do with health and safety. It’s just anti-competitive. CON laws destroy the American dream.”

This article is the second in a four-part series that looks at the real-world cost of certificate-of-need (CON) laws. The first article in the series focuses on how CON laws interfere with care and treatment options for patients. The third article discusses the state regulatory barriers that prevent new healthcare businesses from obtaining a CON. The fourth article focuses on how CON laws hinder the flexibility of healthcare providers during the pandemic.

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