In Kentucky, healthcare innovation killed by the powers that be

Kentucky entrepreneur Dipendra Tiwari had no problem opening an accounting firm that specializes in serving the immigrant community from Bhutan and his native Nepal.

He didn’t have to ask his competitors for permission. He simply showed his credentials and claimed his niche.

Lawyers, dentists, hair stylists, plumbers and other professionals compete in the same way. But things were different when Tiwari tried to launch a home health care agency focused on Nepali speakers from the Himalayan region he knows so well.

He spoke the language, understood the culture and had the connections necessary to deliver customized care that no other agency in the state could match. Yet when he stepped forward to fill the market gap in Louisville, regulators shut him down.

The reason had nothing to do with public safety or quality of care. Instead, the state cited an aging “certificate of need” (CON) law that keeps new businesses out while protecting big, established hospitals and health care providers.

The anti-competitive measure, adopted in 1972, requires upstarts like Tiwari to prove the need for another agency before entering the market.

Deloitte consultants hired by the state reviewed the system in 2013 and recommended its termination. But that reform died when entrenched interests objected. Predictably, they prefer the status quo.

Rather than accept the rejection, Tiwari is fighting back in federal court with help from the Institute for Justice, a public-interest law firm that opposes government overreach.

The lawsuit, filed Dec. 4, has implications for anyone who cares about economic liberty, the ideal that inspired Tiwari when he immigrated in 2008.

“The United States is our land of opportunity,” he says. “It’s all about fair laws and playing on the same level.”

Kentucky’s CON requirement threatens that fairness. Perhaps the law’s biggest flaw is a built-in assumption that patients are interchangeable.

CON regulators determine need by simple math on a spreadsheet, where everybody looks the same. Factors like language and culture are not considered.

In reality, preferences and needs vary widely, especially for something as personal as home health care. Just ask Tiwari’s bedridden neighbor, a refugee from the Nepali-speaking Lhotshampa community in Bhutan.

Speaking through an interpreter, the survivor talks about the challenges of receiving personal care from professionals who do not speak his language.

This is where Tiwari sees his niche. Other agencies might be bigger, but they don’t have his background. Just like patients, service providers are not interchangeable.

Another flaw with the CON system is a built-in bias against newcomers, who must justify their existence.

The application process starts with a $1,000 filing fee, followed by a 20-page application packet, followed by a 50-day waiting period, followed by hearings that work like a trial—with future competitors doing the cross-examination.

Statewide, no startup agency has cleared the hurdles in six years.

Incumbents get to bypass the hassle simply because they showed up first. The favoritism works well for Baptist Healthcare System, a $2 billion conglomerate founded almost a century ago. Despite rigid rules that would block Tiwari regardless of his qualifications, Baptist Health piled on with a formal objection to his application.

Tiwari might dream of a level playing field, but Kentucky prefers a rigged system that bets everything on insiders.

Multiple studies suggest that one effect is higher consumer costs. The federal government did its own assessment and stopped encouraging states to pass CON laws in 1987, starting a nationwide movement away from the practice. But Kentucky and 18 other states still have CONs for home health care.

People who value choice in these states ultimately lose. When loved ones get sick and need home health care, they must let government decide who comes into their bedrooms or not.

Jaimie Cavanaugh is an attorney at the Institute for Justice, a nonprofit, public interest law firm based in Arlington, Va. Daryl James is an Institute for Justice writer.