Federal Judge Says Courts Don't Have To Buy 'Nonsensical Explanations' for Bad Regulations

A federal judge in Mississippi will allow a major challenge to the state's Certificate of Need (CON) health care regulations to proceed, over the objections of the state's attorneys, after finding "plausible" evidence that those rules have increased costs and reduced access to health care.

It's a small, yet significant victory in the ongoing battle against state-level CON laws, which act as barriers to entry in certain professions.

In Mississippi, as Reason has previously reported, the issue is an artificial and arbitrary cap placed on the number of licenses for home health agencies, businesses that arrange for nurses and other medical professionals to make house calls. The state has not issued a new CON license since 1981, when the state legislature imposed the cap. It's a policy that never made much sense, but that has become even more obviously misguided during the COVID-19 pandemic.

"This moratorium, or some version of it, has remained in place for 40 years. Four decades! And, since this moratorium was imposed, the number of home health patients has increased by at least 194 percent," wrote Judge Carlton W. Reeves in the order issued this week that will allow the case to proceed on the merits. "Now, one can only enter the market if a current operator is willing to sell their CON."

Reeves ruled that attorneys for the plaintiff in the case, Charles "Butch" Slaughter, a physical therapist who is seeking to open his own home health care service, had presented enough evidence that the state's CON laws were not fulfilling their original intent.

That's a bigger deal than it might at first seem. Regular readers of Reason are probably well aware of the practical and policy problems created by CON laws—but as a legal matter, it can be difficult to challenge those regulations because of the rational basis test. In short, government attorneys can usually get judges to dismiss those cases by simply presenting some "rational" justification for why the regulations exist. It's a legal doctrine that is exceedingly deferential to state power, even in situations where the justification for regulation is quite different from the original intent.

Before a court will even agree to hear a challenge like this on the merits, plaintiffs have to convince a judge that the government's bare-bones justifications are inadequate. That's what the Mississippi Justice Institute, which is representing Slaughter in this case, has managed to do.

Even the "great deference" due to regulators under the rational basis standard, Reeves wrote, "does not…require courts to accept nonsensical explanations for regulation."

Slaughter's lawsuit, originally filed in December 2020, notes that only 16 other states have CON laws regulating home health care agencies at all. Mississippi is one of just two states with an arbitrary cap on the number of CON licenses. If 48 states are getting by without this rule, it is hard to believe it is necessary. Attorneys from the Mississippi Justice Institute argue that the law is "absurd" and "serves absolutely no purpose other than preventing legitimate competition and creating an oligopoly for existing providers."

This week, Reeves acknowledged that they had a good point.

"Plaintiff has set forth allegations negating the state's purported bases for the laws," wrote Reeves. "The allegations reveal that CON laws result in more costly, less accessible, and worse quality health care. What's more, plaintiff claims that the basis for CON laws and the moratoria is pure economic protectionism—an illegitimate government interest."

That doesn't mean the courts will eventually strike down Mississippi's nonsensical and anti-competitive ban on issuing licenses for home health care services. But it does mean that the state will have to actually defend those nonsensical and anti-competitive rules in court, rather than merely waving away the challenge on the grounds that regulators can do whatever they like.

And that ought to be fun to watch.