Amicus Curiae Brief — Dipendra Tiwari, et al., Petitioners v. Eric Friedlander, Secretary, Kentucky Cabinet for Health and Family Services, et al.

NO. 22-42

In the

Supreme Court of the United States

DIPENDRA TIWARI, ET AL.,

Petitioners,

v.

ERIC FRIEDLANDER, SECRETARY, KENTUCKY CABINET

FOR HEALTH AND FAMILY SERVICES, ET AL.,

Respondents.

__________________________

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Sixth Circuit

BRIEF OF AMICI CURIAE

EXPERTS IN THE FIELD OF PUBLIC CHOICE

AND REGULATORY ECONOMICS

IN SUPPORT OF PETITIONERS

JAMES D. JENKINS

P.O. BOX 17642

RICHMOND, VA 23226

(804) 873-8528

JJENKINS@VALANCOURTBOOKS.COM

JAMIE CROOKS

COUNSEL OF RECORD

ALEXANDER ROSE

FAIRMARK PARTNERS LLP

1825 7TH STREET, NW

WASHINGTON, DC 20001

(619) 507-4182

JAMIE@FAIRMARKLAW.COM

AUGUST 12, 2022

SUPREME COURT PRESS

COUNSEL FOR AMICI CURIAE

♦

(888) 958-5705

♦

BOSTON, MASSACHUSETTS

i

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ...................................... iii

INTEREST OF AMICI CURIAE ................................ 1

SUMMARY OF ARGUMENT .................................... 3

ARGUMENT ............................................................ 6

I.

SPECIAL INTEREST GROUPS LIKE KHA WILL

L OBBY THE G OVERNMENT FOR A NTI COMPETITIVE

REGULATIONS FOR THE

BENEFIT OF THEIR CUSTOMERS AND TO THE

DETRIMENT OF CONSUMERS. ............................. 6

A. Public Choice Economics Explains How

Anticompetitive Regulations Originate. .... 6

B. This Case Is a Textbook Example of

Public Choice Economics in Action. ......... 10

II. SPECIAL INTEREST RENT-SEEKING HAS LED

TO AN EXPLOSION OF LAWS RESTRICTING THE

RIGHT TO WORK, OF WHICH CERTIFICATE-OFNEED LAWS ARE A PARTICULARLY EGREGIOUS

EXAMPLE. ........................................................ 14

III. SYSTEMIC FACTORS CONTRIBUTE TO RENTS EEKING

R EGULATIONS

B ECOMING

ENTRENCHED, LEAVING JUDICIAL REVIEW AS

THE ONLY REALISTIC MEANS OF UNDOING

THEM. .............................................................. 19

A. Public Choice Theory Explains Why It Is

Extremely Difficult to Undo Rent-Seeking

Regulations Through the Legislative

Process....................................................... 19

ii

TABLE OF CONTENTS – Continued

Page

B. Judicial Review Safeguards Economic

Liberties From Protectionist Regulations,

But Application of the Rational-Basis

Test Has Yielded Unsatisfactory and

Inconsistent Results ................................ 22

CONCLUSION.......................................................... 25

iii

TABLE OF AUTHORITIES

Page

TABLE OF AUTHORITIES

CASES

Campion, Barrow & Assocs. v. City of

Springfield, 559 F.3d 765

(7th Cir. 2009) .................................................... 6

Craigmiles v. Giles,

312 F.3d 220 (6th Cir. 2002) ............................. 23

Dent v. West Virginia,

129 U.S. 114 (1889) ............................................. 14

Janus v. Am. Fed’n of State, Cnty. & Mun.

Emps., Council 31, 138 S.Ct. 2448 (2018) ........ 21

Meadows v. Odom,

360 F.Supp.2d 811 (M.D. La. 2005),

vacated as moot, 198 Fed.Appx. 348

(5th Cir. 2006) .................................................... 23

Merrifield v. Lockyer,

547 F.3d 978 (9th Cir. 2008) ............................. 23

N.C. State Bd. of Dental Exam’rs v. FTC,

574 U.S. 494 (2015) ................................... 9, 12, 22

Niang v. Carroll,

879 F.3d 870 (8th Cir. 2018),

vacated as moot, 139 S.Ct. 319 (2018) ................ 23

Powers v. Harris,

379 F.3d 1208 (10th Cir. 2004) ................... 19, 23

Riley v. St. Luke’s Episcopal Hosp.,

252 F.3d 749 (5th Cir. 2001) ............................... 7

Sensational Smiles, LLC v. Mullen,

793 F.3d 281 (2d Cir. 2015) ................................. 6

iv

TABLE OF AUTHORITIES – Continued

Page

St. Joseph Abbey v. Castille,

712 F.3d 215 (5th Cir.),

cert. denied, 134 S.Ct. 423 (2013) ............... 18, 23

Tenn. Wine & Spirits Retailers Ass’n

v. Thomas, 139 S.Ct. 2449 (2019) ....................... 22

CONSTITUTIONAL PROVISIONS

U.S. Const. amend. XIV ............................................ 22

STATUTES

Ky. Rev. Stat. § 216B.085 ......................................... 12

JUDICIAL RULES

Sup. Ct. R. 37.6 ........................................................... 1

GOVERNMENT PUBLICATIONS

Andrew Gavil,

Barriers to Entrepreneurship: Examining

the Anti-Trust Implications of Occupational

Licensing: Hearing Before the Comm. on

Small Business, 113th Cong (July 16,

2014), https://www.congress.gov/113/chrg/

CHRG-113hhrg88720/CHRG113hhrg88720.pdf .............................................. 16

Dept. of the Treasury Off. of Economic Policy,

Council of Economic Advisers, Dept. of

Labor, Occupational Licensing: A

Framework for Policymakers (2015),

https://obamawhitehouse.archives.gov/site

v

TABLE OF AUTHORITIES – Continued

Page

s/default/files/docs/licensing_report_final_

nonembargo.pdf ................................................. 15

Depts. of HHS, Treasury, and Labor,

Reforming America’s Healthcare System

Through Choice and Competition (2018),

https://www.hhs.gov/sites/default/files/

Reforming-Americas-Healthcare-SystemThrough-Choice-and-Competition.pdf .............. 17

Federal Trade Comm’n. & Dept. of Justice

Antitrust Div., Joint Statement to the

Virginia Certificate of Public Need Work

Group (2015), https://www.ftc.gov/system/

files/documents/advocacy_documents/

joint-statement-federal-trade-commissionantitrust-division-u.s.department-justicevirginia-certificate-public-need-workgroup/151026ftc-dojstmtva_copn-1.pdf............. 16

U.S. Census Bureau,

QuickFacts, https://www.census.gov/

quickfacts/fact/table/robertsoncounty

kentucky,KY/PST045221 .................................. 11

vi

TABLE OF AUTHORITIES – Continued

Page

OTHER AUTHORITIES

Christopher J. Conover & James Bailey,

Certificate-of-Need Laws: A Systemic

Review and Cost-Effectiveness Analysis,

BMC Health Serv. Res. 20:748 (2020),

https://www.ncbi.nlm.nih.gov/pmc/articles

/PMC7427974/pdf/12913_2020_Article_55

63.pdf ................................................................. 11

Christopher Koopman et al., Mercatus Center,

Certificate-of-Need Laws: Implications for

Kentucky (2015), https://www.mercatus.

org/system/files/mitchell-con-qa-mopmercatus-v2.pdf ................................................. 17

Deloitte,

The Commonwealth of Kentucky Health

Care Facility Capacity Report (2013),

https://chfs.ky.gov/agencies/os/oig/dcn/

Documents/Facilitystudy.pdf ............................ 13

Dennis C. Mueller,

PUBLIC CHOICE III

(Cambridge U. Press 2003) ................................. 6

Dick M. Carpenter II et al.,

Institute for Justice, LICENSE TO WORK

(2d ed. 2017), https://ij.org/wp-content

/uploads/2017/11/License_to_Work_2nd_

Edition.pdf ......................................................... 19

Emily Whelan Parento,

Certificate of Need in the Post-Affordable

Care Act Era, 105 KY. L.J. (2017) ..................... 17

vii

TABLE OF AUTHORITIES – Continued

Page

George J. Stigler,

The Theory of Economic Regulation,

2 BELL J. ECON. & MGMT. SCI. (1971).................. 8

Gordon Tullock,

The Transitional Gains Trap,

6 BELL J. ECON. (1975) ......................................... 8

Ilya Somin,

DEMOCRACY AND POLITICAL IGNORANCE:

WHY SMALLER GOVERNMENT IS SMARTER

(Stanford U. Pr. 2013) ........................................ 20

James C. Cooper et al.,

Theory and Practice of Competition

Advocacy at the FTC, 72 ANTITRUST L.J.

(2005) ............................................................... 7, 8

James M. Buchanan,

RENT SEEKING AND PROFIT SEEKING, IN

TOWARD A THEORY OF THE RENT-SEEKING

SOCIETY (Tex. A&M U. Pr. 1980) ........................ 7

John T. Delacourt & Todd J. Zywicki,

The FTC and State Action: Evolving

Views on the Proper Role of Government,

72 ANTITRUST L.J. (2005) .................................. 10

Jonathan R. Macey,

Promoting Public-Regarding Legislation

Through Statutory Interpretation: An

Interest Group Model, 86 COLUM. L. REV.

(1986) ................................................................... 6

Kentucky Hospital Ass’n.,

KHA Strategic Plan: 2021-2022,

https://www.kyha.com/assets/docs/

KHAStrategicPlan.pdf ...................................... 13

viii

TABLE OF AUTHORITIES – Continued

Page

Mancur Olson,

THE LOGIC OF COLLECTIVE ACTION:

PUBLIC GOODS AND THE THEORY OF GROUPS

(Harvard U. Pr. 2d ed. 1971) ............................... 8

Matthew D. Mitchell, Mercatus Center,

Certificate-of-Need Laws: Are They

Achieving Their Goals? (2017),

https://www.mercatus.org/system/files/mit

chell-con-qa-mop-mercatus-v2.pdf .................... 17

Maureen K. Ohlhausen,

Certificate-of-Need Laws: A Prescription

for Higher Costs, 30 ANTITRUST (2015) ............. 11

Maxwell L. Stearns & Todd J. Zywicki,

PUBLIC CHOICE CONCEPTS AND APPLICATIONS

IN LAW

(West 1st ed. 2009) ................................ 6, 7, 20, 22

Milton Friedman,

CAPITALISM & FREEDOM

(U. Chicago Pr. 2002) .......................................... 8

Morris M. Kleiner & Alan B. Krueger,

Analyzing the Extent and Influence of

Occupational Licensing on the Labor

Market, 31 J. LABOR ECON (2013) ..................... 14

Morris M. Kleiner & Evgeny S. Vorotnikov,

Institute for Justice, At What Co$t? State

and National Estimates of the Economic

Costs of Occupational Licensing (2018),

https://ij.org/wp-content/uploads/2018

/11/Licensure_Report_WEB.pdf ........................ 15

Morris M. Kleiner,

The Hamilton Project, Reforming

ix

TABLE OF AUTHORITIES – Continued

Page

Occupational Licensing Policies (2015),

http://www.hamiltonproject.org/papers/refo

rming_occupational_licensing_policies. ............. 15

Paul Avelar & Nick Sibilla,

Institute for Justice, Untangling

Regulations: Natural Hair Braiders Fight

Against Irrational Licensing (2014),

http://ij.org/wp-content/uploads/2015/03

/untangling-regulations.pdf .............................. 18

Richard A. Posner,

ECONOMIC ANALYSIS OF LAW

(Aspen Pub. 6th ed. 2003) ..................................... 8

Richard A. Posner,

Natural Monopoly and Its Regulation,

21 STAN. L. REV (1969) ...................................... 10

Timothy Sandefur,

CON Job: State “Certificate of Necessity”

Laws Protect Firms, Not Consumers, 34

REGULATION (2011) ............................................. 17

Timothy Sandefur,

State “Competitor Veto” Laws and the

Right to Earn a Living: Some Paths to

Federal Reform, 38 HARVARD J.L. & PUB.

POL’Y (2015) ......................................................... 9

Timothy Sandefur,

Testimony to the U.S. House Committee on

Small Business (Mar. 26, 2014), https://

republicans-smallbusiness.house.gov/

uploadedfiles/3-26-2014_sandefur_

testimony.pdf ..................................................... 18

1

INTEREST OF AMICI CURIAE1

The undersigned amici are professors of law and

economics, scholars, and former Federal Trade Commission officials with expertise in the field of public choice

and regulatory economics. Amici have researched,

published, and taught in the areas of public choice,

competition, antitrust, and law and economics. Amici

believe that context and research regarding the field

of public choice economics will aid the Court’s interpretation of the record in this case and its analysis of

the statute at issue, as well as the consequences that

ensue from a lack of meaningful judicial review of such

statutes.

Todd Zywicki is Professor of Law at the Antonin

Scalia Law School at George Mason University, a

Senior Fellow of the Cato Institute, a Senior Fellow at

the James Buchanan Center for Political Economy

Program on Philosophy, Politics, and Economics, and

former Executive Director of the Law & Economics

Center. He previously served as the Director of the Office

of Policy Planning at the FTC and is co-author of the

textbook LAW AND ECONOMICS: PRIVATE AND PUBLIC

(2018), with Maxwell Stearns and Tom Miceli.

Joshua Wright is University Professor and

Executive Director of the Global Antitrust Institute at

1 Pursuant to Rule 37.6, counsel for the amici curiae certifies

that no counsel for any party authored this brief in whole or in

part and that no person or entity other than the amici curiae or

their counsel made a monetary contribution intended to fund the

brief’s preparation or submission. All parties have consented to

the filing of this brief.

2

the Antonin Scalia Law School at George Mason University. From 2013 to 2015 he served as a member

of the FTC. He has published more than 100 articles

and book chapters, co-authored a leading antitrust

casebook, and edited several volumes on topics including

antitrust law and economics.

Alden Abbott is a Senior Research Fellow at the

Mercatus Center at George Mason University focusing

on antitrust issues. He was General Counsel to the

FTC from 2018 to 2021 and was previously the Rumsel

Senior Legal Fellow and Deputy Director of the Meese

Center for Legal and Judicial Studies at The Heritage

Foundation. He lectures and publishes on antitrust and

economic regulation.

John M. Yun is an Associate Professor of Law and

the Deputy Executive Director at the Global Antitrust

Institute at George Mason University Antonin Scalia

Law School. Previously he was an Acting Deputy

Assistant Director in the Bureau of Economics,

Antitrust Division, at the FTC. He has also taught

economics at Georgetown University, Emory University, and Georgia Tech.

James C. Cooper is Professor of Law and Director

of the Program on Economics & Privacy at George

Mason University Antonin Scalia Law School. He previously served as Deputy and Acting Director of the

FTC’s Office of Policy Planning. In 2018-19 he served

as a Deputy Director in the FTC’s Bureau of Consumer

Protection. His research focuses on the law & economics

of privacy, data security, and consumer protection, as

well as a wide variety of topics surrounding competition policy, and it regularly appears in top academic

journals.

3

SUMMARY OF ARGUMENT

Kentucky’s certificate-of-need statute blocks new

businesses from entering the healthcare market for

no reason other than to protect the economic interests

of incumbents in the sector. The Petition for Certiorari

asks whether this sort of restriction on economic liberty

should be subject to meaningful judicial review. Amici

are experts in the field of public choice, a branch of

economics that has spent decades extensively researching the process by which anticompetitive regulations

like Kentucky’s are enacted, the consequences of such

regulations for consumers and the economy, and the

systemic barriers which prevent their repeal. Amici

believe that an overview of public choice economics

and its principal research findings—as well as a discussion of how public choice applies specifically to

Kentucky’s statute—will aid the Court in resolution of

the issues presented by this case.

The general premise of public choice theory is

straightforward: Politicians and special interest groups

are rational economic actors whose decisions tend to

be motivated by economic self-interest. Public choice

recognizes that special interest groups, like the IntervenorRespondent Kentucky Hospital Association (“KHA”) in

this case, have strong incentives to lobby the government

for regulations that will economically benefit their

members, a process economists call “rent-seeking.” And

once an interest group has secured such regulations,

public choice theory predicts that it will fight hard to

keep them in place.

4

The present case shows how this premise is more

than just theoretical: Virtually any economist looking

at this record would conclude that it is a textbook

example of public choice theory at work. Though couched

in the language of health and safety, Kentucky’s

certificate-of-need requirement has nothing to do with

safeguarding public welfare or ensuring quality,

accessibility, and affordability of health care. Behind

a smokescreen of justifications, the law’s true purpose

and effect is to benefit the economic interests of incumbent healthcare businesses by shielding them from

competition, at consumers’ and taxpayers’ expense. The

statute is a paradigmatic example of the type of rentseeking regulation predicted by public choice theory,

a protectionist measure divorced from legitimate purpose that exists to effectuate a wealth transfer from

consumers to an entrenched interest group.

Considerable evidence (cited infra in Part II)

shows that by restricting competition, certificate-ofneed laws worsen the problems they are meant to

address, lowering healthcare quality, limiting access

to care, and driving prices up, with significant negative

consequences for patients and the economy. But

certificate-of-need laws are also emblematic of another,

broader issue: the proliferation of occupational licensing

regulations in recent decades as a direct result of interest

groups’ lobbying efforts. These regulations, like the

Kentucky statute at issue here, erect a barrier to entry

in many industries and have a profound impact on the

national economy, by some estimates costing millions

of jobs and billions of dollars.

The disproportionate influence wielded by lobbying

groups compared to individual consumers means these

sorts of regulations are likely to become entrenched,

5

with little hope of repeal through the democratic process. In some cases, the only realistic avenue to challenge

such regulations is through the courts. However, under

the highly deferential rational-basis test, only the most

glaringly egregious and nonsensical regulations will

be struck down, and sometimes not even those. Indeed,

the Second and Tenth Circuits have held that rentseeking regulations pass the rational-basis test even

when the only justification for them is blatant economic

protectionism.

Amici advance no opinion on the precise standard

of review courts should apply to challenges to anticompetitive regulations. Amici do, however, respectfully

suggest to the Court that a lack of any meaningful

judicial review would effectively enshrine into law

regulations that are often just naked transfers of wealth

from the public to special interest groups, without any

mechanism of opposing such laws either through the

political or judicial processes.

6

ARGUMENT

I.

SPECIAL INTEREST GROUPS LIKE KHA WILL

LOBBY THE GOVERNMENT FOR ANTICOMPETITIVE

REGULATIONS FOR THE BENEFIT OF THEIR

CUSTOMERS AND TO THE DETRIMENT OF CONSUMERS.

A. Public Choice Economics Explains How

Anticompetitive Regulations Originate.

Public choice economics is, in a nutshell, “the

economic study of nonmarket decision making, or

simply the application of economics to political science.”

Dennis C. Mueller, PUBLIC CHOICE III 1 (2003). Public

choice theory has been “almost universally accepted

among economists” since the mid-1980s as an explanation for much economic regulation. See Jonathan R.

Macey, Promoting Public-Regarding Legislation

Through Statutory Interpretation: An Interest Group

Model, 86 C OLUM . L. R EV . 223, 224 n.6 (1986).

Underscoring the significance of public choice theory,

not only did one of its primary exponents, James M.

Buchanan, receive a Nobel Prize for it in 1986, but at

least a dozen recipients of that prestigious award have

contributed to the study of the field. Maxwell L. Stearns

& Todd J. Zywicki, PUBLIC CHOICE CONCEPTS AND

APPLICATIONS IN LAW ix (1st ed. 2009). In recent decades,

courts have increasingly turned to public choice theory

in a variety of circumstances. See, e.g., Sensational

Smiles, LLC v. Mullen, 793 F.3d 281, 285 (2d Cir. 2015)

(citing an amicus brief on public choice in challenge to

anticompetitive dental regulations); Campion, Barrow

& Assocs. v. City of Springfield, 559 F.3d 765, 771 (7th

Cir. 2009) (recognizing public choice as a tool for

7

explaining collective decision-making); Riley v. St.

Luke’s Episcopal Hosp., 252 F.3d 749, 762 n.16 (5th

Cir. 2001) (using public choice to explain government

behavior).

Public choice theory rests on the fundamental

assumption that politicians and constituents are

rational economic actors who tend to act in their own

self-interest; that is, constituents compete with one

another to seek political favors from the government,

and politicians use the powers of the state to provide

such favors in return for continued support. “The

interest group most able to translate its demand for

a policy preference into political pressure is the one

most likely to achieve its desired outcome.” James C.

Cooper et al., Theory and Practice of Competition

Advocacy at the FTC, 72 ANTITRUST L.J. 1091, 1100

(2005). Economists call this process “rent-seeking.” See

Stearns & Zywicki, supra, at 45; James M. Buchanan,

RENT SEEKING AND PROFIT SEEKING, IN TOWARD A

THEORY OF THE RENT-SEEKING SOCIETY 7-8 (James M.

Buchanan et al. eds., 1980).2 As a result of such rentseeking, outcomes of the political process will not always

reflect the preferences of a majority of the electorate

but may instead reflect the comparative advantage of

special interest groups to organize and exert influence

relative to larger and more diffuse groups such as

2 An industry’s ability, through an anticompetitive regulation, to

raise prices above the price that would be charged in an otherwise

open market, generates what economists call “economic rents.”

James Buchanan has defined “rent” as “that part of the payment

to an owner of resources over and above that which those resources

could command in any alternative use,” or “receipt in excess of

opportunity cost.” James M. Buchanan, RENT SEEKING AND PROFIT

SEEKING, IN TOWARD A THEORY OF THE RENT-SEEKING SOCIETY 3

(Tex. A&M Univ Pr. 1980).

8

consumers and the public at large. See Richard A.

Posner, ECONOMIC ANALYSIS OF LAW § 19.3, at 534-36

(6th ed. 2003); Mancur Olson, THE LOGIC OF COLLECTIVE

ACTION: PUBLIC GOODS AND THE THEORY OF GROUPS 13267 (2d ed. 1971). In light of special interest groups’

“superior efficiency in political organization relative to

consumers,” it is therefore unsurprising that “consumer

interests often are subservient to industry interests in

the regulatory process.” Cooper, supra, at 1099-1100.

The result of rent-seeking is unnecessary economic

regulation that restricts competition in a particular

market. This reduced competition inevitably leads to

lower quality and higher prices, harming consumers

while economically benefiting members of the interest

group.

These sorts of protectionist regulations are

“designed and operated primarily for [the industry’s]

benefit.” George J. Stigler, The Theory of Economic

Regulation, 2 BELL J. ECON. & MGMT. SCI. 3, 3 (1971).

“[T]he justification is always said to be the necessity

of protecting the public interest”; however, the pressure

for such regulations “rarely comes from members of

the public who have been . . . abused,” but rather “from

members of the occupation itself.” Milton Friedman,

CAPITALISM & FREEDOM 140 (2002). And once it has

obtained economic benefits through rent-seeking regulation, an interest group will mount a powerful opposition

to any attempts to repeal it, even in cases where its

actual gains from the regulation are only transitory.

See Gordon Tullock, The Transitional Gains Trap,

6 BELL J. ECON. 671, 676-78 (1975).

One common and particularly pernicious type of

rent-seeking regulation are those enforced in whole or

in part by members of the regulated industry themselves.

9

This is often the case in licensed industries where the

pertinent licensing board is dominated by members

of the licensed profession, for example dentists on

a state licensing board who use the authority of their

position to restrict non-dentists from offering teethwhitening services, thereby insulating themselves from

competition. See N.C. State Bd. of Dental Exam’rs v.

FTC, 574 U.S. 494, 500-01 (2015). Certificate-of-need

laws often have a similarly anticompetitive measure

built in, dubbed the “competitor’s veto,” by which incumbent businesses already holding certificates of need

are allowed to file an objection to a new applicant. See

Timothy Sandefur, State “Competitor Veto” Laws and

the Right to Earn a Living: Some Paths to Federal

Reform, 38 HARVARD J.L. & P UB . P OL ’ Y 1009, 102425 (2015). Once an objection is filed, “the applicant

must then participate in a hearing before the agency

to prove that a new firm is desirable under the criteria

listed in the statute,” and the law typically “give[s] the

agency extremely broad discretion to determine whether

a new firm is desirable.” Id. at 1025. In practice, this

competitor’s veto is “a barrier to entry that . . . is often

insurmountable to the applicant.” Id.

Public choice theory predicts that if a law empowers

existing businesses to prevent potential competitors

from obtaining a certificate of need, or at least delay

or burden their efforts to do so, then they will exploit

this advantage whenever it is profitable to do so, particularly where the cost of filing an objection is small

and the burden on a new competitor is so onerous. Id.

at 1035. Judge Richard Posner has written about how

such laws serve as barriers to entry, noting that before

entering the market, a new firm must persuade a government agency to allow it to do so, which involves

10

“substantial legal and related expenses, and a delay

often of years . . . The costs and delay are alone enough

to discourage many a prospective entrant. Much more

is involved than running a procedural gauntlet, however, for ultimate success is by no means certain. The

favor with which regulatory agencies look upon entry

varies . . . but the predominant inclination has been

negative.” Richard A. Posner, Natural Monopoly and

Its Regulation, 21 STAN. L. REV. 548, 612 n.125 (1969).

In sum, decades of research in public choice

economics show that the popular conception of governmental regulations as “unbiased and conscientious”

attempts to advance “the public interest” is often

false; instead, they are typically the result of interest

group lobbying and serve to benefit interest groups at

consumers’ expense. See John T. Delacourt & Todd J.

Zywicki, The FTC and State Action: Evolving Views on

the Proper Role of Government, 72 ANTITRUST L.J. 1075,

1075 (2005).

B. This Case Is a Textbook Example of Public

Choice Economics in Action.

If much of the above discussion seems theoretical,

the theory is nonetheless borne out by the facts of

this case. Kentucky’s certificate-of-need statute is a

paradigmatic example of a rent-seeking regulation,

and the fact that it is still on the books is solely

attributable to the efforts of an influential special

interest group.

The statute’s rent-seeking nature was evident to

the district court, which noted that its “rent-seeking

features” were “especially disturbing.” Pet.App.99.

One such element singled out by the court was the

state’s convoluted formula for determining “need.”

11

Under this formula, new home health businesses are

entirely barred in 114 of 120 counties in Kentucky. Id.

at 75. And in the remaining six, new businesses are

subject to different rules than existing firms: the

state’s formula must indicate at least 250 additional

patients in a county need home health services, a

much higher threshold than those for existing home

health businesses (125) and existing hospitals wishing

to expand into home health (50). Id. at 99. These lower

thresholds make it easy for incumbent businesses to

expand and prevent the “need” from ever reaching 250

patients, thus effectively keeping all newcomers out of

the market.3 The near-total ban this formula imposes

on new businesses serves to insulate existing businesses

from competition and predictably drives up costs to

consumers (or taxpayers, in the case of Medicarefunded services). See, e.g., Maureen K. Ohlhausen,

Certificate-of-Need Laws: A Prescription for Higher

Costs, 30 ANTITRUST 50, 52-53 (2015) (“[Certificate-ofneed laws] tend to help incumbent firms amass or defend

dominant market positions. . . . Ironically, a government program originally aimed at reducing health

care prices is likely inflating them”); Christopher J.

Conover & James Bailey, Certificate-of-Need Laws: A

Systemic Review and Cost-Effectiveness Analysis, BMC

Health Serv. Res. 20:748 at 7 (2020)4 (“[T]he weight

of the evidence suggests that CON creates more costs

3 The state’s arbitrary threshold of 250 applies equally to all

counties, regardless of population, making it especially insurmountable in a county like Robertson, whose population is just 2,257.

See U.S. Census Bureau, QuickFacts, https://www.census.gov/

quickfacts/fact/table/robertsoncountykentucky,KY/PST045221.

4 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7427974/pdf/

12913_2020_Article_5563.pdf.

12

than benefits. . . . our best estimate is that social welfare

would increase by several hundred million dollars a

year if CON were repealed in . . . states that retain it.”).

Another rent-seeking feature cited by the district

court is the review process. After an application for a

certificate of need is filed, Kentucky law permits any

“affected person” to object to the issuance of the

certificate. Ky. Rev. Stat. § 216B.085. Once an “affected

person”—almost always an existing business seeking

to restrict competition—objects, the statute triggers a

procedure closely resembling a judicial one, including

the right to be represented by counsel, introduce evidence

and cross-examine witnesses at a hearing, and file

motions for summary judgment. For a fledgling business

like the Petitioners’ in this case, the cost of retaining

legal counsel for this process, on top of the already

substantial costs of preparing and filing the initial

application, serves as a further and often insurmountable bar to entering the market. Here, after Petitioners

filed their application, a competitor filed an objection,

resulting in the state ultimately denying Petitioners’

application, “as it does nearly every time an incumbent

opposes a start-up provider’s application.” Pet.App.80.

In effect, Kentucky lets the foxes guard the hen house,

allowing incumbent firms a role in the regulatory

process not unlike the dentists’ in N.C. State Bd. of

Dental Exam’rs.

The fact that Kentucky’s statute is still on the books

at all is a further example of public choice economics

in practice. In 1987, after experience and critical

scholarship showed that certificate-of-need laws were

ineffective in solving the problems they were meant to

address, Congress repealed the requirement that

states have such laws, and in the decades since, the

13

FTC and DOJ’s Antitrust Division, together with an

overwhelming scholarly consensus, have called for

them to be modified or repealed. Pet.App.18. In 2013,

Kentucky hired an outside consulting firm, Deloitte,

to study the state’s healthcare capacity; the resulting

report recommended that the state “consider suspending/discontinuing the CON program for Home Health

Agencies.” 5 But, as public choice theory predicts, a

powerful special interest group went into action to

prevent that from happening. KHA, which represents

95 percent of hospitals in the state, makes no secret of

its interest in preserving the state’s certificate-of-need

law. Pet. C.A. Brief at 29-30. It has a “certificate-of-need

committee” whose purpose is “to make recommendations

on changes to the State Health Plan and Kentucky’s

CON laws,” and a key component of KHA’s “Strategic

Plan” is to “advocate for CON.”6 After Deloitte’s report

was issued, KHA went to work protecting its rentseeking regulations, lobbying the state to retain

certificate-of-need requirements for home healthcare.

In the end, the state disregarded Deloitte’s recommendation and kept the certificate-of-need requirement. And, of course, when this case was filed, KHA

promptly intervened as a defendant to argue for

preservation of its CON law in the courts.

5 Deloitte, The Commonwealth of Kentucky Health Care Facility

Capacity Report 86 (2013), https://chfs.ky.gov/agencies/os/oig/dcn/

Documents/Facilitystudy.pdf.

6 KHA Strategic Plan: 2021-2022, https://www.kyha.com/assets/

docs/KHAStrategicPlan.pdf.

14

II. SPECIAL INTEREST RENT-SEEKING HAS LED TO AN

EXPLOSION OF LAWS RESTRICTING THE RIGHT TO

WORK, OF WHICH CERTIFICATE-OF-NEED LAWS

ARE A PARTICULARLY EGREGIOUS EXAMPLE.

This Court has long recognized that “[i]t is undoubtedly the right of every citizen of the United States

to follow any lawful calling, business, or profession he

may choose,” subject to the state’s power to impose

regulatory conditions “for the protection of society” and

“provide for the general welfare.” Dent v. West Virginia,

129 U.S. 114, 121-22 (1889) (upholding licensing requirements for doctors); see also Pet.Br. at 29-34 (detailing

the long history of the right to work). However, thanks

in large part to special interest groups, the landscape

today is considerably different than when Dent was

decided. In recent decades, interest groups have been

ruthlessly effective at shutting potential competitors out

of the market, both through the introduction of licensing

schemes in industries that had never been regulated

before and the expansion of licensing requirements in

previously regulated industries, like healthcare.

Today, nearly a third of American workers are in

jobs subject to state, local, and federal licensing schemes.

That figure rose from less than five percent in the early

1950s to 29 percent by 2008. Morris M. Kleiner &

Alan B. Krueger, Analyzing the Extent and Influence

of Occupational Licensing on the Labor Market, 31 J.

LABOR ECON. S173, S175-76 (2013). Licensing has

expanded considerably into sectors where it was previously thought unnecessary. “[A]mong licensed workers

today, fewer than half are in health care, education,

and law—traditionally very highly licensed occupations.

Instead, large shares of licensed workers today are in

15

sales, management and even craft sectors like construction and repair.” Department of the Treasury Office of

Economic Policy, Council of Economic Advisers, Department of Labor, Occupational Licensing: A Framework

for Policymakers 21 (2015).7 And the proliferation of

occupational restrictions has come at a profound cost.

By one estimate, licensing restrictions cost up to 2.85

million jobs nationwide and raise consumer expenses

by over $203 billion. Morris M. Kleiner, The Hamilton

Project, Reforming Occupational Licensing Policies 6

(2015).8 See also Morris M. Kleiner & Evgeny S. Vorotnikov, Institute for Justice, At What Co$t? State and

National Estimates of the Economic Costs of Occupational Licensing 5 (2018)9 (finding licensing laws result

in an annual loss of $6.2 to $7.1 billion in lost output

and between $183 and $197 billion in misallocated

resources).

The FTC has long been concerned with the harms

caused by occupational regulations. Since the 1970s,

it has conducted numerous studies into the effects of

occupational restrictions and has “submitted hundreds

of comments and amicus curiae briefs to state and

self-regulatory entities on competition policy and antitrust law issues” relating to licensed professionals,

including real estate brokers, electricians, accountants,

lawyers, dentists and dental hygienists, nurses, eye

doctors and opticians, veterinarians, and funeral home

7 https://obamawhitehouse.archives.gov/sites/default/files/docs/

licensing_report_final_nonembargo.pdf.

8 http://www.hamiltonproject.org/papers/reforming_occupational_

licensing_policies.

9 https://ij.org/wp-content/uploads/2018/11/Licensure_Report_WEB.

pdf.

16

directors. See Barriers to Entrepreneurship: Examining

the Anti-Trust Implications of Occupational Licensing:

Hearing Before the Comm. on Small Business, 113th

Cong. 20-21 (July 16, 2014) (statement of Andrew Gavil,

Director, Office of Policy Planning, Federal Trade

Commission).10 The FTC has “seen many examples of

licensure restrictions that likely impede competition

and hamper entry into professional and services

markets, yet offer few, if any, significant consumer

benefits.” Id. at 3. With regard to certificate-of-need

laws in particular, the FTC issued a joint statement

with DOJ’s Antitrust Division in 2015 encouraging

their repeal, noting that they “create barriers to entry

and expansion, limit consumer choice, and stifle

innovation,” and that “incumbent firms seeking to

thwart or delay entry by new competitors may use CON

laws to achieve that end.” Federal Trade Commission

& Department of Justice Antitrust Division, Joint

Statement to the Virginia Certificate of Public Need

Work Group at 2 (2015).11

Of course, not all occupational restrictions are problematic; many regulations are genuinely intended

to address legitimate health and safety concerns.

However, this is patently not the case with certificateof-need laws, which “do not even pretend to protect

public safety by ensuring that practitioners are educated or skilled; they exist for the explicit purpose of

10 https://www.congress.gov/113/chrg/CHRG-113hhrg88720/CHRG113hhrg88720.pdf.

11 https://www.ftc.gov/system/files/documents/advocacy_documents/

joint-statement-federal-trade-commission-antitrust-division-u.s.

department-justice-virginia-certificate-public-need-work-group/

151026ftc-dojstmtva_copn-1.pdf.

17

preventing competition.” Timothy Sandefur, CON

Job: State “Certificate of Necessity” Laws Protect Firms,

Not Consumers, 34 REGULATION 42, 46 (2011). Although

defenders of these laws claim they increase quality

and cost-effectiveness of healthcare and access to care,

such claims run counter to basic economic theory as

well as the empirical evidence. See, e.g., Emily Whelan

Parento, Certificate of Need in the Post-Affordable

Care Act Era, 105 KY. L.J. 201, 207, 228 (2017) (citing

“considerable evidence” that “CON programs do more

harm than good in the healthcare markets in which

they operate” and noting that “the evidence seems to

support the conclusion that CON programs restrict

access to care”); Departments of HHS, Treasury, and

Labor, Reforming America’s Healthcare System Through

Choice and Competition 51 (2018)12 (“available evidence suggests that CON laws have failed to produce

. . . higher quality healthcare”); Matthew D. Mitchell,

Mercatus Center, Certificate-of-Need Laws: Are They

Achieving Their Goals? 3 (2017)13 (“In short, there is

no evidence to indicate that CON programs increase

access to care, and they may actually be limiting

access for rural residents of CON states”); Christopher

Koopman et al., Mercatus Center, Certificate-of-Need

Laws: Implications for Kentucky 2 (2015)14 (citing

research showing CON laws do not increase access to

health care for the poor). To put it simply, certificate12 https://www.hhs.gov/sites/default/files/Reforming-AmericasHealthcare-System-Through-Choice-and-Competition.pdf.

13 https://www.mercatus.org/system/files/mitchell-con-qa-mopmercatus-v2.pdf.

14 https://www.mercatus.org/system/files/Elbarasse-Certificateof-Need-KY-MOP.pdf.

18

of-need laws accomplish none of their stated purposes,

but simply effect “a naked transfer of wealth.” See St.

Joseph Abbey v. Castille, 712 F.3d 215, 222-23 (5th

Cir.), cert. denied, 134 S.Ct. 423 (2013).

Problematic and unnecessary restrictions like

those in home healthcare abound in all sorts of industries. People have been cutting flowers and arranging

them in vases for thousands of years, but in Louisiana

all flower arranging must be supervised by a licensed

florist, and obtaining a license requires traveling to

Baton Rouge and paying $150 for a florist exam. See

Testimony of Timothy Sandefur before the House

Small Business Committee at 6 (Mar. 26, 2014).15

Hair-braiding has been a common practice for millennia,

but in some states licensed cosmetologists have used

their positions on state cosmetology boards to block

competition from hair-braiders, requiring them to

obtain cosmetology licenses, even though cosmetology

schools usually don’t even teach braiding. See Paul

Avelar & Nick Sibilla, Institute for Justice, Untangling

Regulations: Natural Hair Braiders Fight Against Irrational Licensing 3 (2014).16 And in Florida, aspiring

interior designers must complete six years of education,

pay $1,120 in fees, and pass an exam, requirements

that seem excessively burdensome given that 47

states do not license interior designers at all. Dick M.

15 https://republicans-smallbusiness.house.gov/uploadedfiles/326-2014_sandefur_testimony.pdf.

16 http://ij.org/wp-content/uploads/2015/03/untangling-regulations.

pdf.

19

Carpenter II et al., Institute for Justice, LICENSE TO

WORK 62 (2d ed. 2017).17

III. SYSTEMIC FACTORS CONTRIBUTE TO RENTSEEKING REGULATIONS BECOMING ENTRENCHED,

L EAVING J UDICIAL R EVIEW AS THE O NLY

REALISTIC MEANS OF UNDOING THEM.

A. Public Choice Theory Explains Why It Is

Extremely Difficult to Undo Rent-Seeking

Regulations Through the Legislative

Process.

Both the district court and the Sixth Circuit understood the public choice issues in this case, including the

rent-seeking characteristics of Kentucky’s certificate-ofneed statute and the myriad ways it worsens the

problems it purports to address. The Sixth Circuit’s

response is that plaintiffs in cases like this one should

turn to state legislatures: “Our custom . . . is to assume

that democracy eventually will fix the problem. . . .

[F]lawed laws will eventually be rectified by the democratic process.” Pet.App.19 (internal quotations and

citation omitted). See also Powers v. Harris, 379 F.3d

1208, 1225 (10th Cir. 2004) (“Under our system of government, Plaintiffs must resort to the polls, not to the

courts for protection against” anticompetitive statutes)

(internal quotations and citation omitted).

This approach has a certain simplistic appeal, but

it is not grounded in Kentucky’s reality: Lobbying

efforts by the two Petitioners are almost certain to fail

when running up against the long-established and wellorganized statewide influence of a powerful lobby group

17 https://ij.org/wp-content/uploads/2017/11/License_to_Work_

2nd_Edition.pdf.

20

like KHA, which, through its PAC, Kentucky Hospitals’

Circle of Friends, contributes thousands of dollars

each year to Kentucky legislators.18 But practical

considerations aside, public choice theory has identified

at least two broader systemic factors that contribute

to rent-seeking regulations becoming entrenched once

they are put in place.

The first is what economists refer to as “rational

ignorance,” which means exactly what it sounds like:

Consumers are ignorant of the existence and effects of

rent-seeking regulations, and this unawareness is perfectly rational. Higher prices and diminished consumer

choice are costs typically spread thinly across the

population of consumers as a whole, giving each individual consumer little incentive to learn about and

organize to oppose an anticompetitive rule. The public’s

rational ignorance about rent-seeking regulations is

not unlike how small shareholders of large corporations are usually rationally apathetic about the specific details of how the corporations are run. See generally

Ilya Somin, DEMOCRACY AND POLITICAL IGNORANCE: WHY

SMALLER GOVERNMENT IS SMARTER (2013). In economic

terms, “[r]ational ignorance means that individuals

will decline to invest in obtaining information where the

marginal costs of gathering that information exceed

the expected marginal benefits.” Stearns & Zywicki,

supra, at 56 n.41. In other words, where the time, effort,

or financial cost does not make it worthwhile for individuals to determine the degree to which rent-seeking

regulations inflate the prices of goods or services, it is

18 See quarterly reports filed by the PAC with the Kentucky

Registry of Election Finance, available at: https://secure.kentucky.

gov/kref/publicsearch/OrganizationalSearch/OrganizationalReports/

2161.

21

rational for them to remain ignorant of the regulations.

See id. at 56 (explaining how consumers are rationally

ignorant of price increases caused by steel tariffs in

consumer goods that incorporate steel). Thus, individual members of the public often lack the individual

incentive to organize and use the political process to

repeal an existing rent-seeking regulation.

Second, the possibility of opposition to protectionist

regulations by the electorate is also impaired by freeriding, where “[e]ach individual consumer will rationally

decline to invest in opposition” because “[e]ach person

or firm hopes that other similarly situated consumers

will lobby in his or her place.” Id. Because the incentive

to free ride is universal, “it is rational for the group as

a whole to decline to make the necessary investment”

to oppose a rent-seeking regulation. Id. Furthermore,

where the benefits of the group’s collective efforts are

shared among all members of the group (in this case,

consumers of healthcare), whether they contributed to

securing those benefits or not, this can be an additional disincentive to join the group’s effort and can

even lead to a “vicious cycle” where the group fails to

obtain the resources necessary to operate effectively.

See Janus v. Am. Fed’n of State, Cnty. & Mun. Emps.,

Council 31, 138 S.Ct. 2448, 2491 (2018) (Kagan, J.,

dissenting). The freeriding problem is exacerbated

when the full extent of the economic rent generated

from an anticompetitive regulation is spread over

many years and when the goods or services covered by

such regulations are infrequently bought, such as

home healthcare, caskets, and pest control. In those

situations, the burdens that such regulations pose for

individual consumers are further reduced, although

22

the burdens on consumers as a whole remain significant.

See Stearns & Zywicki, supra, at 56.

B. Judicial Review Safeguards Economic

Liberties From Protectionist Regulations,

But Application of the Rational-Basis

Test Has Yielded Unsatisfactory and

Inconsistent Results.

Judicial review is perhaps the lone effective tool

available to combat excessive rent-seeking by interest

groups. In two recent cases, this Court has ruled in

favor of challenges to rent-seeking regulations. See

Tenn. Wine & Spirits Retailers Ass’n v. Thomas, 139

S.Ct. 2449 (2019) (dormant Commerce Clause challenge

to residency requirement for liquor store license), N.C.

State Bd. of Dental Exam’rs v. FTC, 574 U.S. 494

(2015) (antitrust challenge to state licensing board).

While those cases were an important step in ensuring

judicial reviewability of some anticompetitive regulations, most cases are still subject only to Fourteenth

Amendment rational-basis review, which has yielded

inconsistent results.19 Nonetheless, even that level of

review has afforded at least some measure of relief,

since purely protectionist regulations often operate in

ways that directly undercut the asserted consumer19 The opinion below raises the question of whether it makes sense

to subject protectionist regulations to differing standards of

review based on which side of the state line a plaintiff lives on:

“[S]hould [a challenged statute] receive more rigorous review

under the dormant Commerce Clause solely when the entrant

happens to be from another State? Put more specifically, should

[Petitioners’] challenge have a better chance of success if they

move to Indiana?” Pet.App.27. Amici advance no opinion on this

question but suggest that this disparity in standards of review is

another consideration that warrants granting the Petition.

23

safety rationales used to justify them. See, e.g., St.

Joseph’s Abbey, 712 F.3d 217, 226-27 (statute requiring monks who made and sold caskets to be licensed

funeral directors was merely “the taking of wealth and

handing it to others . . . not as economic protectionism

in service of the public good but as ‘economic’ protection of the rulemakers’ pockets”); Craigmiles v. Giles,

312 F.3d 220, 229 (6th Cir. 2002) (requiring casket

sellers to take embalming courses and obtain a funeral

director license was a “naked attempt to raise a fortress

protecting the monopoly rents funeral directors extract

from consumers”); Merrifield v. Lockyer, 547 F.3d 978,

991 n.15 (9th Cir. 2008) (requiring pest control license

for removal of bats, raccoons, skunks and squirrels,

but not mice, rats, or pigeons lacked any rational basis;

“economic protectionism for its own sake . . . cannot be

said to be in furtherance of a legitimate governmental

interest.”).

Unfortunately, in many cases, the rational-basis

test has meant little more than a judicial rubber stamp

of regulations economists would recognize as purely

rent-seeking in nature. See, e.g., Powers, 379 F.3d 1208,

1218-19 (upholding pure economic protectionism as a

legitimate state interest justifying regulation of casket

sellers); Niang v. Carroll, 879 F.3d 870 (8th Cir. 2018),

vacated as moot, 139 S.Ct. 319 (2018) (requirement

that hair-braiders complete a 1500-hour hairdressing

course that did not teach braiding passed rational-basis

scrutiny); Meadows v. Odom, 360 F.Supp.2d 811, 82225 (M.D. La. 2005), vacated as moot, 198 Fed.Appx. 348

(5th Cir. 2006) (florist licensing requirement constitutional because of the risk consumers will be injured by

“broken wire” or “dirt” in an unlicensed floral arrangement).

24

Although the “ghost of Lochner” rattles its chains

in some of the above opinions, the court below aptly

noted that “the current deferential approach to economic regulations may amount to an overcorrection in

response to the Lochner era at the expense of otherwise

constitutionally secured rights.” Pet.App.26. Amici

respectfully submit that because of the systemic roadblocks to repeal of rent-seeking regulations through

the legislative process, and because judicial review has

offered only a limited and often inconsistent means of

reviewing such regulations, the Petition should be

granted to consider whether it is time to address that

overcorrection.

25

CONCLUSION

For the reasons stated above, anticompetitive

regulations have a substantial negative effect on

consumer costs, the job market, and the economy as

a whole, and the question of whether and how courts

should review them is an issue of critical importance

warranting this Court’s review. The petition for a writ

of certiorari should be granted.

Respectfully submitted,

JAMIE CROOKS

COUNSEL OF RECORD

ALEXANDER ROSE

FAIRMARK PARTNERS LLP

1825 7TH STREET, NW

WASHINGTON, DC 20001

(619) 507-4182

JAMIE@FAIRMARKLAW.COM

JAMES D. JENKINS

P.O. BOX 17642

RICHMOND, VA 23226

(804) 873-8528

JJENKINS@VALANCOURTBOOKS.COM

COUNSEL FOR AMICI CURIAE

AUGUST 12, 2022