A state law that limits funeral home ownership to licensed funeral directors is being challenged by an Arlington, Va.-based public interest law firm on behalf of five entrepreneurs, who say Maryland's law restricts competition and hurts consumers by driving up funeral costs.
The Institute for Justice filed a lawsuit yesterday in U.S. District Court in Baltimore against state regulators. The organization, a nonprofit that describes itself as a libertarian public interest law firm, contends Maryland's law is unconstitutional because it infringes on its clients' right to earn a living without government interference.
"This is like saying that you have to be a pilot to own an airline; there's no reason why you have to be a licensed funeral director to own a funeral home," said Jeff Rowes, an attorney with the institute, which often challenges government regulations.
The law exempts the holders of a limited number of corporate licenses that have been either handed down or sold. Fifty-eight of the state's 220 funeral homes are owned by holders of the corporate licenses.
"What we have going on in Maryland is a cartel of licensed funeral directors and other big players who have the money and connections to get their hands on these [corporate] licenses," Rowes said. "If you don't belong to this cartel, you can't open a funeral home in Maryland, and that leads to disastrous consequences for the consumer and entrepreneur."
Members of a state funeral directors group defended the law, saying it protects consumers who expect funeral home owners to be licensed, and small, family-run businesses.
"Funeral homes for the most part have been small businesses, family-owned operations, and this law has protected those small family-owned businesses from larger, deeper-pocketed competitors from coming in and opening a funeral home on every street corner," said John O. "Jack" Mitchell IV, president of the Maryland State Funeral Directors Association and vice president of the Mitchell-Wiedefeld Funeral Home in Towson.
The federal lawsuit was filed on behalf of four Maryland residents and a Florida resident. The defendants are the 12 members of the Maryland State Board of Morticians, a division of the state Department of Health and Mental Hygiene, which regulates the funeral home industry.
Under the Maryland Morticians Act, a funeral home can be owned only by a licensed funeral director, a corporation that held a license as of June 1945 or the surviving spouse of a deceased funeral director.
"Unlike virtually every other state in the country, Maryland law permits only licensed funeral directors to own funeral homes unless certain exceptions apply," the lawsuit says. "But those exceptions ... demonstrate that there is no rational basis for allowing only licensed funeral directors to own funeral homes."
Laurie Sheffield-James, executive director of the morticians board, said the board does not comment on pending litigation. Officials of the state health department also had no comment, said Karen Black, a spokeswoman.
Maryland is one of three states, along with Pennsylvania and New Hampshire, to restrict funeral home ownership to licensed funeral directors, said David Harrington, an associate professor of economics at Kenyon College in Ohio and an expert on the funeral services market.
But Maryland is also among 40 states that heavily regulate the industry in a variety of ways, including requiring that funeral homes be full-service or requiring more extensive training for funeral home directors, he said.
A funeral in Maryland costs, on average, $784 more than the average funeral in the nine states that have relatively unregulated funeral industries, Harrington said.
Costs are higher in Maryland because of the ownership restriction and because of other regulations, such as requiring funeral homes to be full-service, he said.
"Each one of those [regulations] should be viewed as a part of a system that's trying to protect established funeral homes from competition, and they're being imposed to keep Maryland's funeral expenses higher than in unregulated states because that's in the interest of the industry," Harrington said.
David Weber, a spokesman for the state Funeral Director's Association, said it is reasonable to expect a state with a higher cost of living and higher per-capita income to have higher-than-average funeral costs as well.
"Families select service based on what they can afford," he said. "If Maryland has higher income per capita, we would be higher average price."
The institute's clients have spent a least a decade trying unsuccessfully to convince state lawmakers to change the law, Rowes said yesterday.
One plaintiff, Charles S. Brown, owner of Rest Haven Cemetery in Hagerstown, said owners of small cemeteries have lobbied to change the law but have run into stiff opposition from funeral home operators.
"Funeral homes do not want cemeteries to have funeral homes," Brown said.