FTC Staff Comment to the Hon. Martin Schneider Concerning Wisconsin S.B. 354 to Further Prohibit Joint Ownership or Operation of a Funeral Establishment and Cemetery

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
CHICAGO REGIONAL OFFICE
Sune 1437
55 Easl Monroe Sireet
Chica90. Illinois 60603
(312) 353-6156
September 13, 1993
The Honorable Marlin D. Schneider
Wisconsin State Assembly
State Capitol
P.O. Box 8953
Madison, Wisconsin 	53708
V930024
COMMISSION AUTHORIZED
Dear Mr. Schneider:
I
The staff of the Federal Trade Commission 1 is pleased to respond to your request for
comment on proposals to amend the Wisconsin statutes regulating the licensing and
operation of funeral establishments and cemeteries in Wisconsin. 	Our response is limited to
those portions of the bills that address joint ownership or operation of a funeral establishment
and a cemetery. 	We conclude that permitting joint ownership or operation could make
possible new business formats and improvements in efficiency, which might in turn lead to
lower prices and better service to consumers.
I. 	Interest and experience of the Federal Trade Commission.
The Federal Trade Commission is empowered to prevent unfair methods of
competition and unfair or deceptive acts or practices in or affecting commerce.2 Pursuant to
this statutory mandate, the FTC encourages competition in the licensed professions, inclUding
those in the funeral and cemetery industry, to the maximum extent compatible with other state
and federal goals. The staff of the FTC works to identify restrictions that hinder competition
and increase costs without providing countervailing benefits to consumers.
1 These comments are the views of the staff of the Chicago Regional Office and the
Bureau of Competition of the Federal Trade Commission, and do not necessarily represent
the views of the Commission or any individual Commissioner.
2 15 U.S.C. §41 et seq.

The Honorable Marlin D. Schneider
Page 2
The Commission staff has become familiar with the funeral industry through its work
on a consumer protection rule that is intended to promote increased competition and
consumer ~hoice in the funeral industry by facilitating informed purchase decisions.3 In
addition, the Commission has taken law enforcement actions against anticompetitive
acquisitions in the funeral industry.4 The staff has freviOusly commented on other states'
proposed legislation involving the funeral industry. 	One of these was a comment to the
Michigan State Senate on proposed legislation that would remove restrictions on joint
ownership or operation of funeral establishments and cemeteries.6 Staff was concerned that
such a prohibition might injure consumers by preventing potential efficiencies of combination
ownership.
II. 	Wisconsin's Current Law and the Two Proposed Amendments.
Wisconsin now prohibits a funeral director from operating a mortuary or funeral
establishment located within the confines of, or connected with, any cemetery? Wisconsin
also prohibits a funeral director or employee from directly or indirectly receiving or accepting
any commission, fee, remuneration or benefit from a cemetery in connection with the sale or
3 The FTC rule governing Funeral Industry Practices, 16 C.F.R. §453, became effective
April 30, 1984. Among other things, the rule requires funeral prOViders to disclose to
consumers detailed information about prices.
4 See Service Corporation International, Dkts. C-3372 (consent order, February 25, 1992),
C-3440 (consent order, June 15, 1993).
5 See comments to the Pennsylvania House of Representatives Committee on Business
and Commerce, August 29, 1989; Virginia Delegate Franklin P. Hall, February 9, 1989;
Oregon State Representative Chuck Sides, April 6, 1987; Illinois Department of Registration
and Education, May 9, 1986; Kansas State Representative Ginger Barr, February 14, 1986;
Alabama Representative Arthur Payne, January 16, 1986. 	Commission staff has also testified
generally on regUlatory issues in these industries; ~ Statement to California Assembly
Committee on Consumer Protection, Governmental Efficiency and Economic Development,
October 17, 1991.
6 See Comment from Mark D. Kindt, Director, Cleveland Regional Office, to Michigan State
Senator John D. Pridnia, December 16,1991; ~ also comment from TImothy J. Muris,
Director, Bureau of Competition, to Illinois State Senator Judy Baar Topinka, May 31, 1985.
7 Wis. Stat. Ann. §445.12(6). Here "connected with" apparently can include corporate
affiliation; see Op. Atty. Gen. 2-89, January 10, 1989, calling for review of facts about legal
separateness of parent and subsidiary corporations in determining whether one of them, as
operator of a funeral establishment, was impermissibly "connected with" a cemetery.

The Honorable Marlin D. Schneider
Page 3
transfer of any cemetery lot, or from acting, directly or indirectly, as a broker or jobber of any
cemetery property or interest.s
S.B. 354 would add further prohibitions. A funeral director would be prohibited from
operating a funeral establishment that is connected financially with a cemetery, either through
an ownership interest or an operating arrangement. The location prohibition would be
rephrased, to bar operating a funeral establishment ''that is located in or contiguous to a
cemetery." In addition, the prohibitions would be included in the statute governing cemetery
authorities, as well in as the statute governing funeral establishments.9
By contrast, under the other proposal, which does not have a bill number, restrictions
would be eliminated. 	It would allow a funeral establishment to be located in a cemetery and
would allow a cemetery authority to own or operate a funeral establishment. 1o
III. 	Effects of Prohibiting Jointly Owned or Operated Facilities.
I
In other licensed and regulated businesses, such as health care, laws and regulations
limiting "commercial practice" have been promoted on the grounds that they are necessary to
maintain quality of service and protect the professional's independent judgment. Among
other restrictions, these laws commonly prevent licensed professionals, such as dentists,
optometrists, or veterinarians, among others, from entering commercial relationships,
including employment, with non-licensed persons or firms. 	But our experience with such
restrictions, principally in licensed businesses and professions other than the funeral and
cemetery industries, suggests that their effect is usually to reduce competition and increase
8 Wis. Stat. Ann. §445.12(6). This prohibition may not bar all financial relationships
between cemeteries and funeral operators, though; see 35 Op. Atty. Gen. 186 (1946),
permitting a licensed funeral director to be the salaried secretary of a cemetery association.
9 S.B. 354,1993-94 Legis., §1, 157.067(2) and §3, 445.12(6).
10 Proposed legislation, §3, 445.12(6)(b). The proposal would remove the cemetery's
property tax exemption for that portion of its property used for the funeral establishment.

The Honorable Marlin D. Schneider
Page 4
prices. That effect should be weighed carefully against effects, if any, on quality of care or
service that the restrictions are thought to promote.11
Restrictions on the business practices of professionals can reduce competition by
preventing the introduction and development of innovative forms of professional practice that
may be more efficient, provide comparable quality, and offer competitive alternatives to
traditional providers. 	For example, in a case challenging various ethical code provisions that
the American Medical Association (AMA) enforced, the Commission found that AMA rules
prohibiting physicians from working on a salaried basis for a hospital or other lay institution
and from entering into partnerships or similar business relationships with non-physicians
unreasonably restrained competition, and, as a result violated federal antitrust laws.12 The
Commission concluded that the AMA's prohibition kept physicians from adopting business
formats that might have been more efficient, and that, in particular, these restrictions
precluded competition from organizations not directly and completely under the control of
physicians. The Commission also found that there were no countervailing procompetitive
justifications for these restrictions. 13
I
The principle might well apply to the funeral and cemetery businesses. 	Prohibiting
jointly owned or operated facilities, as S.B. 354 would do even more completely than
Wisconsin's law now appears to do, could prevent some efficient combinations of business
practices of the two operations that might result in lower prices to consumers. 	For example,
cemetery and funeral entities might be able to realize administrative and overhead economies
11 See C. Cox and S. Foster, The Costs and Benefits of Occupational Regulation, OCtober
1990 (FTC Bureau of Economics Staff Report). This report, a review of economic studies of
licensing, finds that licensing frequently increases prices and imposes substantial costs, but
that many licensing restrictions do not appear to increase the quality of service. The report
recommends careful weighing of likely costs against prospective benefits. 	Id. at v. Where
consumers are in a relatively poor position to evaluate the product or service, regulation of
some kind can provide benefits to consumers. The Commission's Funeral Rule addresses
the consumer's relative lack of knowledge, and potentially vulnerable state of mind when
purchase decisions are often made, by requiring disclosures, rather than by regulating the
service directly or controlling who can practice. 	See Funeral Industry Practices, 16 C.F.R. §
453.
12 See American Medical Association, 94 F.T.C. 701 (1979), aff'd, 638 F.2d 443 (2d Cir.
1980), aff'd memo by an equally divided court, 455 U.S. 676 (1982).
13 See also comment of the staff of the Federal Trade Commission on the American Bar
Association's Model Rules of Professional Conduct, March 26, 1991, addressing issues raised
by proposals to allow law firms to provide ancillary, non-legal services. 	In that comment, the
staff pointed out that law firm diversification could benefit consumers by allowing firms to
provide an efficient mix of services that consumers seek, and that rules restricting such
services could harm consumers by restricting consumer choice. The comment also analyzed
how different proposals would meet concerns about professional standards and ethical
obligations.

The Honorable Marlin D. Schneider
Page 5
through joint facilities. 	Further savings might be possible in the areas of transportation and
transaction costs. 	Buyers could make decisions about the burial and funeral service in one
location, saving expense and perhaps easing personal concerns during a particularly stressful
period. Admitting into the funeral and cemetery industries new business formats that
Wisconsin's law now prohibits could have a positive effect on competition. These innovations
might afford consumers a wider selection of services and costs.
IV. 	Conclusion.
S.B. 354 would tend to restrict competition in the funeral and cemetery industries; by
contrast, the alternative proposal would tend to promote it. 	By allowing joint ownership or
operation, the alternative proposal would remove barriers to new business formats and may
promote efficiencies that ultimately could result in lower prices to consumers.
(
C. Steven Baker
Director
CHICAGO REGIONAL OFFICE