FTC Staff Comment Before the Michigan House Committee on Commerce Concerning Proposed Legislation on the Licensing and Operation of Funeral Establishments and Cemeteries

V940010
COMMISSION 	AUTHORIZED
PREPARED 	STATEMENT 1
OF
PHILLIP 	L. 	BROYLES
DIRECTOR
CLEVELAND 	REGIONAL 	OFFICE
FEDERAL 	TRADE 	COMMISSION
BEFORE 	THE
COMMITTEE 	ON COMMERCE
OF 	THE
MICHIGAN 	STATE 	HOUSE 	OF 	REPRESENTATIVES
March 	28, 	1995
1 This 	testimony 	represents 	the 	views 	of 	the 	Cleveland
Regional 	Office 	and 	the 	Bureau 	of 	Competition 	of 	the 	Federal
Trade 	Commission, 	and 	does 	not 	necessarily 	represent 	the 	views 	of
the 	Commission 	or 	any 	individual 	Commissioner.

Mr. 	Chairman 	and Members 	of 	the 	Committee: 	I 	am 	pleased 	to
appear 	before 	you 	today 	to 	discuss 	proposed 	legislation 	that
would 	amend 	the 	Michigan 	statutes 	regulating 	the 	licensing 	and
operation 	of 	funeral 	establishments 	and 	cemeteries 	in Michigan.
Permitting 	joint 	ownership 	or 	operation 	of 	a 	funeral
establishment 	and 	a 	cemetery could make 	possible 	new 	business
formats 	and 	improvements 	in 	efficiency and 	could 	encourage 	entry
of 	new 	competitors, 	which 	could 	in 	turn 	lead 	to 	lower 	prices 	and
improved 	service 	to 	consumers. 	This 	testimony 	represents 	the
views 	of 	the 	Cleveland 	Regional 	Office 	and 	the 	Bureau 	of
Competition 	of 	the 	Federal 	Trade 	Commission. 	They 	are 	not
necessarily 	the 	views 	of 	the 	Commission 	or 	any 	individual
Commissioner.
I. 	Interest 	a.nd 	experience 	of 	the 	Federal 	Trade 	Commission.
The 	Federal 	Trade 	Commission 	is 	empowered 	to 	prevent 	unfair
methods 	of 	competition 	anJ 	unfair 	or 	deceptive 	acts 	or 	practices
in 	or 	affecting 	commerce. 2 	Pursuant 	to 	this 	statutory mandate,
the 	staff 	of 	the 	FTC 	works 	to 	identify 	restrictions 	that 	hinder
competition 	and 	increase 	costs 	without 	providing 	countervailing
benefits 	to 	consumers.
2 15 	U.S.C. 	§ 	41 	et 	~.

The 	Commission 	and 	its 	staff 	have 	become 	familiar 	with 	the
funeral 	industry 	through 	the 	promulgation 	and 	enforcement 	of 	a
trade 	regulation 	rule 	that 	is 	intended 	to 	promote 	increased
competition 	and 	consumer 	choice 	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 	submitted 	comments 	to 	Senator 	Pridnia 	three 	years 	ago 	on
legislation 	substantially 	similar 	to 	the 	legislation 	being
considered by 	this 	committee 	now. s 	The 	staff 	has 	also 	commented
on 	other 	states' 	proposed 	legislation 	involving 	the 	funeral
industry.6
3 	The 	FTC 	rule 	governing 	Fun~ral 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. 	The 	Commission 	has
recently 	approved 	amendments 	to 	this 	rule, 	effective 	July 	19,
1994, 	as 	part 	of 	a 	mandatory 	review 	procedure. 	59 	Fed. 	Reg. 	1592
(January 	11, 	1994).
4 See 	Service 	Corp. 	Int'l, 	DKtS. 	C-3372 	(consent 	order,
February 	25, 	1992), 	C-3440 	(consent 	order, 	June 	15, 	1993), 	File
No. 	951-0012 	(consent 	order 	published 	for 	comment, 	Feb. 	28,
1995).
S 	See 	comments 	from 	Cleveland 	Regional 	Office 	to 	Senator
·John 	D. 	Pridnia 	(December 	16, 	1991, 	commenting 	on 	Senate 	Bill
Nos. 	301 	and 	302) .
6 See 	comments 	to 	Wisconsin, 	September 	13, 	19~~1
Pennsylvania, 	March 	24, 	1994, 	and August 	29, 	1989; 	Virginia,
February 	9, 	1989; 	Oregon, 	April 	6, 	1987; 	Illinois, 	May 	9, 	1986;
Kansas, 	February 	14, 	1986; 	and Alabama, 	January 	16, 	1986.
Commission 	staff 	has 	also 	testified generally on 	regulatory
issues 	in 	the 	funeral 	industry. 	See 	Statement 	to 	California
Assembly 	Committee 	01 	Consumer 	Protection, 	Governmental
Efficiency 	and 	Economic 	Development, 	October 	17, 	1991.
2

II. 	Description 	of 	Michigan's 	Current 	Law and 	the 	Proposed
Amendments.
Michigan 	law now 	states 	that 	a 	cemetery owner 	or 	operator
"shall 	not" 	own 	or maintain 	a 	funeral 	establishment.? 	In
addition, 	the 	law prevents 	a 	funeral 	establishment 	from 	locating
on 	cemetery property.8 	The 	proposed 	Occupational 	Code
amendments, 	H.B. 	4456, 	would 	reverse 	both 	of 	these 	prohibitions.
They would 	change 	the 	words 	"shall 	not" 	to 	"may" 	and 	would 	repeal
the 	location 	prohibition. 9
III. 	Effects 	of 	Prohibiti~g Jointly 	Owned 	or 	Operated 	Facilities.
In 	other 	licensed 	and 	regulated 	businesses, 	such 	as 	health
care, 	laws 	and 	regulations 	limiting 	"commercial 	practice" 	have
been 	promoted 	based 	on 	the 	argument 	that 	they 	are 	necessary 	to
maintain 	quality 	of 	service 	and 	rrotect 	the 	professional's
independent 	judgment. 	Among 	other 	restrictions, 	these 	laws
commonly 	prevent 	licensed 	professionals 	from 	entering 	into
? Mich. 	Compo 	Laws 	§ 	339.1812(1).
8 Mich. 	Compo 	Laws 	§ 	339.1812(2).
9 	H.B. 	No. 	4456, 	to 	amend 	Occupational 	Code, 	§ 	1812, 	Mich.
Compo 	Laws 	§ 	339.1812. 	Unlike 	the 	bills 	on 	which we 	commented
three 	years 	ago, 	the 	legislation 	under 	consideration 	now 	does 	not
include 	provisions 	to 	regulate 	prices 	and 	dealing 	with 	affiliated
entities.
3

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 	prices. 	That 	effect
should be 	weighed 	carefully against 	effects, 	if 	any, 	on 	quality
of 	care 	or 	service 	that 	the 	restrictions 	are 	intended 	to
promote. 10
Restrictions 	on 	the 	business 	practices 	of 	professionals 	can
reduce 	competition 	by 	preventing 	the 	introduction 	and 	development
of 	innovative 	forms 	of 	professional 	practices 	that 	may 	be 	more
efficient, 	provide 	comparable 	quality, 	and 	offer 	competitive
alternatives 	to 	traditional 	providers. 	For 	example, 	in, a 	c~se
challenging 	various 	ethical 	code 	provi~ions that 	the 	American
Medical 	Association 	(AMA) 	enforced, 	the 	Commission 	found 	that 	AMA
rules 	prohibiting physicians 	from 	',ro:-k::-:::; 	on 	"". salaried 	basis 	for
10 	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 ?oor
position 	to 	evaluate 	the 	product 	or 	service, 	regulation 	of 	some
kind 	can 	provide 	benefit 	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.
4

hospitals 	or 	other 	lay 	institutions 	and 	from 	entering 	into
partnerships 	or 	similar 	business 	relationships 	with 	non-
physicians 	unreasonably 	restrained 	competition, 	and, 	as 	a 	result,
violated 	federal 	antitrust 	laws. l1 	The 	Commission 	concluded
that 	the 	AMA's 	prohibitions 	kept 	physicians 	from 	adopting
potentially 	efficient 	business 	formats 	and 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. 12
This 	reasoning 	might 	well 	apply 	to 	the 	funeral 	and 	cemetery
businesses. 	Prohibiting 	jointly owned 	or 	operated 	facilities
could 	prevent 	some 	efficient 	combinations 	of 	business 	practices
of 	the 	two 	operations 	that 	might 	result 	in 	lower 	prices 	to
consumers. 	For 	example, 	cemeteries 	and 	funeral 	homes 	might 	be
able 	to 	realize 	reductions 	in 	administrative 	and 	overhead 	costs
11 	See 	American 	Medical 	Ass'n, 	94 	F.T.C. 	701 	(1979), 	aff'd,
638 	F.2d 	443 	(2d 	Cir. 	1980), 	aff'd 	memo 	by 	~n equally 	divided
court, 	455 	U.S. 	676 	(1982).
12 	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 	firms 	to 	provide 	ancillary, 	non-legaJ
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.
5

through 	joint 	facilities. 	Further 	savings 	may 	be 	possible 	in
transportation 	and 	transaction 	costs. 	Buyers 	could make
decisions 	about 	the 	burial 	and 	funeral 	services 	in 	one 	location,
saving 	time 	and 	expense 	and 	perhaps 	easing 	personal 	concerns
during 	a 	particularly 	stressful 	period. 	Admitting 	into 	the
funeral 	and 	cemetery 	industries 	new 	business 	formats 	that
Michigan'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.
The 	proposed 	legislation 	to 	permit 	cross-ownership 	would
tend 	to 	increase 	competition 	in 	the 	funeral 	and 	cemetery
industries. 	Allowing 	joint 	ownership 	or 	operation 	would 	remove
barriers 	to 	new 	business 	formats 	and 	may promote 	efficiencies
that 	ultimately 	could 	result 	in 	lower 	prices 	to 	consumers.
6