State ban on corporate ownership comes under scrutiny

The Baltimore Sun

In Maryland, the only way to own a funeral home is to be a licensed mortician - or to hold one of about 60 corporate licenses that were grandfathered in when lawmakers in 1945 barred corporations from owning funeral homes.

The result, some say, is that competition is limited and consumers pay too much for funerals in Maryland - as much as $800 more by one estimate. But others say the rules help maintain the highest standards for the industry.

In the aftermath of a federal judge's ruling last fall that the ban on corporate ownership is unconstitutional, state lawmakers are weighing changes to the way the state regulates funeral homes.

The House of Delegates has passed a bill that would scale back the state morticians board to 10 members, with five representing morticians and funeral directors and the other five representing consumers. Morticians now control eight of the 12 seats on the board, which licenses funeral homes.

But a House committee never took up another bill that would have created a task force to study easing the ownership requirements for funeral homes, a measure that was opposed by many existing operators. Instead, the House bill would require the revamped morticians board to report back to the legislature after an appeal of the federal judge's ruling is resolved.

The actions reflect the legislature's reluctance to change a system that some say has protected existing small Maryland businesses, but that critics say has driven up funeral costs in Maryland.

"When you don't have competition, usually the consumer loses out," said Charles S. Brown, a Hagerstown cemetery owner who is the lead plaintiff in the lawsuit and has been working to change the licensing rules for more than a decade.

State law currently allows only licensed morticians - or, if they die, their surviving spouses - to own funeral homes and prohibits them from incorporating. But there is an exception. Fifty-eight corporations were grandfathered in when the law was passed in 1945, and now those licenses can sell for as much as $300,000, a state morticians board member has testified.

Private businesses and national chains mostly hold the grandfathered-in corporate licenses, according to testimony. Some homes are run by surviving spouses, though most are operated by licensed funeral directors who have completed years of training but can't incorporate.

A 1996 task force recommended abandoning the corporation prohibition. In 2004, the Federal Trade Commission weighed in, stating that the law restricted entry by new businesses.

"By barring corporate ownership, Maryland limits participation to those individuals who have, or are personally able to obtain, sufficient capital to purchase or build a funeral home," according to a 2004 letter.

But previous bills to change the rules were not passed.

Del. Hattie N. Harrison, a Baltimore Democrat who has reportedly blocked previous efforts to ease the ownership rules, did not return several phone calls for comment. She told The Washington Post two years ago that the law protected smaller operators in Maryland.

Opponents of the state's system filed a suit in federal court against the state morticians' board in 2006, saying the law illegally limits competition by restricting the number of funeral homes statewide.

U.S. District Judge Richard D. Bennett ruled in October that the provision preventing most corporations from owning funeral homes was unconstitutional. However, he affirmed the requirement to have only licensed morticians own funeral homes.

Funerals cost nearly $800 more in Maryland than in nine states with less strict regulations, including Florida, Washington and California, according to one study.

"What's going on in Maryland is one example of a nationwide problem," said Joshua Slocum, executive director of the Funeral Consumers Alliance, a Vermont nonprofit organization. Businesses are using licensing laws created to protect the consumer to instead shield "entrenched business owners from competition."

"Maryland's system is broken, and it's quite corrupt," he said, adding, "The grieving consumer ends up paying the price in higher prices and less choice."

Although Slocum said he is not a fan of large, publicly traded funeral home chains, he said the ban on incorporated homes discourages alternative providers from entering the market.

The current rules also effectively prevent cemeteries from owning funeral homes, said Brown, the president of Rest Haven Cemetery in Hagerstown and vice president of the Maryland Free State Cemetery and Funeral Association.

"Cemeteries are reluctant to build a funeral home in their cemetery if it's not going to be there forever," Brown said.

Del. Joanne C. Benson, a Prince George's County Democrat who sponsored the bill to create a task force, said she was motivated to act after watching her sister sell off her Hagerstown funeral home business piece by piece because she could not pass it on to her son, who is not a licensed mortician.

"My sister lost miserably," Benson said. If she had had a corporate license, she could have left it to her son.

Laurie Sheffield-James, the executive director of the state's Board of Morticians, countered that there's no guarantee that funeral prices would drop if more corporations were permitted to own funeral homes.

The market can support only a certain number of funeral home operators, she said, and national corporations could buy up existing businesses if the chains were allowed to operate in the state.

The Rev. Henry Green, the pastor of Heritage Baptist Church in Annapolis and a consumer member of the morticians board, said the current rules help maintain the highest standards for the funeral industry. "You want to make sure that people who are serious about the profession are getting into it," he said. "This is an important role that these folks play in the community."

The state morticians board also argues that it only has the power to regulate morticians' licenses - so it would have no authority over corporations if they were permitted.

But Benson said the board had been dominated by people who represent corporate licenses. "They had too much monopoly on the funeral business in Maryland."

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