North Carolina Supreme Court Addresses Certificate of Need Challenge
On October 18, 2024, the North Carolina Supreme Court unanimously ruled to send a case challenging the states Certificate of Need (CON) law back to a lower court. Certificate of Need laws require healthcare providers and facilities to get permission from the state government before adding or expanding healthcare services, equipment, or facilities. To get this permission, the provider must show that the new service is needed, hence the name.
The case in North Carolina originated in April 2020 when Dr. Jay Singleton, an eye surgeon, filed suit against legislative and executive branch leaders, as well as the state health agency, claiming he was unable to offer less costly surgery at his office as state CON laws prevented him from adding operating room space to his practice. As a result, Dr. Singleton had to perform surgeries at a nearby hospital where, according to briefs filed, the fee was three times what a surgery would cost in his proposed facility. In the briefs, Dr. Singleton claims that the CON program results in higher costs and inconveniences for patients.
In an earlier case in 1973, The North Carolina Supreme Court ruled that a previous version of the state’s CON law was unconstitutional, because it violated the emoluments and monopolies clauses in the North Carolina state Constitution. The emoluments clause of the North Carolina Constitution states that says “[n]o person or set of persons is entitled to exclusive or separate emoluments or privileges from the community but in consideration of public services" and the monopoly clause states that “monopolies are contrary to the genius of a free state and shall not be allowed." North Carolina readopted a CON law in 1978, largely due to the Federal passage of the National Health Planning and Resources Development Act in 1974 (discussed more below). Dr. Singleton’s brief cites many of the same challenges that invalidated the law in 1973.
The decision by the North Carolina Supreme Court in October sends the case back to the trial court to determine if the state’s CON law violate the North Carolina Constitution. The lower courts previously treated Dr. Singleton’s challenge as an “as-applied” challenge, which only questions if the law is unconstitutional within the facts of the particular complaint. In sending the case back, the Supreme Court determined that trial court should consider this matter as a “facial constitutional challenge”, which questions the constitutionality of a law in its entirety; meaning that an adverse determination would render the CON law unconstitutional in all applications. Since this case was originally treated as an as-applied challenge, it was only heard before one trial judge. “Facial challenges” must be heard by a panel of three resident Superior Court judges appointed by the chief justice. If the panel determines the law to be facially unconstitutional, is subject to immediate direct appeal to the state Supreme Court. If the panel decides the law is constitutional, an appeal would be to the court of appeals.
WHY DO WE HAVE CON LAWS?
CON laws are usually enacted on the belief that they will help control healthcare costs, improve quality, increase access to care (especially for rural and low-income communities), and encourage the use of hospital substitutes such as ambulatory surgery centers. Ultimately, the ability (or inability) of CON laws to keep costs down may depend on the payment model. When CONs were initially gaining traction, the fee-for-service (FFS) model was dominant, where hospitals are trying to fill beds and use services to make revenue. In this instance, limiting the number of facilities could be valuable in keeping healthcare spending down. Costs would be kept down by avoiding unnecessary expansion or redundant services. Some states place conditions on CON approval that include establishment of financial assistance policies and provision of discounted care to low-income patients in exchange for approving an expansion or capital project. By protecting high-volume skilled care facilities, proponents assert CON laws further help to reduce costs and promote access to care.
With the increase in managed care and advanced payment models, the same CON laws could be anticompetitive if they had the effect of limiting new market entrants or ways of delivering care more cost-effectively. Currently, CON laws can be used by states to review proposed transactions and prevent consolidation or expansions that harm competition. Existing hospitals and providers can oppose the issuance of a new CON by claiming there is no need for the additional services. The process for applying for a CON varies from state-to-state, but can be long and costly.
Interest in CON laws took off in the early 1960s, as there was interest in finding ways to ensure the financial health of taxpayer funded hospitals. In 1964, New York was the first state to institute a CON program, followed by 25 more states over the next ten years. In 1974, the federal government passed the National Health Planning and Resources Development Act, withholding funds from states without CON laws. Within ten years, every state except Louisiana had enacted CON laws. In 1986, Congress repealed the CON mandate, and by 1990, eleven states had repealed their CON programs. More states followed; in 2016, New Hampshire became the most recent state to repeal, leaving 35 states with some sort of CON laws on the books. State CON requirements vary widely from state-to-state; excellent resources discussing the current approaches (including 50 state charts and maps) are available from the National Conference of State Legislatures, and the National Academy for State Health Policy.
WHAT DOES THE RESEARCH SAY ABOUT CON LAWS?
Certificate of Need laws have been a popular topic for research in recent years, but the evidence has not been strong in their favor. In 2014, researchers from the Mercatus Center at George Mason University found that “the price of medical care is likely higher under CON regulations, while the poorest Americans see no increase in the availability of care.” More research from the Mercatus Center in 2016 found “no evidence that CON laws improve hospital quality. In fact, there are more deaths and serious postsurgery complications in hospitals in states with CON laws.”
Researchers from the Duke University Center for Health Policy and Inequalities Research and Providence College concluded “that the expected costs of CON exceed its benefits.” These studies represent only a small sample of the research being done in the field; a 2024 systematic review of 128 academic assessments of CON laws undertaken by the Knee Regulatory Research Center at West Virginia University determined “accumulated evidence is overwhelming that CON laws do not achieve their purpose. Instead, the balance of evidence suggests that these regulations increase spending, reduce access to care, undermine quality, and fail to ensure care for underserved populations.”
A NORTH CAROLINA VOICE IN FAVOR OF CON LAWS
North Carolina’s legislature and related healthcare committees have been debating the future of the state’s CON law for a decade, but they have been met with resistance from healthcare advocacy groups. The state Division of Health Service Regulation indicates that the CON law is intended to limit healthcare cost increases by limiting facilities based on geographic and economic considerations, thereby restricting the unnecessary duplication of existing healthcare facilities.
In North Carolina, the trade group representing the state’s hospitals the North Carolina Healthcare Association (NCHA) has been outspoken in support of the state’s CON law. In a 2023 Legislative Brief, published when state legislators were considering changes to the CON law, the Association claimed that “[r]epealing CON would clear the way for ‘niche healthcare businesses’ that offer services with profitability as their top priority rather than community need” to enter the state and that “[r]epealing North Carolina’s CON law will likely raise healthcare costs, not lower them.” To support this claim, the NCHA cites their own 2021 study that found.... The brief also makes the claim that “CON has not curtailed the growth of healthcare services, particularly ambulatory surgical centers, in the state”, noting that “[w]hen measured by population density, North Carolina has a higher rate of ambulatory surgical centers (ASCs) than Texas”, a state that has repealed its CON law.
CONCLUSION
While many states have chosen to repeal CON laws in the period after the Federal government no longer required them, it will be interesting to see if North Carolina’s CON laws will instead be removed via the courts determining it to be unconstitutional. The 1973 North Carolina Supreme Court ruling was the only instance where a CON law was found to be unconstitutional. And if North Carolina does so again, will other state follow suit?