Certificate of Need CON: A tangled web of bureaucracy, clout, and backroom deals
A coal miners’ son. A powerful attorney. A defeated surgeon. Two college sweethearts.
All of them became caught up in a powerful system known as Certificate of Need. Certificate of Need laws give the state control of medical resources. Twenty-five people, an advisory board appointed by the governor, oversee the supply of hospital beds, medical equipment, and a host of other resources.
In theory, the system is supposed to guard patients’ access to health care.
But the system offers a wealth of opportunities to crush unwanted competition and hamstring smaller doctors’ practices. Under CON laws, incumbent providers can take their competitors to court and force them to bleed money for months, years, or even decades.
It may be easy to praise the system on the record. But those who criticize it do so quietly, and they fear retribution. Many declined to publish their names in this story or to speak on the record.
“It’s human nature, so I shouldn’t be surprised, but I have clients who think it’s unconstitutional, it’s terrible, it’s an unfair restraint on trade,” said a CON attorney. “But once they get it, CON is great, it’s saving money, it’s good for the people. It’s incredible the metamorphosis they undergo.”
Dr. Jay Singleton sometimes says he’s not the right man for the job.
Singleton is the son of coal miners. He spent his childhood crisscrossing Appalachia in a trailer, always in search of another dying non-union mine. The good old days of mining were just a memory, and, more and more, the only thing left was strip mining, tearing the tops off mountains.
Singleton is now the champion of those who would wage a war against the wealthiest hospital systems in North Carolina and against the state itself. Singleton is suing to overthrow the CON regime. His constitutional challenge will decide the future of health care as North Carolinians know it.
Singleton isn’t polished. He tries not to come off as intense, but his face always reddens when he’s debating lawmakers or lobbyists. All of his in-laws know about CON laws.
But Singleton prides himself on his quips. He jokes that his siblings used to sit around for hours and make fun of each other. They were so poor there wasn’t much else to do.
“Growing up, one day I asked my mom, who was really frustrated, probably for about a billion reasons, and she was crying,” Singleton said. “She told me it was because we were poor. And I was thinking, how can I not be poor?”
That question put Singleton on course to become an eye surgeon and to clash with CON laws in New Bern. He can’t even perform a five-minute cataract surgery on his patients without admitting them to a hospital’s surgery center — and saddling them with a bill for thousands of dollars.
Singleton has seen patients go blind because they couldn’t afford hospital prices.
“You do see things that you don’t think are right,” Singleton said. “It doesn’t make hospitals solvent. It makes them rich.”
Dr. Gajendra Singh is a soft-spoken, meticulously polite surgeon who tried to treat poor patients. He paid the price. Singh began the fight Singleton carries on.
Singh watched his patients being crushed by medical bills or catching cancer too late. One man put off getting an MRI for more than a year. What he found was worse than any medical bill.
“So, I saw it,” Singh told WFDD. “He had a cancer spread everywhere. And that was a Stage 4 cancer. And I felt guilty. Like you know, that as a society we had failed him.”
Singh founded his own imaging center in Forsyth County a year later, and sued to overthrow the CON regime. He is something of a legend now, at least in pockets of the medical community.
Singh saved his patients thousands of dollars. Some drove for hours; some came from other states. Some came because of mysterious pain, and others because these were the only scans they could afford.
“Singh, man, gotta hand it to him. But he bit off a lot,” Singleton said. “He went after the MRIs, the ‘Shangri La,’ the temple.”
But Singh’s practice collapsed under the stress inflicted by CON laws and the COVID-19 pandemic. His patients have lost their access to affordable medical scans, and Singh has stopped talking to the press.
“Trailblazers are usually found dead on the trail,” Singleton said. “You want to be the second guy, the third guy. Not the first guy.”
For Dr. Richard Bruch, it would have been easier if his hospital had just burned down.
The McPherson Hospital was so old that its elevator dated to 1926, and modern hospital beds couldn’t fit inside. Patients avoided the dated facility, and the Durham hospital faced closure.
Where others saw decay, Bruch saw opportunity.
A group of doctors wanted to restore the hospital’s legacy and build a state-0f-the-art facility for patients. But unless disaster ruined the current property, moving to a new building would require a new CON.
And the state said no.
Bruch applied three times in a row, dropping $50,000 each time — but the state denied the need for a better hospital each time. Duke Health blocked Bruch’s applications, complaining that a newer, 18-bed hospital would unfairly compete with Duke’s 335-bed behemoth in Durham. The CON process cost Bruch four years and hundreds of thousands of dollars in the early 2000s.
“North Carolina is held hostage by those who have CONs already,” said Bruch.
This wasn’t Bruch’s first brush with CON laws, and it wouldn’t be his last. The system once forced him to pay a competitor thousands of dollars.
In the early 2000s, Bruch’s Triangle Orthopedics was running enough MRI scans to qualify for its own MRI scanner. But the company that rented him a mobile MRI didn’t want to lose his business — and all it had to do was appeal under the CON system to prevent that from happening.
Bruch says he settled and ponied up $100,000 to the rental company.
“They wanted to make certain that they got their money,” Bruch said.
“HOOPS ON FIRE”
Dr. Bruce Schroeder is lucky in his marriage.
Schroeder is a gutsy New Yorker, his wife an organized pediatrician. The two of them graduated college together, survived medical school together, built a breast imaging center together, and conquered the CON system together.
“I’ve jumped through all the hoops, and the hoops were on fire,” Schroeder said.
The Schroeders hoped they could dodge the CON process in Greenville. They couldn’t afford to waste months waiting instead of working, all the while spending a fortune they didn’t have.
But advances in medicine outpaced their plans when 3D mammograms hit the market. If they spent more than $500,000, they couldn’t escape the CON process.
“My wife and I looked at each other and said, holy crap, we have to get a CON,” Schroeder said. “We couldn’t spend a nickel without crossing that ridiculous threshold. I mean, we couldn’t buy a pencil. If things break, we’d be dead in the water.”
They still couldn’t afford to hire a lawyer. Instead, they spent months working on their application, night after night, drawing up bus schedules and gathering data. Neither of them knew anything about law or the CON process, but they were learning fast.
“I always vote for the underdog, especially when it’s me,” Schroeder said. “We said this is the worst term we’ve ever written.”
There was nothing they could do if their competitors decided to take them to court. But after what seemed like the longest month of their married lives, they got lucky and won their first CON.
“Holy crap, that was a nice bottle of champagne,” Schroeder said. “All CONs are adversarial. You’re always trying to eat someone else’s lunch when you’re competing with them.”
The hospital couldn’t afford to lose this court battle.
Desperate for a CON, the Presbyterian Hospital had gambled millions. It built a new hospital in Huntersville before finalizing its CON permission — and now the hospital’s future depended on attorney Noah Huffstetler.
“That should tell you how gutsy my client was,” Huffstetler said.
It was up to Huffstetler to make sure the hospital didn’t lose more than $48 million. Huffstetler would have to defeat a rival’s lawsuit at the N.C. State Supreme Court.
“My client said, ‘We can’t afford to lose this.’ And it was like, thanks,” Huffstetler said. “I have never been under more pressure to win a case than that.”
In a triumph of verbal acrobatics, Huffstetler likened his client’s case to building permits, and the judges actually bought his argument in 2005. His hospital was safe.
But its rival had never risked much. The incumbent only stood to lose a $50,000 bond — what other lawyers call “chump change” in the world of health care.
These two doctors have the ultimate mover’s regret.
The Bone and Joint Surgery Clinic’s old MRI scanner broke when it changed offices, and its doctors decided to buy a modern replacement for their patients in Raleigh. That was a mistake.
The CON system gave UNC Health the opportunity to drag surgeons Dr. Paul Burroughs and Dr. Gary Fleischer into court. UNC Rex’s Wake Radiology complained that a newer machine was not “replacement equipment” for the broken MRI in 2018, according to court documents.
“It didn’t make sense,” Burroughs said. “We weren’t going to go out and buy an antique machine to replace it with.”
Things got worse when Burroughs asked to use their new MRI to its full potential in 2019.
The state agreed; Wake Radiology sued again. They’ve been stuck in court since.
“From that point on, we’ve been having to pay legal fees to stay in business,” Fleischer said. “There’s no end. They can keep appealing, and the appeal can be appealed. It just never ends.”
CON laws originally aimed to prevent doctors from splurging on expensive equipment without using it. The irony isn’t lost on the two surgeons.
“The process is twisted. It can be weaponized,” Burroughs said.
One provider in Monroe has a CON for eye surgery. Dr. Ivan Mac doesn’t.
In theory, this means patients’ access to health care is safeguarded. In practice, it means that Mac has to ask his patients to pay more for 10-minute eye surgery.
Mac has to admit his patients into the hospital-owned surgery center, which charges them higher fees. In other cities, doctors can use their own surgery centers, but Mac says he’s been told that it would be a waste of his time to apply for a CON.
“The playing field is not exactly level,” Mac said. “As soon as you apply, you’re in litigation. Instant litigation.”
Ophthalmologist Dr. Terry Forrest believes CON laws are hurting rural providers. His Goldsboro practice lost millions during the pandemic, but he was at a disadvantage even before the coronavirus hit. Under the CON system, he fights against a price disadvantage, and he also struggles to recruit doctors.
“No one who’s got an IQ above room temperature wants to move to a city where they’re not in control of their patients’ care,” Forrest said. “My patients are going to get a bill from the hospital, too? They hear that, and they’re not interested.”
Forrest saw a woman go blind in the last month because she was afraid of the copays and didn’t want to seek care.
“Our politicians don’t care. They don’t want to make the people with the money upset,” Forrest said. “They really just don’t care, as long as they have good policies for them and their families.”
Even former council members can’t agree on whether the CON process is driven by data or swayed by politics.
The 25-member State Health Coordinating Council is dominated by hospital systems, which control at least 10 seats. Two business advocates, two elected lawmakers, and one insurer are tasked with representing small and large businesses.
The critics accuse the state of playing politics with patients’ access to health care. They point to studies showing that CON states have fewer rural hospitals.
“It’s very political. You can look at the council, see who’s there, and whose interests they’re protecting,” said a former council member who feared retribution. “Reality is, there’s an oligopoly. There’s a few big medical centers. They have all the money and all the clout.”
CON’s supporters say the council protects the state from a destructive medical arms race. They warn that rural hospitals will close if exposed to uncontrolled competition.
“When hospitals had to shut down electives, rural hospitals really struggled,” said Cody Hand, lobbyist for the N.C. Healthcare Association. “Without the CON laws, those hospitals couldn’t make it financially. …. Our fear is that, without CON, someone could come in and easily pick those profitable services off.”
Another former council member believes CON laws have created monopolies. He supports parts of CON, but its process forced him to spend hundreds of thousands of dollars on CON’s legal battles.
“If they keep filing lawsuits, they can delay that competitor from coming in, and they’ll make up the legal fees,” the former council member said. “That’s been a nasty battle, there’s still bad blood between the two parties. The scars are still there.”
He believes there has to be a legal recourse for providers. But he also acknowledged the dangers of the current system.
“It’s crazy, crazy stuff,” he said. “The small guys, the hospital can beat them down.”
CON reform is notoriously difficult to move in the legislature. But the N.C. Healthcare Association does support reforming the litigation that dogs the CON process, Hand said.
Hand said he wouldn’t oppose raising the bond — or the $50,000 competitors must stake to sue over CONs — to create a “good faith scenario.” But he rejected any repeal efforts.
“It’s a burden on my members as well,” Hand said. “But [repeal] for us is a baby with the bathwater issue.”
Singleton is less charmed. If he heard Hand’s comment, he would likely accuse him of drowning the baby.
“In the face of CON, you find out who the true predators are,” Singleton said. “Small hospitals have to fear our larger hospitals, kind of like fish.”