CON law denies N.C. $1.5 billion in health care investment, study finds

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  • A new study says North Carolina's certificate of need law has denied the state nearly $1.5 billion in health care investment over the past decade.
  • The Americans for Prosperity Foundation report arrives as CON reform plays a role in North Carolina's debate over Medicaid expansion.
  • The N.C. Supreme Court is also considering taking up a case that challenges the CON regime.

North Carolina’s certificate-of-need restrictions have denied the state nearly $1.5 billion in health care investment over the past decade. That’s the conclusion of a forthcoming study from the Americans For Prosperity Foundation.

Carolina Journal secured an advance copy of the report to be released Monday. AFPF will discuss the report’s findings during a free public event Tuesday in Charlotte. (Learn more here.)

AFPF researchers analyze CON applications submitted to the N.C. Department of Health and Human Services from 2012 to 2022.

“Certificate of need (‘CON’) laws in North Carolina harm patients who need medical care while deterring new jobs and health care investment in the state,” write Kevin Schmidt and Thomas Kimbrell, authors of the report titled “Permission to Care.”

AFPF researchers find that the true price tag of CON restrictions in North Carolina is even higher than the headline figure.

“Accounting for prohibitive application costs, competitor opposition, and industry gatekeeping, the true value of health care investment foreclosed over the last decade is assuredly much greater than the $1.5 billion in denied CON applications,” Schmidt and Kimbrell write. “The
result of so much lost health care investment is that North Carolinians pay higher prices for less access and lower quality health care.”

The certificate of need acts as a government permission slip. Health care providers need a CON for most new medical facilities, expansion of existing services, and even purchases of major medical equipment like magnetic resonance imaging machines.

“Health care entrepreneurs in North Carolina face severe barriers to entry,” according to the report. “AFPF estimates applicants paid an average fee of around $13,000 per CON application.
The application fee does not include the cost of legal representation or outside consultants to prepare applications and fend off opposition, which can balloon up to hundreds of thousands of dollars.”

The CON process generates frequent legal battles among health care providers. They often challenge competitors’ CON applications. AFPF examined appeal data for petitions filed since January 2020.

“During that time, applicants appealed DHHS’ decisions on CON applications for nearly $1
billion in proposed capital expenditures,” Schmidt and Kimbrell write. “Approximately half of the appeals are from competing providers contesting CON approvals, tying up roughly $423 million in approved capital expenditures in litigation. These appeals unnecessarily prevent and
delay the development of new health care provisions.”

The report also highlights potential conflicts of interest tied to CON. Those conflicts involve a group called the State Health Coordinating Council, which oversees the program.

“AFPF’s analysis of current Council members found that at least 15 of the 25 current members are employed or affiliated with health care providers regulated by the Council,” according to the report. “The Council members act as gatekeepers protecting the incumbent care providers with which they are affiliated from competition.”

The report arrives as the N.C. Supreme Court considers taking up a lawsuit challenging the state’s CON regime.

A brief filed Oct. 12 with the state’s highest court urges justices to clear up “rampant confusion” tied to CON restrictions. Lawyers with the Institute for Justice are working with Dr. Jay Singleton, a New Bern eye surgeon.

Singleton is challenging the CON law. The state requires him to secure a CON for performing most eye surgeries at his Singleton Vision Center. Without a CON of his own, he’s forced instead to perform most surgeries at a higher cost in another facility.

Debate about the CON law also has held up legislative negotiations over Medicaid expansion in North Carolina. The state Senate has approved an expansion bill. Senators tied Medicaid expansion to a relaxation of CON restrictions. The state House has been unwilling to tie CON reform to its own version of Medicaid expansion.

Lawmakers and Gov. Roy Cooper have cited opposition to CON reform from the N.C. Health Care Association, a group representing hospitals, as a major factor in the stalemate over Medicaid changes.