Judicial opinion details cutthroat world of Certificate of Need
The purpose of the certificate-of-need law, according to the state health department, is to restrict “unnecessary cost increases” and “limit unnecessary services” in health care across the state.
But it may do the opposite, limiting access and stifling competition.
The law prohibits health care providers from acquiring, replacing, or adding to their facilities and equipment, except in specified circumstances, without prior approval of the N.C. Department of Health and Human Services.
In North Carolina, CON laws give control over the supply of health care to 25 people, an advisory body with members appointed by the governor. The state then dictates where new hospitals can be built, who owns expensive medical equipment, and who can expand to treat more patients. CON laws are the source of immense power and frustration in the medical community. The process exposes applications to lawsuits from competitors, and hospitals have wrestled over CONs for more than a decade.
In 2018, state health bureaucrats decreed that only one new mobile PET/CT scanner would be permitted in North Carolina. Three years later, health care consumers in the state still don’t have that need met, and it might have to do with the nature of the legal regime itself.
Four entities applied for that coveted permission slip, with one lucky winner — Insight Health Corporation — awarded the CON in April 2019. Yet one of the other applicants sued over the decision, and after three years and multiple legal appeals, North Carolina doesn’t have that additional scanner to serve patients.
The latest ruling, a 17-page opinion from the N.C. Court of Appeals, reveals what Mitch Kokai, senior political analyst for the John Locke Foundation, describes as the “seedy underbelly” of CON. One point of contention for those challenging CON is the winner had secured only one host site, even though the certificate was for a statewide mobile unit. But Judge John Tyson’s ruling details just why Insight may have had trouble securing more host sites.
When competitors affiliated with UNC Health Care learned that a particular county hospital CEO had signed a letter in support of the eventual CON winner, they paid her a visit. The meeting ended with a signed letter rescinding that original letter of support, and instead advocating for the competitor to be awarded the CON.
“It’s kind of like what you see in the movies,” Kokai said. “They show up and say, ‘This sure is a nice hospital you have here; sure would be a shame if anything happened to it.’”
Even though Caldwell Memorial Hospital CEO Laura Easton testified that she still would have worked with the eventual CON winner, the fact that such tactics often dictate the proliferation of health care resources across the state should be a big red flag for state lawmakers, says Jordan Roberts, Locke government affairs associate.
“When we see brazen examples of bad actors abusing the CON system by intimidating and extorting other market participants at the expense of North Carolina patients, it’s clear that the status quo is no longer sustainable for North Carolina,” Roberts said. “I hope legislators can look at this case as just another example of how the CON laws drastically skew the health care system to the financially and politically well-connected groups while failing to prioritize patients’ needs.”
Roberts says a coalition of lawmakers introduces targeted overhauls, as well as general repeals, of the CON law every legislative session. Unfortunately for N.C. consumers, though, he laments that special interests with financial interests at stake, namely captive consumers, have stymied reforms for years.
Perhaps, Roberts says, this example will convince lawmakers of the state’s true needs when it comes to health care regulation.
“I could not think of a better example than this case to illustrate why legislators need to seriously reform or repeal North Carolina’s certificate-of-need law. Years of precious resources wasted on fighting over the chance to operate a single additional mobile PET scanner in a state with over 10 million people. I don’t know how anyone can look at this and think this system is working to achieve the goals for which it was designed.”
Therein lies the rub, and for Kokai, too. CON laws were supposed to increase access and moderate price inflation in health care, but that isn’t exactly what happens. In an interview, Kokai scoffed that even the federal government, which had CON mandates in place for more than a decade, realized its inefficacy and scrapped the law in 1987. Some states followed the feds’ lead, but, for whatever reason, North Carolina wasn’t one of them.
He further pointed out that if it weren’t for the CON law requiring these four competitors to joust over a single permission slip, all four providers could have purchased and incorporated four new PET/CT scanners that would now be serving patients in North Carolina. Instead, he says, the CON racket brings years of court battles to protect monopolies and, so far, zero additional scanners.
While the recent court decision may not have been remarkable on its own, the revelations of “mob-like scare tactics” and the power of pull described within serve to remind lawmakers that this entrenched regime might do a lot to dramatize fights over health care in North Carolina, while doing very little actually to ensure access and reduce costs.