News: CJ Exclusives

Certificate-of-Need Law Hampers Breast Cancer Hospital

N.C. statute gives existing hospitals edge over potential competition

A women’s breast cancer hospital in Asheville has resorted to “begging” for a magnetic resonance imaging scanner, thanks to a law called “certificate of need.”

The certificate-of-need law makes it impossible for medical providers to build new facilities, expand existing facilities, buy new major medical equipment, or offer new services without first obtaining a “determination of need” from the Department of Health and Human Services.

The law — first enacted in North Carolina in 1971, struck down by the state Supreme Court because it gave existing hospitals monopoly power, and then passed again in 1977 — has prompted dozens of lawsuits over the years. The most recent one involves the Hope Center — a women’s cancer center in Asheville that hasn’t been able to obtain a certificate of need for a “much needed” MRI scanner — and Raleigh Orthopaedic Clinic, which has been denied permission to build additional operating rooms.

Neither Hope nor Raleigh Orthopaedic Clinic are asking for government handouts. They’re asking for permission to use their own money to buy equipment and to build on their own property.

The State Coordinating Council, and advisory committee made up of 29 private citizens, 25 of whom are officers, employees, or directors of health care companies, is the group empowered to grant permission to medical facilities seeking a certificate of need.

The council, in conjunction with the Department of Health and Human Services, develops a State Medical Facilities Plan each year. The plan contains an inventory of existing medical facilities and services in the state and “need” projections for such facilities and services in various geographical areas.

If a “need” for a particular project in a particular area is not recognized in the plan, it is futile to submit an application for certificate of need, said attorney Jason Kay of the North Carolina Institute for Constitutional Law. NCICL has joined the lawsuit on behalf of Hope and the Raleigh Orthopaedic Clinic.

Hope petitioned the council to adjust the 2008 plan to show need for an MRI machine in Buncombe County, but the council refused. Hope said the council showed favoritism by approving similar petitions by Charlotte Radiology and Breast MRI Clinic in Winston Salem.

The Raleigh Orthopaedic Clinic has petitioned the council four times over the last six years to acknowledge the need for additional operating rooms in Wake County, but has been ignored. The clinic also petitioned former Gov. Mike Easley to exercise his authority to order the council to adjust the plan, but he declined.

The lawsuit challenges the council’s broad discretion to decide which entities are allowed to offer new health services, Kay said.

He said the General Assembly has delegated too much power to DHHS and in turn, DHHS has delegated too much power to the State Health Coordinating Council — which has an interest in limiting competition.

The case now is before the North Carolina Supreme Court. If the justices decide in the plaintiffs’ favor, the General Assembly would have to take back some of the council’s power, writing laws that would restrain the council’s decision-making authority.

If it were up to Joe Coletti, director of health and fiscal policy studies at the John Locke Foundation, the council, and certificate of need, would be done away with altogether.

Coletti says the federal government created certificate-of-need laws to keep health care costs down by limiting the availability of medical services, Coletti said.

Theoretically, by allowing fewer providers of expensive services — such as open-heart surgery, organ transplants and air ambulance service — fewer people would use them. This would keep insurance premiums low and reduce the amount of tax dollars spent on Medicaid, Medicare, and uninsured patients.

This premise was false, Coletti said. The hospitals that were allowed to provide the services developed monopolies and were able to charge higher rates for them.

When states have repealed certificate-of-need laws, Coletti said, competition has pushed prices down.

Currently, 82 of 100 North Carolina counties have only one hospital. Insurance companies must pay the price the hospitals charge or they lose an entire county of customers.

“If a hospital were allowed to open up across the street,” he said, “the insurance company could go to the original hospital and say, ‘Guess what, we can’t pay you what you want and we don’t have to worry anymore because you have competition.’”

When insurance companies have negotiating power, they pay lower costs and can in turn charge lower premiums, he said.

“In [the council’s] minds, the only way to limit cost is to limit supply,” Coletti said. “It’s completely against everything you learned in Economics 101.”

Increasing the supply of hospitals and services, he maintains, is the only road to lower health care costs.

Sara Burrows is an associate editor of Carolina Journal.