News: CJ Exclusives

JLF enters latest legal challenge targeting certificate of need laws

At a July 31, 2018, press conference, Dr. Gajendra Singh, a Forsyth County surgeon, discusses the lawsuit he has filed challenging certificate of need laws. At left is Raleigh attorney H. Denton Worrell and at right is Institute for Justice Attorney Renee Flaherty. (CJ photo by Don Carrington)
At a July 31, 2018, press conference, Dr. Gajendra Singh, a Forsyth County surgeon, discusses the lawsuit he has filed challenging certificate of need laws. At left is Raleigh attorney H. Denton Worrell and at right is Institute for Justice Attorney Renee Flaherty. (CJ photo by Don Carrington)

It’s illegal for him to treat his patients. By law, he can’t get an MRI machine because the hospital down the street already has one. 

Under certificate of need laws, state planners decide which medical providers can have medical equipment. In Dr. Gajendra Singh’s case, the planners decided his area didn’t need another magnetic resonance imaging machine, so he can’t give his patients scans. 

Singh is challenging CON laws as unconstitutional, and the John Locke Foundation filed an amicus brief supporting the doctor’s case. After the state tried to get the case thrown out, JLF defended the doctor’s ability to challenge CON as an unconstitutional, monopolistic law. 

“Not only is the CON law unconstitutional as Dr. Singh asserts, but it directly harms patients and taxpayers by making health care more expensive and less accessible,” Jon Guze, JLF director of legal studies and author of the brief, said. “Our friend-of-the-court brief responds to the state’s motion to dismiss this case. We show that, contrary to the state’s claims, Dr. Singh has indeed suffered direct injury, and will continue to suffer injury, as a result of the CON law. Each of his constitutional claims is supported by law.”

Singh was one of the few who offered transparent, affordable prices for MRIs. 

At Forsyth Imaging Center, Dr. Singh charged $500 or $700 for an MRI. But depending where patients go, they can pay up to $24,000

Hospital systems can hit patients with room charges known as “facility fees” — a jargon that nicely disguises their effect on a patient’s wallet. The fees add nothing to the patient’s experience but higher bills.

After he had to pay about $1,200 for an ultrasound at a hospital outpatient center, Singh rebelled. He started his imaging center in 2018, but he couldn’t buy one of the most important, and the most expensive, pieces of equipment: an MRI machine. 

For a time, Singh rented an MRI machine. He ran the machine on weekends, cycling through as many as 10 patients and churning out images of their spines, abdomens, brains. 

But it wasn’t enough. The MRI machine costs thousands of dollars to rent, just for one day.

“It’s an end run around the CON, but for smaller providers like him, it doesn’t work out, because renting an MRI is just ridiculously expensive. It’s crazy,” Singh’s Institute of Justice attorney Renée Flaherty said.

The going price for a new machine can reach several million dollars. Singh believes he could buy an MRI machine for less than it cost him to rent one for a single year. 

But if he wanted to fight for the CON, he would have to spend half a million dollars on litigation, and his lawyer says he has “little hope” of winning against the hospital systems. The system gives incumbents multiple opportunities to challenge CON applications, and the process can drag on for years. 

“A small, independent provider of low-cost medical services cannot afford to spend $500,000 competing with large, well-heeled health care conglomerates for the privilege of buying a $750,000 piece of equipment,” Guze wrote in the brief. “And the fact that CON erects such an absurd and unfair financial barrier is part of what makes it unconstitutional.”

Singh can no longer afford to offer MRIs to his patients. Without a fixed MRI machine, performing the scans is prohibitively expensive. 

“He’s not able to buy the medical equipment he wants to,” JLF health policy analyst Jordan Roberts said. “That’s affecting low-income patients because they are denied a cheaper option for medical imaging. They’re really at the behest of the hospital who holds the CON of the MRI machines in the area.”

Singh is challenging CON laws as unconstitutional and monopolistic. 

“[Our mission] means protecting people’s rights to earn an honest living, and oftentimes that involves challenging laws that restrict competition and create monopolies,” Flaherty said. “And that’s exactly what CON laws do.”

Like the MRI, CON laws are a child of the 1970s. At the time, Congress aimed to cut costs by cutting down on unnecessary services. Instead of changing the payment system, they tried to hamstring providers’ ability to provide services. 

“Quite rightly, it was believed that [the old payment system] created an incentive to over-provide,” Guze said. “So in a typically ham-fisted way, they [wanted] every state to pass a CON law to reduce the number of health care providers.”

A decade later, Congress scuttled the mandate. The Federal Trade Commission warned that big companies can use the law to squash smaller competitors, saying that CON can “limit consumer choice, and stifle innovation.”

But by then, North Carolina had already passed CON laws. 

It took two tries for the legislature to persuade the state Supreme Court the law wasn’t unconstitutional.

The court struck down the first incarnation of CON in 1973 for “establish[ing] a monopoly.” Five years later, Congress rolled out a virtually identical bill, but this time lawmakers defended it with “findings of fact” arguing that the bill restrained medical costs. 

Dr. Singh’s lawyers are attacking these findings of fact. They say that because Congress has overhauled the entire payment system since the 1980s, CON laws are miserably outdated and monopolistic.

A 2010 state court decision which upheld CON laws didn’t account for the defunct payment system and how changes have reinforced CON’s monopolistic tendencies. Dr. Singh’s lawsuit focuses on them.

Supporters of CON laws argue that they are necessary to protect the financing of rural health care. 

The state tried to get the case thrown out, but JLF and other free-market organizations have filed briefs supporting Singh’s challenge. 

“I’ll be amazed if the court dismisses this. There’s a lot of spotlight, a lot of pressure,” Guze said. “He can’t just casually dismiss it because there’s so much national attention.”

No one expects the case to make it to the state supreme court anytime soon. The state’s tactics so far have been to delay the case. 

“If the whole thing is struck down completely, it would be huge. Some many facilities could be built, people could purchase MRIs like Dr. Singh, and there would be more competition, lower prices, and more choices for consumers,” Flaherty said. “But if we could win just as applied to Dr. Singh, just for MRIs, and that would still be a huge win.”