Court ruling highlights problem plaguing N.C. certificate-of-need regime

A state law that’s supposed to promote N.C. health care could block Wake County residents from accessing superior medical technology.

It’s hard to avoid that conclusion after reading a recent opinion from the N.C. Court of Appeals.

The case, Raleigh Radiology LLC v. N.C. Department of Health and Human Services, involves a certificate of need. State law requires health care providers to acquire this certificate, also called a CON, before building new medical facilities, adding beds to an existing hospital, or purchasing major medical equipment.

The federal government got into the CON game in 1974. At the time, officials believed government control of new health care supply would help cut cost inflation. But the feds abandoned CON by 1987. As in most other areas of economic transaction, reducing supply did nothing to cut costs.

Fifteen states have followed the federal government’s lead, but most states continue to require a CON for at least some medical facilities and services. North Carolina maintains one of the most stringent CON regimes, though groups like the John Locke Foundation and legislative reformers have pushed to repeal or at least scale back the restrictions in recent years. A version of CON reform remains in play during this year’s legislative session.

As debate over CON reform continues, North Carolina still requires a certificate for any health care provider hoping to purchase a scanner for magnetic resonance imaging. (An ongoing lawsuit involving a Winston-Salem surgeon, Dr. Gajendra Singh, challenges that requirement.) MRI provides detailed images of the body’s organs and tissues. MRI scans are common for multiple medical procedures.

The Raleigh Radiology case focuses on state regulators’ decision in early 2016 that Wake County needed a new MRI machine. Once the state agency overseeing CON made that pronouncement, both the plaintiff in the case and Duke University Health System filed applications to win the CON.

Let’s pause before proceeding with the case’s details. Without CON restrictions, both Raleigh Radiology and Duke Health could have decided in 2016 that it made sense to add an MRI machine to their Wake County operations. Both could have purchased machines. Presumably, both of those machines could have been in service by now. Health care consumers would have had two new options for MRI scans. They likely would have chosen the option that worked best for them.

Instead, the government process involving one permitted MRI machine has extended for more than three years. It’s unclear when the process will end.

Duke won the initial CON from state regulators. But Raleigh Radiology challenged that decision in court in October 2016. An administrative law judge reversed the regulators’ decision and handed the CON to Raleigh Radiology in March 2018.

Lawyers for both sides argued before a three-judge panel of the N.C. Court of Appeals almost exactly one year later. With a unanimous opinion released Aug. 6, appellate judges reversed course once again. They restored the earlier decision granting the CON to Duke.

Judge Chris Dillon’s full 13-page opinion exposes much of the complexity and contention tied to the CON approval process. But one line struck this observer as particularly important: “Admittedly, there was evidence that Raleigh’s proposed MRI machine was superior to the machine that Duke would use.”

The Raleigh Radiology machine would have been “superior”? Yet Duke gets the CON instead? This leads back to my opening line about state law standing in the way of access to superior medical technology.

Dillon mentions the evidence about the “superior” machine in passing. The rest of the paragraph surrounding that sentence explains why the administrative law judge had committed an error. The judge had considered two factors in addition to those state regulators had used to choose Duke’s CON application over Raleigh Radiology’s. Appellate judges agreed the lower-court judge had no authority to consider those extra factors.

I have no reason to doubt that the Appeals Court applied the correct legal standards. Unless the N.C. Supreme Court decides to take the case — there’s no guarantee that it will — the Aug. 6 ruling will stand. Duke will get the CON and the legal right to add another MRI machine in Wake County.

Yet the two extra factors important to the administrative law judge certainly affect access to quality health care: “the types of scanners proposed by each applicant” and “the timeline of each proposed project.”

If evidence suggested that Raleigh Radiology planned to employ a “superior” MRI machine, then a process that awarded the one available CON to Duke appears questionable at best. Even if Duke planned to buy the better machine, the approval process would not have taken that fact into account.

Rather than force Raleigh Radiology and Duke Health to pitch their competing plans to government regulators, then fight in N.C. courtrooms for several years over the regulators’ decision, N.C. policymakers could adopt a simpler, more efficient approach to new medical technology.

Scrap the CON requirement. Allow Duke, Raleigh Radiology, or any other health care provider to decide if and when to add a new MRI machine in Wake County.

Then the health care providers can avoid the courthouse and focus on a more important competition. They’ll compete to offer the best service to health care consumers.

Mitch Kokai is senior political analyst for the John Locke Foundation.