NC patients lose when clinics duel for government favors

Two North Carolina rivals will meet Nov. 18 in a showdown that never should occur in the United States. Instead of competing for a sports trophy or academic prize, they will battle for government favoritism.

Millions of dollars will be on the line. The winner will receive state approval to acquire and operate a fixed MRI scanner in the northeast part of the state. The loser will be pushed to the sidelines. Purchasing the equipment and competing head-to-head will be illegal for the runner-up.

The ultimate loser will be Currituck and Pasquotank County patients. Instead of expanded consumer choice, the North Carolina Department of Health and Human Services will keep a rigged market controlled by the survivor of the government-sponsored death match—scheduled to go down in Elizabeth City.

In one corner will be Chesapeake Diagnostic Imaging, which wants to add an MRI scanner at its Elizabeth City location. In the other corner will be Sentara Advanced Imaging Solutions, which wants to install a similar machine at its Moyock location about 25 miles north near the Virginia state line.

Both contestants are ready to spend their own money. But North Carolina says the region has room for only one additional MRI system.

Normally when businesses eye the same customers with similar services, regulators stay out of the way. The government’s only role is to keep the playing field level. McDonald’s can open a franchise across the street from Burger King. Life Time Fitness can challenge Curves. The Home Depot can challenge Lowe’s.

That’s the American way. Unfortunately, the rules work differently in health care. North Carolina and 37 other states require medical providers to obtain something called a “certificate of need” (CON) before doing things like purchasing major equipment, adding beds or building facilities. North Carolina even requires a CON to set up an emergency transportation company, outpatient clinic or home health agency.

Essentially, a CON works like a golden ticket to an exclusive club. Membership has its privileges. CON holders don’t have to worry about innovators moving into the neighborhood and luring away customers with faster, cheaper or friendlier service. The government runs interference, blocking investment and protecting the status quo.

CON holders also can take their employees for granted. Fewer facilities in each region give doctors, nurses and other health care professionals less mobility—especially when states allow the enforcement of noncompete clauses on top of CON restrictions.

Besides being unfair, the scheme is unconstitutional. The North Carolina Supreme Court already addressed the matter in 1973, when it held that CONs violate anti-monopoly rules. Undeterred, state lawmakers tweaked the CON legislation and brought it back without fixing the underlying problems.

A newer lawsuit from our public interest law firm, the Institute for Justice, will give the North Carolina Supreme Court a second chance to weigh in. The case, brought on behalf of New Bern ophthalmologist Jay Singleton, challenges the state’s CON panel.

Reforms would mean that duels like the one scheduled in Elizabeth City never would occur. Instead of picking winners and losers, the state would get out of the way and let health care providers compete—the same way everything else works in North Carolina.

California, Texas and 10 other states—covering 40% of the U.S. population—already have fired their CON boards with good results. These states have more hospitals and surgery centers per capita, along with more hospital beds, dialysis clinics and hospices.

Other states recognized CON laws as a liability at the start of the COVID-19 pandemic. An Institute for Justice report shows that 25 states, including North Carolina, suspended their CON programs as the virus spread so hospitals could respond more quickly to the crisis.

Advocates defend CON laws as necessary to reduce health care oversupply and waste, but emergency orders like the one Gov. Roy Cooper signed on April 8, 2020, expose the lie. If top-down control was necessary to keep the health care system running smoothly, then the case for CONs would grow stronger, not weaker, during difficult times.

Ultimately, neither Chesapeake Diagnostic nor Sentara should win the contest in Elizabeth City. North Carolina should get out of the kingmaking business and let both players serve their communities.

Jaimie Cavanaugh is an attorney and Daryl James is a writer at the Institute for Justice in Arlington, Va.