NC patients pay for hospital law that kills competition

North Carolina ophthalmologist Jay Singleton has a state-of-the-art vision center in New Bern east of Fayetteville, where he can treat patients at a fraction of big hospital costs. Unfortunately, the state won’t let him use his space for most of the surgeries he performs.

Instead, Singleton must drive two miles down the road to a competitor’s outpatient facility in the CarolinaEast Health System. Costs go up, scheduling options go down, and families suffer.

“Most of my patients don’t have a choice,” Singleton says. “They are being herded into these facilities.”

The reason is an outdated North Carolina law that mandates something called a “certificate of need” (CON) before health care providers can open or expand facilities, purchase major medical equipment, or accept government-subsidized insurance. If doctors like Singleton cannot prove to the state’s satisfaction that a need exists for their services, then regulators can deny their CON applications and restrict their ability to practice medicine.

Big hospitals love the regulatory oversight because it shields them from competition. Something similar would happen in retail if the government blocked mom-and-pop hardware stores from opening near The Home Depot.

Rather than accept the protectionism—an illegitimate use of government power—Singleton filed a constitutional lawsuit against the state in 2020. Our public interest law firm, the Institute for Justice, represents him.

As the case proceeds, a second solution to the CON abuse has emerged in the North Carolina General Assembly. House Bill 149, which would benefit nurse practitioners while expanding Medicaid, also includes provisions to scale back state CON enforcement. The measure passed the Senate on June 2, 2022, and now awaits House approval.

The potential loss of monopoly status has industry insiders worried. The North Carolina Healthcare Association, which represents North Carolina hospitals, calls the removal of CON protectionism “troubling.” A news release from the association correctly describes the intended purposes of CON oversight: To lower costs and expand access by ensuring even distribution of health care investment.

What the association fails to mention is that none of these intended benefits has ever materialized. Put simply, CON laws are a failed experiment.

A supermajority of studies confirms the reality. Examples include a joint report from two federal antitrust agencies—the Federal Trade Commission and the Antitrust Division of the Justice Department—which finds no reliable evidence that CON laws achieve any public benefit.

More importantly, decades of real-world experience show that CON laws do not work as advertised. Recognizing the policy disaster, Congress reversed itself in 1986 and repealed the CON mandates it had imposed just 12 years earlier.

Since then, California, Texas and 10 other states, which contain nearly 40% of the U.S. population, have canceled their CON laws entirely. American Hospital Association affiliates predicted doom and gloom each time, but negative effects never materialized.

Instead, the opposite happened. At the start of the COVID-19 pandemic, states without CON laws had more hospitals and surgery centers per capita, along with more hospital beds, dialysis clinics and hospice care facilities.

Other states, recognizing their disadvantage, quickly suspended CON enforcement at the start of the pandemic so health care providers could respond to the crisis unimpeded. North Carolina joined the list on April 8, 2020, with an emergency order from Gov. Roy Cooper.

The backpedaling when health care delivery mattered most exposes the lie that CON laws keep the market running smoothly. Singleton already knows the truth. He sees patients struggling to afford health care, and CON laws making things worse.

“All we’re asking the state to do is to repeal a bad law,” he says. “Sometimes you make mistakes, so you have to go back and take care of that mistake.”

North Carolina already acknowledged its error once. The state Supreme Court declared a previous version of the CON scheme unconstitutional in 1973, ruling that it gave existing hospitals a monopoly and made “a grant to them of exclusive privileges” forbidden under the state Constitution.

Lawmakers responded by tweaking the law rather than ending it, leaving the problem unresolved. Singleton’s lawsuit gives the courts a second chance to intervene. Or the House could step up and pass reform.

It doesn’t take an eye doctor to see clearly what North Carolina needs.

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