NC Supreme Court gets second chance to do right thing on CON law

North Carolina regulators crossed a line in 1973 when they told a nonprofit hospital it could not build new facilities on its own land with its own money. A new law had given the regulators veto power, but the state Supreme Court intervened and declared the statute unconstitutional.

The decision was not close. The justices struck down the law by unanimous vote, ending the state’s first experiment with certification-of-need, or “CON,” laws.

CON regimes, which exist in various forms in 38 states and Washington, DC, require health care providers to get government permission before entering a market or expanding. CON regulations might make sense if they dealt with public health or safety. But they have nothing to do with standards for construction, equipment, maintenance, sanitation, or medical care.

CON laws are about money — more for some and less for others.

This was the problem 50 years ago. Aston Park Hospital wanted to scale up its operations in Asheville, North Carolina, but regulators said the extra competition might reduce profit margins for nearby rivals. So, the state acted on behalf of industry insiders and denied the CON application.

To justify itself, the state argued that too much health care investment can lead to oversupply of services, creating redundancy and raising consumer costs. This is the standard CON talking point. But the North Carolina Supreme Court rejected the upside-down logic.

“In the ordinary businesses it has been the common experience in America that competition is an incentive to lower prices, better service and more efficient management,” the justices held. Regardless, picking winners and losers is not a legitimate public interest. “Such requirement establishes a monopoly in the existing hospitals.”

The ruling was historic. One legal scholar says it sent a “shock wave” to health care policymakers nationwide. Never before or since has a state Supreme Court used a state constitution to strike down CON regulations. North Carolina showed how.

But rather than learn from the regulatory overreach in Asheville, state lawmakers tinkered with the CON law and reintroduced it. Incremental changes have followed, most recently in 2023. But the built-in unfairness remains the same. Big hospitals win at the expense of everyone else. Patients get less access. Doctors and nurses get less employee mobility. And smaller health care providers get fewer opportunities to invest and innovate.

Ophthalmologist Jay Singleton feels the pain in New Bern, North Carolina. The revived CON regime does not stop him from owning a state-of-the-art vision center, where he can treat patients at a fraction of big hospital costs. But state law prevents him from using his facility for most of the surgeries he performs because he does not have a CON.

Instead, he must drive two miles up the road to a competitor’s facilities. 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.”

Like Aston Park Hospital decades ago, Singleton fought back with a constitutional lawsuit. Wake County Superior Court ruled against him in 2021. The North Carolina Court of Appeals ruled against him in 2022. But the state Supreme Court agreed to consider his case on Sept. 1, 2023. Our public interest law firm, the Institute for Justice, represents him.

Oral arguments are not yet scheduled. But once they occur, North Carolina will have a chance to make history a second time.

“For years the legislature has tinkered around the margins of the CON law without ever fixing the anticompetitive problems with the law itself,” Singleton says. “I am excited the North Carolina Supreme Court is finally going to take my case.”

Reaching this point has been a journey for Singleton, who took over his clinic in 2004 and sued in April 2020 following years of unnecessary government restrictions.

“The fact that it took so long to get here is just another knock against the CON law,” he says. “It shouldn’t be this hard to vindicate my basic right to help my patients.”

Singleton, who specializes in eyesight, sees the issue clearly — like the top line on a vision chart. If regulators want to come between doctors and patients, they need a good reason. Protecting favored businesses from competition misses the mark.