State lawyers urge NC Supreme Court to leave CON dispute to ‘democratic debate’

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  • State government lawyers want North Carolina's Supreme Court to reject a legal challenge against the certificate-of-need law. The court agreed last year to hear a New Bern eye surgeon's challenge against CON restrictions.
  • Lawyers from the state Department of Justice argue that debates about CON should be left to "democratic debate." A brief filed Monday cites the General Assembly's recent amendments to the CON law.
  • The John Locke Foundation, which oversees Carolina Journal, supports Dr. Jay Singleton's challenge against CON restrictions. The CON law blocks Singleton from performing most surgeries in his own eye center.

Lawyers from the state Department of Justice urge North Carolina’s highest court to reject a legal challenge to the state’s certificate-of-need law. The high court agreed last year to hear a New Bern eye surgeon’s lawsuit targeting CON restrictions.

“Healthcare is one of the most complex, heavily regulated, and politically contested markets in the economy,” wrote state government lawyers in a brief filed Monday. “Whether the healthcare system appropriately balances costs, quality, and access — among many other factors — is a notoriously challenging and critically important policy debate.”

Justice Department lawyers represent the state Department of Health and Human Services, DHHS Secretary Kody Kinsley, Gov. Roy Cooper, and state legislative leaders. DHHS oversees the CON process. The CON law limits who can build new healthcare facilities, add beds to existing hospitals, and purchase large-scale medical equipment.

“The legal question here, however, is not whether the State’s certificate-of- need law is the best healthcare policy. The question is whether the law passes the deferential review that this Court applies to economic laws. It does,” the Justice Department brief continued.

“North Carolinians have debated the CON law for decades. First passed in 1978, the CON law was the product of extensive legislative deliberation over how to stop spiraling healthcare costs and how to improve access to healthcare services,” government lawyers explained. “Now as then, these concerns remain particularly acute for individuals living in the State’s rural communities.”

“The General Assembly has since repeatedly amended the CON law in light of ongoing study and analysis,” the brief continued. “Just last year, for example, the General Assembly made extensive changes to the law, loosening many of its restrictions and exempting certain activities from CON review.”

“As with all policy debates, some would go further, arguing that the CON law should be repealed in its entirety. They contend that by requiring providers to get state approval before offering certain new health services, CON laws impose unnecessary barriers to entry, limit consumer choice, raise costs, and harm competition,” state lawyers added.

“In keeping with these objections, legislation that would repeal the CON law has been introduced in the General Assembly at least six times in the last six years,” the brief continued. “To date, however, this repeal legislation has not garnered enough support to pass.”

“Plaintiffs here ask the Court to stop this democratic debate about a disputed matter of economics and declare them the winners,” state government lawyers argued. “But this Court’s precedents on judicial review of economic regulations provide the Court with a far more modest role: to determine whether the CON law is reasonable. As shown by the General Assembly’s findings in the text of the CON law itself, the CON law easily passes this deferential review.”

State lawyers also say Dr. Jay Singleton wants the court to address “constitutional challenges” even though he did not “exhaust” administrative remedies in his case. “Plaintiffs sidestepped an entire administrative process that could provide them with the relief they seek,” according to the government’s brief. “That plaintiffs did not exhaust administrative remedies before filing suit in superior court is another independent reason that their claims here fail.”

The John Locke Foundation, which oversees Carolina Journal, supports Singleton’s legal fight against state regulations that block him from performing procedures in his own building.

Locke and constitutional law scholar John Orth filed a joint friend-of-the court brief in the case on Nov. 1. The Goldwater Institute also submitted a friend-of-the-court brief supporting Singleton.

The CON law creates a government permission slip for healthcare providers to build new hospitals, add beds to existing hospitals, open other types of healthcare facilities, and add major pieces of medical equipment.

“Locke has opposed North Carolina’s Certificate of Need (CON) law for many years, not only because it is unconstitutional and violates the rights of North Carolinians, but also because it directly harms patients, employers, insurers, and taxpayers by making health care more expensive and less accessible,” according to the brief from Locke and Orth, a constitutional law professor who taught at the University of North Carolina School of Law from 1978 to 2021.

Orth authored the book “The North Carolina Constitution” in 1993. His co-author for an updated version of that book is current state Supreme Court Chief Justice Paul Newby.

The joint Locke/Orth brief addresses a legal issue called “tiers of scrutiny.” It refers to the different types of review that a court might apply to a challenged law. Only laws addressing a “fundamental” right face the strictest form of scrutiny.

North Carolina adopted the “tiers of scrutiny” approach during the second half of the 20th century, according to the Locke/Orth brief.

“The present case illustrates what happens when state courts casually apply federal tiers of scrutiny doctrine to claims arising under state constitutions without taking into consideration the text and the history of the state constitution itself,” the brief argued. “That practice, which is sometimes called ‘lockstepping,’ can lead to dangerous error, as it has in this case.”

“In the decision under review, the Court of Appeals treated the plaintiffs’ claims under the law of the land, exclusive emoluments, and anti-monopoly clauses of the North Carolina Constitution as if they were based on a vaguely defined right to substantive due process,” Locke and Orth argued. “Following federal tiers of scrutiny practice, it assumed that, as species of economic regulation, the CON law is subject only to minimal, rational basis scrutiny, and instead of conducting its own review to determine whether the rational basis test was satisfied, it simply deferred to the legislative findings that the General Assembly had appended to the current version of the CON law.”

“All of that was error. The plaintiffs’ claims in this case are not based on a vaguely defined right to substantive due process. They are, instead, based on what the North Carolina Constitution explicitly declares to be ‘great, general, and essential principles of liberty and free government,’” the brief argued. “Not only are those principles clearly defined and affirmed in the Constitution itself; they also have deep historical roots in our state. By any definition, therefore, those principles and the rights they protect are fundamental.”

“By failing to recognize that the plaintiffs’ claims are based on fundamental principles protecting fundamental rights, the Court of Appeals committed a dangerous error,” Locke and Orth argued. “If its reasoning is allowed to stand, it will mean that the General Assembly has effectively nullified several express provisions of the state constitution simply by enacted a statute with an appended list of legislative findings. That cannot be right.”

Singleton’s opening brief focused on the CON law’s impact on his ability to serve patients.

“Dr. Jay Singleton wants to perform safe, affordable eye surgeries in his own operating room,” according to the brief filed by attorneys with the Institute for Justice. “He’s a licensed physician and his eye clinic meets every relevant health and safety standard. His surgeries would be far less expensive than those at the only other nearby operating room: CarolinaEast hospital.”

“But North Carolina’s certificate of need (CON) law bans Dr. Singleton from competing,” the brief continued. “Helpful as his services would be, the CON law says they aren’t ‘needed.’ That’s what the law has said every year for over a decade, it’s what the law says today, and it’s what the law will say through at least 2025. Dr. Singleton just wants to give his patients a better option — but the market is closed.”

The Goldwater Institute’s argument focused on the process lower courts used to dismiss Singleton’s case. Focusing on a procedure called the “12(b)(6) stage,” Goldwater argued that the trial judge and Appeals Court made the wrong decision. They should not have thrown Singleton’s case out, based solely on the notion that the General Assembly had a “rational basis” to enact the CON law.

“The solution is actually quite simple: a court must take all well-pleaded allegations as true, and allow the plaintiff the opportunity to disprove the presumptive (factual) constitutionality of the challenged law,” Goldwater lawyers argued. “That simply must be the proper way to address the intersection of 12(b)(6) and rational basis, because if it were otherwise — if, as the court below held, a judge can dismiss a rational basis challenge at the pleading stage, based solely on the fact that the legislature claims its statutes are legitimate — then it would be logically impossible for a plaintiff ever to win a rational basis case.”

“Plaintiffs should be permitted to prove to a court that a law is irrational under the state of facts today, and to rebut the presumption of constitutionality,” Goldwater’s brief continued.

More than a year after Singleton asked North Carolina’s highest court to take up his challenge of the CON law, the court answered yes.

An order issued Sept. 1 confirmed that the North Carolina Supreme Court would hear Singleton’s case. Singleton had appealed to the high court in August 2022.

“Fifty years ago, the North Carolina Supreme Court held that the state’s original certificate-of-need law was unconstitutional,” said attorney Joshua Windham in a statement for Carolina Journal. “It struck down the law because banning new healthcare providers from entering the market is irrational, harmful, and privileges entrenched businesses at the expense of everybody else.”

“But the legislature didn’t listen. It re-adopted a substantially similar law just a few years later,” added Windham, who represents Singleton on behalf of the Institute for Justice. “North Carolinians have been suffering the consequences of that defiance ever since. The time has finally come for the Court to finish what it started a half-century ago.”

“The CON law is unconstitutional — it’s always been unconstitutional — and we’re going to prove it,” Windham said.

Singleton’s state Supreme Court appeal followed the state Court of Appeals’ unanimous June 2022 decision dismissing his case.

“The CON law is a constitutional abomination,” Windham said at the time of the original appeal. “In North Carolina, laws are supposed to protect the public from harm, and monopolies are expressly forbidden. But the CON law thrives on violating these principles. It cripples competition, props up established players, bans innovators, and forces you — the patient — to pay more for less. The time has come for the North Carolina Supreme Court to take these issues up and to declare, once and for all, that in our state, public power cannot be used for private gain.”

The CON case presents three issues for the N.C. Supreme Court’s consideration, according to an August 2022 court filing from Windham and his colleagues.

“Whether the CON law, as applied, violates the law of the land clause (Art. I, § 19) of the North Carolina Constitution,” according to Singleton’s lawyers. “This issue raises substantial questions about the importance of economic liberty, what test applies in substantive challenges under the clause, and whether facts matter under that test.”

“Whether the CON law, as applied, violates the anti-special privileges clause (Art. I, § 32) of the North Carolina Constitution,” the brief added. “This issue raises a substantial question about how the clause applies to special economic privileges.”

“Whether the CON law, as applied, violates the anti-monopoly clause (Art. I, § 34) of the North Carolina Constitution,” the filing listed as the third issue. “This issues raises a substantial question about how the clause applies when the government grants an exclusive right to provide a service.”

Singleton’s lawyers reminded the state’s highest court that it struck down CON restrictions once before, in 1973. Five years later, the General Assembly approved a new, “substantially similar” CON law. The state Court of Appeals then declared the original state Supreme Court ruling “moot,” and now there is “confusion” about the original decision’s status.

“The time has come for this Court to put that confusion to rest,” according to IJ attorneys. “This case alleges that the current CON law, as applied to Dr. Singleton, violates the same three provisions the original CON law violated.”

The appeal labeled the case’s facts “simple.” “Dr. Singleton owns an operating room that he could use to expand patients’ access to safe, affordable eye surgeries,” according to the court filing. “But the CON law says that only operating rooms with a CON can be used. And Dr. Singleton cannot even apply for a CON unless the state first declares a ‘need’ for a new operating room in his area — which it has not done in well over a decade.”

“In fact, the only entity in Dr. Singleton’s area to ever own an operating room CON is CarolinaEast, a hospital located two miles down the road,” according to the surgeon’s lawyers. “Dr. Singleton could provide eye surgeries at his facility for thousands of dollars less than those same procedures cost at CarolinaEast. But the CON law bars him from doing so. As a result, patients suffer while CarolinaEast profits.”

For example, Singleton could perform cataract surgeries for $1,800, while the facility fee alone at CarolinaEast reaches almost $6,000, according to the appeal.

Current law blocks Singleton from applying for a CON “until at least 2024 — and likely well beyond that,” according to the filing. “The market is closed.”

“If excluding Dr. Singleton from the market does not benefit real patients, what does it do? The obvious: It ‘protect[s] established healthcare providers’ — namely, CarolinaEast— ‘from competition.’”

The state Supreme Court has not scheduled the case yet for oral arguments.