Doctor’s lawsuit tests constitutionality of how NC regulates health care facilities
By Anne Blythe
Jay Singleton, owner of an ophthalmology practice in New Bern, has spent the past four years challenging a state law that caps the kinds of medical services offered in a region.
Now, the Singleton Vision Center proprietor is at the center of a case that has the potential to upend how the health care and hospital industries have done business in North Carolina for decades.
The ophthalmologist filed a lawsuit in April 2020 contending that the North Carolina certificate of need, or CON, law “has nothing to do with the safety of patients” and is designed instead to protect “established providers from competition.”
“That is unconstitutional,” Singleton’s suit contends. “The North Carolina Constitution prohibits monopolies and special privileges and protects Dr. Singleton’s right to provide safe, affordable eye surgeries to patients who need them free from arbitrary, irrational, and protectionist legislation.”
The case went from Wake County Superior Court, where Judge Michael O’Foghludha dismissed the case on June 11, 2021, to the state Court of Appeals where a three-judge panel dismissed in part and affirmed in part the lower court’s decision. Six months ago, the state Supreme Court heard arguments for and against the dismissal of the case.
On Oct. 18, the justices issued a ruling that essentially sends Singleton’s case back to the starting point — this time, though, for a three-judge panel to consider arguments that the certificate of need law violates the state constitution.
“This is a win for all North Carolina patients,” Singleton told the Institute For Justice, a public interest law firm that has taken up his case. “We have now been given the chance to present our case and let the facts speak for themselves.”
The initial complaint, according to the unanimous Supreme Court order, “alleges facts that could undermine the Certificate of Need law’s constitutionality far beyond the particular circumstances.” The order adds that, as Singleton’s attorneys noted in briefs filed in the case, a ruling in the doctor’s favor could open the gate to others seeking similar relief, essentially upending the law.
“We agree,” the justices wrote in the Oct. 18 order. “The complaint contains allegations that, if proven, could render the Certificate of Need law unconstitutional in all its applications.”
A bit of history
The state’s certificate of need law has been a nearly constant source of legislative debate for a decade. Health committees have taken up the topic and discussed possible overhauls or even tweaks, only to encounter a wall of opposition from powerful advocacy groups in the health care community.
Such laws, according to Singleton’s initial complaint, are rooted in the 1960s, when there was a national movement by state and local governments to allocate federal funding to “ensure the financial viability of taxpayer-funded hospitals.”
The federal government encouraged states to adopt certificate of need laws in the 1970s through the National Health Planning and Resources Development Act, and suggested they create their own regulations. But the federal government abandoned their laws in the 1980s, and many states followed suit. Nonetheless, dozens of states still have such laws on their books, and there’s an active debate in academia on the effect such laws have on health economics.
Duke University economist Chris Conover wrote in a 2020 research paper that certificate of need laws cost the country hundreds of millions of dollars per year. “These estimates are quite uncertain given that the literature on how CON affects key outcomes such as mortality and spending is quite mixed,” he also noted in his overview of laws across the country.
In North Carolina, the law was established to restrict unnecessary increases in health care costs by limiting the number of health care facilities and services based on geographic, demographic and economic considerations, according to the state Division of Health Service Regulation.
The fundamental premise, according to the state Department of Health and Human Services primer on the law, “is that increasing health care costs may be controlled by governmental restrictions on the unnecessary duplication of existing or approved health service facilities.”
The way the department accomplishes that is ensuring that “no person shall offer or develop a new institutional health service without first obtaining a certificate of need.”
That’s where Singleton found himself in a situation that prompted him to seek relief from the courts in April 2020. Singleton wanted to offer outpatient surgeries at his center, but the state had determined that for the next two years, there was no such need in that geographical region. So instead, he had to perform most of his surgeries at CarolinaEast, the local hospital, only two miles away.
“Unfortunately, Dr. Singleton cannot even start the costly and complicated CON application process because a formula put in place by state regulators has already determined that his community does not ‘need’ another surgery center,” the Institute for Justice stated in a 2020 news release announcing the lawsuit. “And without any ‘need,’ all applications are automatically rejected.”
In the lawsuit, Singleton contends the state did not possess and could not produce any evidence that preventing the ophthalmologist “from running a ‘formal’ surgery program at the Center actually increases access to safe, affordable surgeries in the Craven/Jones/Pamlico service area.”
His attorneys argue that if Singleton had been permitted to run such a program, he would have been able to provide “high-quality outpatient eye surgeries consistent with the standard of care,” and provide it at a more affordable rate than the hospital.
“Patients’ access to safe, affordable health care is paramount,” the Institute For Justice release states. “By impeding competition and imposing needless red tape, these laws increase costs and reduce access to lifesaving necessities like hospital beds, surgery facilities and medical equipment.
“Government planners have no business telling entrepreneurs whether their services are ‘needed.’”
Advocates of the law
The North Carolina Healthcare Association, a powerful lobbying group for the state’s hospitals, has touted the state’s certificate of need laws as necessary to ensure access to care for medically underserved populations.
In a 2023 legislative brief, when state lawmakers were contemplating making major changes to the certificate of need law as part of its agreement to expand the Medicaid program, the association wrote that repealing such laws “has been proven to reduce access to care for rural and under-served patients, further widening disparities in care.”
“States with repealed or significantly weakened CON programs have demonstrated a swift and chilling impact on the available healthcare services in vulnerable communities,” according to the association’s 2023 report.
They cited Texas as a state that saw a spike in the number of its rural acute care hospitals closing after repeal of that state’s certificate of need law.
“Hospitals do not operate in a traditional free market environment: they have a moral and legal obligation to care for all regardless of the patient’s ability to pay,” according to the association’s report. “Furthermore, payments for healthcare services by insurance and government payers vary widely from service-to-service and payer-to-payer. This system of payment creates the wrong incentives in a fee-for-service model. With these economic realities, hospitals rely on certain procedures, such as elective surgical procedures and high-end imaging, to balance losses from many other acute care services.”
Many hospitals, the association added, “are able to provide vital, life-saving services that are not reimbursed to cost such as trauma center designated services, emergency services, children’s and women’s health services, and behavioral health, because other service lines cover at least a portion of the losses.”
In 2023, as part of the negotiations over the expansion of Medicaid, the hospital association agreed to tweaks in the certificate of need law. The changes — the most significant modifications to the law since the 1970s — meant that some mental health facilities would be allowed to expand or be constructed without certificates of need, and they opened the door for more ambulatory surgical centers.
In a statement provided to NC Health News on Tuesday, the association added: “CON laws also promote long-term community planning and help maintain high standards of care by ensuring providers have adequate patient volumes to sustain quality expertise. As part of the compromise Medicaid expansion bill enacted in 2023, hospitals agreed to several changes to the certificate of need law; the impacts of which are unclear given the changing and evolving healthcare environment. While hospitals support letting these changes occur, the NCHA will oppose further changes to the law.”
Critics of the law
The John Locke Foundation, a conservative-leaning nonprofit that advocates for free market values, has submitted an amicus curiae or “friend of the court” brief in support of Singleton’s challenge to state law.
The organization has advocated for years that reforming or repealing the certificate of need system would be better for keeping health care costs down and that the state’s regulations have had the opposite effect.
“[I]nertia and special interests make CON repeal challenging even when some state policymakers understand the importance of reform,” James Bailey, an economics professor, wrote in a 2021 report published by the Locke Foundation. “CON leads to costs that are dispersed across the whole population of patients, but its benefits are concentrated among a few incumbent health care providers that use it to keep out new competitors.”
Republican State Treasurer Dale R. Folwell filed a friend-of-the-court brief in support of Singleton in August 2022. As a politician who has sparred with the North Carolina Healthcare Association throughout his tenure, Folwell lauded the state Supreme Court decision with a dig at the hospital lobbying group.
“As ‘keeper of the public purse’ and having responsibility for nearly 750,000 members of the State Health Plan, I am very pleased with the Court’s decision,” Folwell said in a statement. “We spend $4 billion a year of taxpayers’ money providing medical and pharmaceutical coverage for those that teach, protect and otherwise serve the people of this state. CON laws are exactly what they sound like — a con. Every year the hospital cartel, through the North Carolina Healthcare Association, prevents any meaningful change to CON laws. Now, we have an opportunity for the courts to finally recognize that these laws are unconstitutional.”
The state Department of Health and Human Services declined to comment on the ruling, telling NC Health News it cannot comment on ongoing litigation.
It could be several years before there’s any resolution to the questions that Singleton’s case poses.
The ophthalmologist’s initial case took four years to get to the state Supreme Court. Now it’s starting over, in front of a panel of judges who will weigh the law against the tenets of the state constitution.
“The North Carolina Supreme Court’s opinion underscores the importance of this case and its implications for the validity of the CON law statewide,” Renée Flaherty, senior attorney at the Institute For Justice, said in an Oct. 18 news release. “Dr. Singleton’s fight will continue in a better position than ever to vindicate the right to earn an honest living.”
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