The government should never prevent doctors from safely providing affordable health care services their patients need. But that’s exactly what North Carolina, along with 34 other states, do every day.
North Carolina makes it illegal for doctors to offer new health care services, build new facilities or buy new equipment without obtaining a special permit called a “certificate of need” (CON) from a board dominated by regulators and industry insiders. If the board determines that there are already “enough” providers in a community, doctors are forbidden from offering services to patients who need them.
One of those doctors is Dr. Jay Singleton, who owns an ophthalmology practice in New Bern. Dr. Singleton owns a state of the art outpatient operating facility, but because of North Carolina’s CON law, he is legally required to perform surgeries at the local hospital, CarolinaEast, which charges thousands of dollars more.
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. And without any “need,” all applications are automatically rejected.
North Carolina’s CON regime has nothing to do with protecting public health or safety, and everything to do with stifling competition in order to preserve monopolies for existing providers, like large hospitals that charge patients higher prices. One study found that states with CON laws have 1.3 fewer acute hospital beds (ICU) per 1,000 residents than states without CON laws. That’s especially problematic, given the current COVID-19 crisis, which has been complicated by a lack of available hospital ICU beds across the country.
Patients’ access to safe, affordable health care is paramount. 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.” That is why Dr. Singleton and Singleton Vision Center have joined IJ to challenge North Carolina’s CON requirement for surgery centers in state court.
Court of Appeals Decision
Notice of Appeal and Petition for Discretionary Review
Dr. Singleton Can Provide Safe, Quality Eye Surgeries in His Office, but the CON Law Forces Him to Send Patients to the Hospital
Dr. Singleton’s mission is to provide the best possible care for his patients at a price they can afford. He provides comprehensive eye care—everything from routine checkups to treatment for infections or disorders to surgery. He can do most of this at his own facility, Singleton Vision Center. However, he is legally required to perform surgeries, like cataract surgery or corrective surgery, at the local hospital, CarolinaEast, which charges thousands of dollars more in facility fees.
Dr. Singleton believes this system is needlessly inconvenient and expensive for his patients. For instance, he can perform a cataract surgery at his office for under $1,800 total (facility and surgery fee included), while CarolinaEast charges almost $6,000 for its facility fee alone. Dr. Singleton would like to perform all of his surgeries at his office and save his patients thousands of dollars. Performing outpatient eye surgeries at Dr. Singleton’s facility is also just as safe as performing them at a hospital. Why, then, does Dr. Singleton have to get a CON?
The answer lies in the history of North Carolina’s CON law, which was born out of a misguided federal policy and the desire of hospitals to insulate themselves from competition.
North Carolina’s CON Law Is a Relic From a Federal Policy Abandoned Over 30 Years Ago
The earliest medical CON requirements applied only to large, publicly-funded facilities like hospitals and nursing homes on the theory that the laws would help keep costs down. After New York enacted the first medical CON law in 1964, the American Hospital Association began a national campaign to pass CON laws in other states because these requirements financially benefited existing hospitals by insulating them from competition.
By 1974, the federal government had joined in, offering states financial incentives to adopt CON laws. The lure of federal funding led every state but Louisiana to adopt CON requirements. Over time, the federal government concluded that CON requirements utterly failed to control costs or provide any other public benefits. Moreover, they were no longer necessary in light of changes to the way Medicare and Medicaid reimbursed health care providers. Accordingly, Congress repealed its funding for CON laws in 1986. Since then, 14 states, including Colorado, California and, most recently, New Hampshire have eliminated their CON requirements.
The remaining states vary in the breadth of services requiring a certificate of need. North Carolina requires health care providers to obtain a CON prior to offering or developing any “new institutional health service.” But unlike CON regimes in most other jurisdictions, North Carolina’s covers 25 different services, devices and procedures—far above the national average of 15—making it the fourth worst in the country.
For instance, North Carolina requires a CON to establish “a new health service facility” or “an operating room . . . in a licensed health service facility,” or to “offer or develop” services in such facilities. Violators can suffer fines of up to $20,000 per offense and even lose their medical license.
North Carolina’s CON Application Process Is Designed to Stifle Competition and Protect Established Providers
At the moment, Dr. Singleton cannot even begin the process of applying for a CON. Under North Carolina’s CON law, providers may only apply for a CON to offer new services or buy new equipment for which there is a predetermined “need” in their area for the coming year. Those determinations are made by the North Carolina Department of Health and Human Services in conjunction with the North Carolina State Health Coordinating Council using an overly simplified formula. There hasn’t been a “need” for any kind of new surgery center in Dr. Singleton’s community for at least a decade, so there is no option for him to even begin the process of applying for a CON.
If the state determines there will be a need, the process of applying for a CON is costly and burdensome—and there’s no guarantee a CON will be issued.
To apply for a CON, a health care provider must submit an application to the North Carolina Department of Health and Human Services along with a $5,000 nonrefundable fee. The applicant then has to demonstrate that the project meets over a dozen enumerated criteria. Any person may file written comments concerning an application, and any “affected party”—including any person or business that provides similar services (e.g., future potential competitors)—may request a public hearing on the matter. After a decision is made, an affected party, such as a local hospital that already has a CON, can contest that decision through litigation. A contesting party can even take the case to the North Carolina Court of Appeals—or, in particularly aggressive contests, to the North Carolina Supreme Court.
This can be an incredibly expensive and complicated process to navigate, and it is all but impossible without hiring an experienced team of consultants, attorneys, architects and economists—the cost of which will eventually be passed down to patients, should the CON eventually be approved. Putting together an application alone can cost upwards of $40,000. If the case is contested, which almost always happens with surgery centers, then the costs can top $400,000.
The North Carolina Supreme Court Struck Down an Almost Identical Version of the CON Law in 1973 and Should Do the Same Here
North Carolina’s CON requirement for surgery centers violates the state’s constitution, which outlaws monopolies and special privileges and protects citizens’ right to earn an honest living. In fact, the last time the North Carolina Supreme Court considered a previous version of the state’s CON law, it struck it down for just these reasons. The law was subsequently re-passed with very few changes.
In 2018, the Institute for Justice (IJ) challenged the CON law on behalf of a Winston-Salem surgeon, Dr. Gajendra Singh. Unfortunately, Dr. Singh had to close his imaging center, in part because of the enormous costs imposed by the CON law. Dr. Singh’s lawsuit could not continue, but Dr. Singleton has taken up the mantle to challenge the CON law on the same grounds on which the Supreme Court struck it down.
First, the North Carolina Constitution specifically outlaws monopolies and special privileges. The only reason Dr. Singleton cannot perform all his surgeries in his own facility is that existing businesses in his area (i.e., CarolinaEast) are already doing so and the CON law protects their monopoly. That is unconstitutional.
Second, North Carolina’s CON requirement for surgery centers violates Dr. Singleton’s right to earn an honest living as guaranteed by the North Carolina Constitution. The purported purpose of North Carolina’s CON law is to keep costs low and ensure that medical services are available to all North Carolinians. However, there is no relationship between these goals and requiring a CON (indeed, Dr. Singleton’s patients very much “need” the low-cost surgeries he could provide). Rather, the CON requirement serves only to protect existing facilities and hospitals from competition, which is not a legitimate government interest.
History makes clear that CON schemes like North Carolina’s are nothing but protectionism run amok. Indeed, a 2004 joint report from the U.S. Department of Justice and the Federal Trade Commission found no reliable evidence that CON laws achieve any public benefits—a situation the report found troubling in light of the clear evidence that the laws grant anticompetitive benefits to protected business interests. Another study found no evidence that CON regulations limit health care price inflation and little evidence that they reduce health care spending—and that, in fact, the evidence suggests CON laws lead to higher costs for patients. There is even evidence that CON regulations lead to lower-quality care or, at best, have little to no effect on quality. States with CON laws have about 1.3 fewer hospital beds per 1,000 people than states without CON laws. That’s almost 50% of the national average of 2.8 hospital beds per 1,000 people. Which, given the current nationwide shortage of hospital beds amidst a global pandemic, clearly illustrates the shortcomings of CON laws.
If successful, this lawsuit would set an important precedent and clear the way for hospitals and other medical providers to expand offerings and over all access.
The government cannot pick winners and losers in the marketplace. Patients and doctors—not the government—are in the best position to decide which health care services are “needed,” and the North Carolina Constitution protects their right to do exactly that.
The Litigation Team
IJ Attorneys Renée Flaherty and Joshua Windham represent Dr. Singleton and Singleton Vision Center. John Branch of Shanahan Law Group, PLLC, serves as local counsel.
About the Institute for Justice
The Institute for Justice is the national law firm for liberty. This lawsuit was filed in conjunction with a second lawsuit in Nebraska challenging the CON law governing medical transportation. IJ also represents health care providers in Iowa and Kentucky in a challenge to those state’s CON laws, and IJ has brought other lawsuits nationwide in support of medical innovationand self-determination.
For more information, contact:
- Justin Wilson
(703) 682-9320, ext. 206
 Metcalf-McCloskey Act; Herbert Harvey Hyman, Health Planning: A Systematic Approach (1982), p. 253.
 Pub. L. 93-641, 88 Stat. 2225 (1975).
 Pub. L. 99-660, § 701, 100 Stat. 3799 (1986).
 N.C. Gen. Stat. Ann. § 131E-178(a).
 N.C. Gen. Stat. §§ 131E-176(16)(a), (u), 131E-178(a); see also 10A N.C. Admin. Code 13C .0202(b) (conditioning licensure under the Ambulatory Surgical Facility Licensure Act on obtaining a CON).
 Id. § 131E-190.
 N.C. Gen. Stat. Ann. § 131E-183.
 Id. § 131E-185.
 Id. § 131E-188(a).
 Id. § 131E-188(b).
 In re Certificate of Need for Aston Park Hosp., Inc., 282 N.C. 542, 551–52 (1973).
 “Perpetuities and monopolies are contrary to the genius of a free state and shall not be allowed.” N.C. Const. art. I, § 34. “No person or set of persons is entitled to exclusive or separate emoluments or privileges from the community but in consideration of public services.” N.C. Const. art. I, § 32.
 “No person shall be taken, imprisoned, or disseized of his freehold, liberties, or privileges, or outlawed, or exiled, or in any manner deprived of his life, liberty, or property, but by the law of the land.” N.C. Const. art. I, § 19.
 N.C. Gen. Stat. Ann. § 131E-175.
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