North Carolina CON

Dr. Gajendra Singh Wants to Provide Safe, Quality and Affordable MRI Scans at Transparent Prices

High-deductible insurance plans, in which patients pay for many of their medical expenses out of pocket, are on the rise . Similarly, Affordable Care Act health insurance plans offered through state exchanges often have large deductibles. This means it is more important than ever for patients to know what they are paying and to be able to find the most affordable services.

Dr. Gajendra Singh founded Forsyth Imaging Center to provide that transparency and affordability.

Dr. Singh treats his patients like family. His career as a surgeon in Winston-Salem, North Carolina, has always been about taking care of others. So Dr. Singh listened when his patients told him they were struggling to afford the high cost of imaging services like MRI scans in his area. In fact, MRIs cost—on average—close to $2,000 at a hospital in North Carolina. Worse, Dr. Singh’s patients also reported being surprised with multiple bills for the same scan. They would never know up front how much they were going to have to pay for a simple procedure. For an MRI scan, for instance, hospitals will often charge separate fees for the procedure itself, the radiologist’s reading fee and the dye used in the procedure.

Dr. Singh decided there had to be a better way, so he opened Forsyth Imaging Center in 2017 to provide X-rays, ultrasounds, echocardiograms, CT scans and MRI scans at affordable prices that patients could see up front. Patients can pay cash or use insurance, and they always know exactly how much they are going to be charged ($500 to $700 for an MRI scan, for example).

As with any startup, getting Forsyth up and running was expensive. But these expenses have been exacerbated by artificial constraints on Dr. Singh’s ability to recover costs: Instead of buying an MRI scanner, Dr. Singh is forced to rent a mobile scanner on a trailer at an enormous cost. And even then, mobile MRI scanners are required by law to be moved at least once a week, which means Dr. Singh cannot provide reliable access to MRI scans. The freedom to purchase a fixed MRI scanner—which would be available for use every day, on demand—would put Forsyth on much sturdier financial ground and reduce its operating overhead.

The Only Reason Dr. Singh Cannot Buy an MRI Scanner Is That the Hospital Down the Street Already Has One

North Carolina officially has no issue with Dr. Singh providing some MRI scans to patients. Why, then, is he forced to struggle through renting an MRI scanner when it would be better for his business and patients if he could simply buy one?

The answer lies in North Carolina’s outdated health care laws. North Carolina makes it illegal for doctors to offer new health care services or buy new equipment like MRI scanners without first obtaining a special permit called a “certificate of need” (CON)  from the government.

A CON is best understood as a government permission slip to compete. CON laws are used in various industries—like taxis, food trucks or moving companies—to stifle competition by allowing existing businesses to decide which new businesses can operate in their community. North Carolina’s CON law prevents medical providers like Dr. Singh from offering services unless a board dominated by regulators and industry insiders determines that those services are “needed.” Because there are already MRI providers in Dr. Singh’s community, he is forbidden from offering low-cost scans to patients who need them.

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 they would help keep costs down. After New York enacted the first medical CON law in 1964,^[1]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.^[2]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.^[3]Since then, 14 states,including Colorado, California and, most recently, New Hampshirehave 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.”^[4]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 for the establishment of a new imaging center (the diagnostic equipment of  which costs over $500,000),^[5]the acquisition of any major medical equipment (costing over $750,000)^[6]and the purchase of even a single new MRI scanner (regardless of price).^[7]Violators can suffer fines of up to $20,000 per offense and even lose their medical license.^[8]

North Carolina’s CON Application Process and Its Loopholes Are Designed to Stifle Competition and Protect Established Providers

At the moment, Dr. Singh cannot even begin the process of applying for a CON. Under North Carolina’s CON law, providers may only 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, and promulgated annually in the State Medical Facilities Plan.

And if the board 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 Department of Health and Human Services along with a $5,000, nonrefundable fee. The applicant then has to demonstrate that their project meets over a dozen enumerated criteria.^[9]Any person may file written comments concerning an application, and any “affected party”—including any person or business that provides similar services or who merely lives in the service area—may request a public hearing on the matter.^[10]After a decision is made, an affected party, such as a local hospital or another imaging center that already has a CON, can contest that decision through litigation involving an administrative law judge, months of discovery and an evidentiary hearing.^[11]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.^[12]

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 be approved. Putting together an MRI CON application can cost about $40,000—unless the case is contested, which almost always happens with MRI scanners. Then, the costs can top $400,000.

Two loopholes in North Carolina’s law make matters even worse. First, providers who owned a fixed MRI scanner before the CON law was changed to cover the machine were “grandfathered” in, so they did not (and never will) have to obtain a CON. Second, existing mobile MRI scanners were also grandfathered in. Mobile scanners have to be moved at least once per week, but they can be rented out to providers who would like to offer MRI services without the need for a CON. The result is that a few private companies with lots of grandfathered mobile scanners can rent out their machines to providers at exorbitant rates without having to worry about the CON process, while also retaining ultimate control over those scanners. Because of the mobile MRI loophole and grandfathered machines, smaller health care providers like Dr. Singh—and his patients—lose, while companies that own mobile MRI scanners and providers with grandfathered fixed scanners (or enough resources to obtain a CON) , win.

Government planners have no business telling entrepreneurs whether their services are “needed.” For his part, Dr. Singh simply wants to provide affordable, high-quality imaging services in a transparent way. And for the good of patients, he is working hard to keep Forsyth Imaging Center’s prices low. But North Carolina’s MRI CON requirement is making that all but impossible. In truth, preventing Dr. Singh from buying safe, legal medical equipment has nothing to do with protecting patients—and everything to do with protecting established providers from honest competition.

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 MRI scanners violates the state’s constitution, which outlaws monopolies and special privileges, demands that laws apply evenhandedly 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.^[13]The law was re-passed, but until now, it has never been challenged on the same grounds that compelled the North Carolina Supreme Court to invalidate its previous incarnation.

First, the North Carolina Constitution specifically outlaws monopolies and special privileges.^[14]The only reason Dr. Singh cannot obtain an MRI scanner is that existing businesses in his area already have them, and the CON law protects their monopoly. That is unconstitutional, as is giving special privileges to private businesses.

Second, North Carolina’s CON requirement is not applied evenhandedly. The North Carolina Constitution guarantees equal protection and uniform operation of the laws.^[15]This means the state cannot impose regulatory burdens unequally. Under North Carolina’s CON scheme, Dr. Singh is able to provide the very same services as providers who hold an MRI CON, but he is forced to rent a scanner at an enormously high cost instead of owning one. Additionally, many MRI scanners that were in service before MRIs were included in the CON law have been grandfathered in, which means owners of those machines do not need a CON. This denies Dr. Singh and others equal and uniform application of the law.

Third, North Carolina’s CON requirement for MRI scanners violates Dr. Singh’s right to earn an honest living as guaranteed by the North Carolina Constitution.^[16]The purported primary purpose of North Carolina’s CON statute is to keep costs low and ensure that medical services are available to all North Carolinians.^[17]However, there is no rational relationship between these goals and requiring a CON (indeed, Dr. Singh’s patients very much “need” the low-cost scans he would like to provide more of). 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 Commissionfound 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.

The government cannot pick winners and losers in the marketplace. Nor can the state impose unequal burdens on innovative medical providers and patients for no good reason. 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. Singh and Forsyth Imaging Center. John Branch of Shanahan McDougal, PLLC, serves as local counsel.

 About the Institute for Justice

The Institute for Justice is the national law firm for liberty. IJ currently represents medical providers inIowain a challenge to its CON law, and IJ has brought other lawsuits nationwide in support of medicalinnovationandself-determination.

^[1]Metcalf-McCloskey Act; Herbert Harvey Hyman, Health Planning: A Systematic Approach(1982), p. 253.

^[2]Pub. L. 93-641, 88 Stat. 2225 (1975).

^[3]Pub. L. 99-660, § 701, 100 Stat. 3799 (1986).

^[4]N.C. Gen. Stat. Ann. § 131E-178(a).

^[5]N.C. Gen. Stat. Ann. §§ 131E-176(16)(a), (9)(b), (7)(a).

^[6]Id.§§ 131E-176(16)(p), (14)(o).

^[7]Id.§§ 131E-176(16)(f1)(7), (14)(m).

^[8]Id.§ 131E-190.

^[9]N.C. Gen. Stat. Ann. § 131E-183.

^[10]Id.§ 131E-185.

^[11]Id.§ 131E-188(a).

^[12]Id.§ 131E-188(b).

^[13]In re Certificate of Need for Aston Park Hosp., Inc., 282 N.C. 542, 551–52 (1973).

^[14]“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.

^[15]“No person shall be denied the equal protection of the laws.” N.C. Const. art. I, § 19.

^[16]  “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.

^[17]N.C. Gen. Stat. Ann. § 131E-175.