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Lawsuit challenges CON law
Critics of Certificate of Need process say it favors existing hospitals
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Published: November 21, 2008
The N.C. Institute for Constitutional Law has filed a lawsuit challenging the constitutionality of the state law that determines the awarding of health-care facilities and equipment.
The lawsuit was filed in Wake Superior Court on behalf of Hope -- A Women's Cancer Center PA of Asheville, and Raleigh Orthopaedic Clinic PA of Raleigh. The institute has been joined in the lawsuit by the law firm of Nelson, Mullins, Riley and Scarborough LLP.
The lawsuit targets North Carolina's requirement that medical providers obtain state permission, under the Certificate of Need, or CON, law before being allowed to compete in certain health-care markets.
North Carolina is one of 36 states using such a strategy to balance health-care supply and demand. The 14 other states allow economic conditions to determine which hospitals are successful and which are acquired or fold, although they retained some CON mechanisms.
The board that establishes the state Medical Facilities Plan each year is made up of health-care professionals, some of whom are employed as officers or directors at hospitals or other health-care providers that could provide the same services being requested.
That plan sets the annual health-care facilities and equipment needs for regions of the state. Health-care systems and providers then file applications to fill the proposed need.
"This issue not only affects the ability of health-care providers to offer new services, but it affects the health-care choices of North Carolinians," Jason Kay, a senior staff attorney for the institute, said yesterday. "Our focus is on the narrow process that puts together the state Medical Facilities Plan."
Nelson Mullins also represents Novant Health Inc. in its appeal of a decision by the N.C. Division of Health Services Regulation to conditionally approve a certificate of need for a replacement hospital in Davie County that would be built by Wake Forest University Baptist Medical Center.
Novant also is appealing a decision by the health services regulation division that denied its proposed plans to build a hospital in Clemmons.
Officials at Baptist and Novant said yesterday that the health-care systems have no plans to join the lawsuit. The agency deferred to the N.C. Attorney General's Office, which could not be reached for comment.
Don Dalton, a spokesman for the N.C. Hospital Association, said yesterday that the association will ask the court "to allow us to intervene in this lawsuit to help defend the CON law and the planning process. We believe the process is lawful and fair, and is crucial in containing health-care costs and ensuring access."
Noelle Talley, a spokeswoman with the attorney general's office, said that its lawyers have filed a motion to dismiss on behalf of the state. A hearing on the motion has not been scheduled.
Dalton said that the association does not follow all legal cases at the trial-court level.
"We know of no recent challenges to the current law at the Supreme Court level," he said.
Steve Graybill, a senior health-care analyst for Mercer Human Resource Consulting in Charlotte, said that the lawsuit could lead "to a more open market for specialty operators to move in, much like in Texas and Arizona."
Critics say that the complex nature of the CON process tends to favor the main health-care providers in communities and serves as a disincentive to new entrants. That, they say, keeps costs artificially higher.
"CON regulation is favored in large part because it would give hospitals with monopoly power a lawful way to resist competition they could not otherwise lawfully exclude," said Clark Havighurst, an emeritus law professor at Duke University and a critic of the CON process.
"The huge enterprises that U.S. hospitals have become are largely unaccountable for the amounts of revenue they raise or the uses to which they put that money,'' Havighurst said. "Indeed, they are major contributors to ever-rising health-care costs."
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
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