By: Spencer Lewis

History and Purpose

In 1977, North Carolina legislature presented the North Carolina Health Planning and Resource Development Act of 1978, a bill that would introduce a Certificate of Need (“CON”) requirement to the state’s healthcare system in response to federal incentives.[1] This CON law would require state approval for health care providers to expand into other markets or make improvements to their capital infrastructure.[2] For instance, if a rehabilitation facility wanted to expand to a secondary location, it would need approval from the state to do so. Accordingly, the state may deny or grant the expansion depending on a sufficient level of public need. To justify governmental intervention, North Carolina lawmakers argued that the forces of free market competition were placing a heavy financial burden upon the health care industry, and thus it was necessary for the state to “control the cost, utilization, and distribution of health services.”[3]

In 1986, Congress repealed the federal law giving incentives to CON states, but a substantial number of states continued to maintain modified versions of CON programs.[4] Today, North Carolina, along with 34 other states and Washington D.C., operate varied versions of CON programs.[5] Notably, no state in the Fourth Circuit nor any neighboring state of North Carolina has repealed or severely cut CON programs since the repeal of the federal law.[6] However, in 2023, North Carolina passed a bill modifying the CON program to exclude psychiatric facilities and to expand monetary thresholds requiring state permission.[7] Though a welcome reform to the CON program, the bill still required state permission for certain expansions, facility bed increases, and other capital expenditures.[8] Thus, North Carolina remains among the majority of states that believe in the justifications of the CON program as a reliable method of regulating healthcare expansion.  

A Challenge Emerges

In October of 2024, Dr. Jay Singleton brought a constitutional challenge of the Certificate of Need program to the North Carolina Supreme Court.[9] There, he argued that the program violated his rights under “the Monopolies Clause, Exclusive Emoluments Clause, and Law of the Land Clause of the North Carolina Constitution.”[10] Importantly, this is the same argument that resulted in the court striking down a previous iteration of the CON program in 1973.[11] Instead of affirming the lower court decisions, the Supreme Court found Dr. Singleton’s complaint to be both a facial and as-applied challenge to the state’s CON law.[12] As a result, the court vacated the appellate court’s decision and remanded the issue to be handled as a facial challenge by the trial court.[13]

Though it may be some time before North Carolina’s CON law is repealed, Dr. Singleton’s case is an important first step toward challenging the necessity of the CON program. For instance, critics of CON programs often argue that the original purpose of these programs has shown to be misplaced, as government regulations have not substantially lowered costs for health care facilities.[14] Maureen Ohlhausen, former commissioner of the Federal Trade Commission, agrees that CON programs are an ineffective restraint on the healthcare industry, preventing communities from having greater access to expanding medical care.[15] Further, she comments that with the disappearance of the “cost plus” reimbursement program that the original CON program was designed for, these programs are no longer needed and instead severely limit the benefits of free market competition.[16] Therefore, by removing the regulation, competition in the healthcare industry would allow customers to “play firms against one another and obtain lower prices and better service.”[17]

Conclusion

When the CON program was first implemented in North Carolina, it was in response to the needs of an old healthcare industry and fell in line with short-lived federal incentives. Now, those needs and incentives are gone. Though Dr. Singleton’s constitutional challenge marks an important first step to repealing North Carolina’s CON program, it still may be years before the state addresses its CON problem. However, the amendment to CON in 2023 showed that the state’s legislature could be open to further limiting the scope of its CON program. Yet, Dr. Singleton’s case may deem the program unconstitutional, bringing the benefits of free market competition to the state’s healthcare industry.


[1] See S.B. 993, 1977 Gen. Assemb., Reg. Sess. (N.C. 1978).

[2] Id.

[3] Id.

[4] See Fed. Trade Comm’n & U.S. Dep’t of Justice, Chapter 8: Miscellaneous Subjects, at 1, in Improving Health Care: A dose of Competition (2004), available at https://www.ftc.gov/reports/improving-health-care-dose-competition-report-federal-trade-commission-department-justice.

[5] See Certificate of Need State Laws, Nat’l Conf. of State Legislatures (Feb. 26, 2024), https://www.ncsl.org/health/certificate-of-need-state-laws.

[6] See id.

[7] See H.B. 76, 2023 Gen. Assemb. Reg. Sess. (N.C. 2023).

[8] See id.

[9] Singleton v. N. Carolina Dep’t of Health & Hum. Servs., No. 260PA22, 2024 WL 4524680, at *1 (N.C. Oct. 18, 2024).

[10] Id.

[11] See In re Certificate of Need for Aston Park Hosp., Inc., 193 S.E.2d 729, 735–36 (N.C. 1973) (“we hold that G.S. s 90—291 is a deprivation of liberty without due process of law . . . [s]uch requirement establishes a monopoly in the existing hospitals contrary to the provisions of Article I, s 34 of the Constitution of North Carolina and is a grant to them of exclusive privileges forbidden by Article I, s 32.”)

[12] Singleton, 2024 WL 4524680, at *1.

[13] Id. at *2.

[14] See Maureen K. Ohlhausen, Certificate of Need Laws: A Prescription for Higher Costs, 30 Antitrust 50, 51 (2015) (“The majority of studies fail to establish any definitive link between CON laws and lower unit costs.”).

[15] See id. (“By restricting expansion and new entry, CON laws help to insulate

incumbent providers from competition.”).

[16] Id.

[17] Id.