By David Rogers. BLOWING ROCK, N.C. — Competition is a hallmark of any market-driven economy. At least in the U.S., historically, so is compassion for the less fortunate, even for those with fewer resources or talent to compete in the competitive marketplace.

The contradictory nature of those two principles— winning in competitive markets vs. the cost of compassion in serving the less fortunate — is currently being tested in the North Carolina judicial system.

At the center of the litigation is the North Carolina “Certificate of Need” law. According to the North Carolina Department of Health and Human Services website, the Certificate of Need law “… prohibits health care providers from acquiring certain medical equipment or developing new health services, health service facilities, (or adding) health service facility beds without the prior approval of the Department of Health and Human Services.” (emphasis added)

In other words, business folks in the healthcare industry must get permission from the state government before adding or expanding healthcare services, equipment or facilities. To get this permission, the provider must show that the new service is needed, hence the name, “Certificate of Need.”

Competition is more likely to lower patient costs and enhance efficiencies in delivering healthcare services.

In the same paragraph, the NCDHHS opines, “The law restricts unnecessary increases in health care costs and limits unnecessary health services and facilities based on geographic, demographic and economic considerations.”

If that last sentence sounds counter-intuitive, it is exactly what plaintiff Dr. Jay Singleton, an eye surgeon in New Bern, N.C., and his attorneys at Shanahan Law Group PLLC suggest in their lawsuit against various legislative and executive branch leaders, filed on April 22, 2020.

Singleton’s litigation claims that the North Carolina “Certificate of Need” law is unconstitutional because it places limits on competition in the marketplace. Competition, argues Singleton, is more likely to lower patient costs and enhance efficiencies in delivering the services.

Singleton is an ophthalmologist and wants to perform eye surgeries at his Singleton Vision Center in New Bern. However, he has not been granted the required Certificate of Need from NCDHHS, so he must perform all of his surgeries at CarolinaEast, the local hospital.

According to the lawsuit filing, “Dr. Singleton believes this system is needlessly inconvenient and expensive for his patients and their insurance providers (public and private), and would like to start providing outpatient eye surgeries, full time, to all of the patients at the Center.”

The list of defendants in the lawsuit is a “Who’s Who” of then current state government leaders in 2020, including former Governor Roy Cooper; Speaker of the House of Representatives, Tim Moore; President Pro Tempore of the NC Senate, Phil Berger; Secretary of the Department of Health and Human Services, Mandy Cohen; and the NC Department of Health and Human Services, c/o Office of Legal Affairs, Lisa Corbett, General Counsel.

The case reached the North Carolina Supreme Court but, in October 2024, it was sent back to the lower trial court to consider whether the Certificate of Need law, in its entirety, violates the North Carolina Constitution. The lower courts had previously treated Singleton’s lawsuit as a more targeted, one-off challenge of the law in the doctor’s individual case but the NC Supreme Court is asking the trial court to consider the issue more broadly. Is the law unconstitutional for everyone who might want to compete anywhere in the North Carolina market?

According to The Source on Healthcare Price and Competition, the NC Supreme Court ruled in 1973 that an earlier version of the Certificate of Need law was unconstitutional and it went away, however briefly. The state readopted a Certificate of Need law in 1978 after the U.S. Congress passed the National Health Planning and Resources Development Act of 1974. Singleton’s arguments today include many of the same challenges that led to the invalidation of the law in 1973..

CLICK HERE for NC Supreme Court decision, Oct. 18, 2024

CLICK HERE to read Singleton’s full lawsuit document.

Why Do We Care?

Why is this New Bern litigation applicable and potentially important to Blowing Rock, Boone and Watauga County?

Let’s say that a healthcare provider from Charlotte — unrelated to our local healthcare system, UNC Health Appalachian — commissions a study and decides the market for medical imaging (MRIs, CT-Scans, x-rays, etc.) is underserved in the High Country. They sense a market opportunity to offer these services at not only a lower cost but also more conveniently, they surmise, than currently possible at a large hospital like Watauga Medical Center. And, importantly, they believe their new imaging business can be profitable.

But in order to take advantage of that insight and determination, a business seeking to provide such a service must first obtain a Certificate of Need from NCDHHS, says North Carolina’s Certificate of Need laws.

The outside observer might say, “OK then, get off your butt and apply for that piece of paper.”

But not so fast. It is at this point where the issue gets more complicated. Even for the most skilled, most professional of imaging professionals, Certificate of Need approval is not automatic.

How do we balance competition and compassion?

We don’t buy the NCDHHS argument that another market entrant’s investment in what they term “redundant” facilities and equipment lead to higher healthcare costs. Much to the contrary, business people in every other industry are willing to take on entrepreneurial risk to make investments in facilities and equipment, then amortize those startup capital costs over time vs. what they perceive will be an otherwise profitable venture. Risk-taking is a hallmark of capitalism and, by its very nature, competition in any market usually fosters efficiency. Prospectively lower prices are one of the tools in a marketing professional’s “3Ps” tool bag: price, product and promotion.

With the Certificate of Need law behind it in our hypothetical imaging venture, the NCDHHS might contend that adding imaging facilities and services are redundant to the facilities and services already available through UNC Health Appalachian and its Watauga Medical Center. So they would likely deny the Certificate of Need application by the hypothetical Charlotte group, thus prohibiting them from entering the Watauga County market.

While NCDHHS may argue that the new market entrant’s investment in the required facilities and equipment are redundant and increases healthcare costs for the patients served, I suspect that is a false narrative. Instead, without really saying so what they might be doing is protecting the legacy investment of UNC Health Appalachian in their imaging facilities and equipment.

And so that begs the question: Why might NCDHHS want to protect what is already available at Watauga Medical Center?

In our society, there are two general types of patients: those who are “able to pay” for healthcare services and those who are “unable to pay.”

As a hospital, Watauga Medical Center will treat every patient presenting themselves for treatment, regardless of their ability to pay. Any profits received for treating the “able to pay” patient offsets, to one degree or another, the operating losses Watauga Medical Center might absorb in treating “unable to pay” patients.

By contrast, the proposed outpatient imaging business could very well “cherry pick” the patients it chooses to serve, only providing imaging services to those who have made payment arrangements in advance (either personally or through a third party, such as an insurance company).

So if the outpatient provider is approved to compete, as market forces are brought into the equation, Watauga Medical Center will likely need to lower prices in order to attract “able to pay” patients. In doing so, they may be compromising the hospital’s ability to deliver its imaging services to “unable to pay” patients.

What’s interesting is that urban markets with larger populations are more likely to have non-hospital certificates of need approved by the state because the demand for various healthcare services far outstrips the abilities of the urban area’s hospitals. So, especially for healthcare screening purposes (CT-scans, MRIs, x-rays and other advanced imaging), non-hospital based providers proliferate.

My personal experience is a good example.

In 2024, I suffered a back injury. The local UNC Health Appalachian provider, AppOrtho, doesn’t have a spine specialist so I went to Charlotte’s OrthoCarolina Spine Center for evaluation. The attending physician wanted an MRI of my thoracic (mid-back) region.

Instead of sending me to my hometown hospital, Watauga Medical Center (back up the mountain) for the MRI, OrthoCarolina gave me a choice of three different, lower cost imaging centers in the Charlotte area. I chose the one closest to the High Country, in Huntersville.

I must admit that if AppOrtho had a spine specialist I likely would have had that MRI done locally, at Watauga Medical Center, even though it was a non-emergency situation — and it probably would have been more expensive.

Almost any healthcare professional will tell you that the most expensive place to get those screening tests done is at a hospital. That’s because hospitals have operating overhead (facilities, equipment and personnel) to treat just about everything, at any time. In any individual case, especially in screening tests, most of those in-hospital resources will not be employed but the hospital still bears those costs. That at least partly explains why the same services delivered at a hospital are more expensive than by a private, specialized provider.

Summary Thoughts

The market-driven economic model in which we exist values competition. That is why our forefathers developed anti-trust laws and other public policy measures to protect the rights of entrepreneurs competing in any market. I am not a lawyer or a judge but I suspect the Certificate of Need laws as they are currently configured and applied could well be found unconstitutional in North Carolina.

Simply put, they are preventing potential market entrants from delivering products and services at potentially less cost, higher quality, and more efficiently. With their Certificate of Need laws, the NCDHHS is preventing entrepreneurs from taking on whatever startup and operational risks they are willing to take on — and competing in the North Carolina healthcare market.

But that still leaves our predilection for compassion. How do we, as a society, provide healthcare services for the less fortunate, those unable to effectively compete or not yet ready to compete? They represent potentially valuable human resources, whether as labor, cultural contributors or with untested and untried intellectual skills.

Taxpayer funded Medicare and Medicaid programs are, of course, a start. But maybe in a more rural jurisdiction like Watauga County, our government needs to subsidize local healthcare to an even greater extent than what is already provided. Maybe the solution is a small tax on the non-hospital provider’s services to help subsidize the care of those “unable to pay” patients. There are any number of potential models for achieving that objective.

The callous among us might say, “If they can’t pay, tough luck. Let them suffer and possibly die. It is a ‘survival of the fittest’ world we live in, after all.”

That is easy to say, but is it who we really are? At various times in my more than seven decades of living, I have been on both sides of the “able to pay” and “unable to pay” healthcare dilemma. I grew up “dirt poor,” but thanks to society’s largesse in my earlier years, I matured as a productive member of society and am now among the “able to pay.” I just needed a chance.

With this Certificate of Need litigation, North Carolina is at a crossroads. How are we going to balance the sometimes adversarial demands of competition and compassion going forward?