Last month, the N.C. Supreme Court issued a decision that puts to rest a nearly two-year dispute over whether North Carolina’s Certificate of Need (CON) Statute is constitutional. The CON Statute regulates the number, type and location of the vast majority of health services in North Carolina and precludes the issuance of a CON for any health service, facility or equipment that is not identified as needed in the annual State Medical Facilities Plan (SMFP), which is issued annually by the Governor with substantial input from the N.C. Department of Health and Human Services and the State Health Coordinating Council (SHCC).

In 2008, a Raleigh orthopaedic clinic and an Asheville physician oncology practice challenged the CON Statute as unconstitutional in Wake County Superior Court. The suit alleged, among other things, that the Governor had delegated too much power to develop the annual SMFP to the SHCC, which comprises in part competing providers, along with representatives of health care provider organizations (including the N.C. Healthcare Facilities Association) and members of the public. It also alleged that the statute unconstitutionally precluded plaintiffs from developing needed health services, facilities or equipment by preventing them from filing a CON application that demonstrated need for certain services, facilities or equipment unless those were identified as needed in the annual SMFP.

The suit was filed against the Governor; the Department of Health and Human Services; and a variety of officials related to DHHS, the SHCC; or other aspects of the health planning and CON process. In the suit, plaintiffs asked the Court to preclude DHHS from refusing to issue the CONs for certain facilities and equipment they wanted to acquire or develop, even where the SMFP showed no need for them.

The N.C. Healthcare Facilities Association, represented by Poyner Spruill, along with the N.C. Hospital Association and a number of individual health care providers, intervened in the lawsuit on behalf of the Governor, DHHS and the other defendants to oppose the lawsuit and support the CON Statute as constitutional.

After many rounds of briefing and legal wrangling, Wake County Superior Court Judge Howdy Manning issued a decision on March 26, 2009, dismissing plaintiffs’ complaint and their lawsuit and upholding the CON Statute. Plaintiffs appealed that decision to the N.C. Court of Appeals. On May 4, 2010, the Court of Appeals in a unanimous decision upheld Judge Manning’s decision, dismissing the case and upholding the constitutionality of the CON Statute. Plaintiffs again appealed, this time to the N.C. Supreme Court.

In December 2010, the Supreme Court issued an order refusing to hear plaintiffs’ appeal and dismissing their case in its entirety, putting the final nail in the coffin of this protracted legal battle and leaving the State’s CON intact. North Carolina’s original CON Statute, enacted in the 1970s, was challenged in court and overturned as unconstitutional because it failed to offer substantial justification for the interference with free market health care development, which is an inherent part of any state’s CON Statute. Following that decision, the General Assembly revised the CON Statute. This case is the first challenge to the current statute on constitutional grounds to reach the State’s appellate courts. The win is a major victory for providers and provider organizations who believe the CON Statute and process helps control the costs, supply and equitable distribution of health care services, facilities and equipment across the State.

Poyner Spruill’s Health Law Team appreciates the opportunity to represent the Health Care Facilities Association and North Carolina’s skilled nursing facility industry in this important case.

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