III. Applying State Anti-Monopoly Clauses to CON Laws

As illustrated above, medical CON laws deprive doctors and medical providers of the right to serve patients with appropriate medical technology, and deprive patients of access to needed medical services, with the result of protecting existing medical providers from economic competition. Often, these laws prohibit medical professionals from serving patients if the state determines that existing providers are sufficient to meet an area’s needs. Yet that determination is itself inherently monopolistic. CON laws typically do not make an applicant’s ability to enter the business dependent upon that applicant’s skills, qualifications, education, experience, or fitness to practice their profession. Instead, they prohibit new firms from entering the industry regardless of their qualifications and skill, based on a government agency’s determination of public “need”—a determination that is often based on no objective criteria, and that instead often turns on the say-so of “affected parties,” which means the firms that are already practicing in that industry.2 Even applicants with extensive experience, a perfect safety record, and a superb education are often denied a CON, and thus barred from offering their services to patients, simply because existing providers do not want competition. And CON laws often do not require any consideration of whether an applicant is competent or honest; after all, incompetent or dishonest practitioners are barred from practicing medicine by other laws.

For example, Georgia’s CON law forbids certain types of clinics from opening—or from purchasing new medical equipment—without first proving that there is a “need for such services,” that “existing alternatives” are unavailable in the “service area,” and that the applicant “has a positive relationship to the existing health care delivery system.”3 What constitutes a “need”? The term is not defined, except that state regulations list a number of factors for state officials to take into consideration when someone applies for a CON. Needless to say, “positive relationship” is also undefined, as are other terms in the CON law, which allows state bureaucrats to decide whether or not a new clinic can open its doors—without objective standards and without regard to the applicant’s skills or honesty.

What’s more, CON laws have two kinds of effects which tend to encourage monopoly behavior—effects that economists call the “knowledge problem” and “rent-seeking.” The knowledge problem refers to the inability of central planning authorities to determine economic needs in a dynamic world of countless unpredictable details. As Nobel laureate Friedrich Hayek observed, any industry is simply too complicated to be accurately predicted even by industry experts, let alone by government officials who may have no experience in that industry. Anticipating the future “needs” of a state’s entire patient population is simply beyond the capacity of any company or bureaucracy. Rent seeking refers to the tendency of businesses that expect to obtain a profit from government action to invest their time and effort into lobbying the government with regard to that action. If the issuing of a CON to a new competitor will cost an existing company $1 million, then it is in that company’s interest to invest up to $1 million in lobbying the government not to issue that CON. Rent seeking explains why regulatory agencies often end up acting not in the interest of the general public, but in the interest of industry insiders who have devoted their resources to persuading those agencies to act on their behalf.

In short, CON laws are the very definition of a monopoly—the very thing state anti-monopoly clauses were written to prohibit. By prohibiting free competition, not to protect public safety and welfare, but instead allow existing medical providers to block their own competition, CON laws create and foster monopoly in the medical industry. That is why one court has called CON laws a “Competitor’s Veto,”4 and many others have observed that CON laws are inherently anticompetitive, and “clearly contemplate…anticompetitive conduct.”5

Under existing precedent in most states, economic freedom is typically afforded less protection in court than are rights such as freedom of speech, and restrictions on the right to earn a living are often upheld by courts on the theory that state lawmakers should enjoy broad discretion to determine how to regulate industries. This is particularly true in cases involving licensed professions that require a high degree of specialized skill and training, such as medicine. As a result, courts are usually reluctant to declare that laws regulating the medical industry are unconstitutional. Nevertheless, state constitutional provisions against monopolies make no distinction between medicine and any other industry, and state courts may not simply disregard the text of the state’s fundamental law.

Georgia OB-GYN surgery

Georgia’s CON laws require doctors to apply to the Georgia Department of Community Health for permission before they may add space to their clinics to serve more patients or buy certain kinds of medical equipment. As is often the case, the state’s CON laws allow existing healthcare providers who do not want more competition to object whenever someone applies for a new CON.

Hugo Ribot and Malcolm Barfield are OB-GYN surgeons who own the Georgia Advanced Surgery Center for Women, in Cartersville, a small community 50 miles northwest of Atlanta. Their surgery center was designated a “Center of Excellence” —one of only a few in the entire country—by the American Association of Gynecological Laparoscopists, for their highly advanced surgical techniques, rigorous safety standards, and commitment to outstanding patient outcomes. Since opening in 2010, the doctors have performed hundreds of minimally invasive outpatient procedures—all with same-day patient discharge and no instances of infection, wound complication, or re-admission. These outstanding outcomes are achieved at lower prices than hospitals charge. Studies have shown that ambulatory surgery centers like Ribot’s and Barfield’s clinic decrease Medicare costs because they are paid a fraction of what is paid to hospitals for the same services.6 Between 2008 and 2011, surgery centers saved the Medicare program and its beneficiaries $7.5 billion.

Ribot and Barfield wanted to serve more patients by adding a second operating room and letting other surgeons use their state-of-the-art facility. But the state’s CON laws forbade them from adding a second operating room or from contracting with other doctors to use the existing facility without first getting government permission. Doing either without a CON would subject them to fines of $5,000–$25,000 per day.7 So the doctors applied for a CON in October 2014.

After months of delay, the Georgia Department of Community Health denied their application in March 2015. The denial was not made on based on any safety concerns, but on the grounds that issuing them a CON “would not have a positive impact on the health care delivery system in the service area”8—in other words, that they would compete against existing hospitals, three of which had filed objections to their CON application.

As a result of the denial, the doctors’ life-saving medical facility sat idle, meaning that patients were denied access to medical services simply to protect existing medical providers against economic competition.

Ribot and Barfield’s story is just one of countless such instances. In fact, between 2011 and 2013, more than 20 percent of applications were either denied or withdrawn. Yet the total negative impact of the CON law on health care in Georgia is unknowable, because many applicants for CONs withdraw their applications as soon as objections are filed, knowing that an objection will almost certainly lead to a denial. Dozens of applications were withdrawn within during that time, including applications seeking permission to purchase new CT and MRI machines. And an untold number of applications never get filed in the first place, due to the high cost of filing an application. Ribot and Barfield’s application, for example, cost tens of thousands of dollars in fees to a consultant who spent 200 hours gathering the required information and submitting the application.

Ribot and Barfield filed suit to challenge the state’s CON law under the Georgia Constitution’s anti-monopoly clause. Georgia courts had previously held that that clause forbade CON laws in the auto industry, setting important precedent that made the clause one of the strongest in the nation. Yet in 2017, the court backed away from its strict application of the antimonopoly clause and upheld the state CON laws. Although it acknowledged that the CON laws could have an impact on the medical providers seeking to enter the healthcare market, it nevertheless found that the anti-monopoly clause of the Georgia Constitution did not apply, because that clause includes certain narrowing language that other state anti-monopoly clauses lack. The Georgia provision prohibits the legislature from “authoriz[ing] any contract or agreement which may have the effect of or which is intended to have the effect of encouraging a monopoly”—which, the Court said, was not the same as a provision forbidding monopolies entirely. Since the CON laws do not specifically authorize contracts between service providers or anyone else that would encourage a monopoly, the court said, the restriction on Ribot and Barfield’s rights was lawful.9

North Carolina medical imaging

Other states, however, have more protective provisions in their state constitutions. North Carolina’s Anti-Monopoly Clause states, “Perpetuities and monopolies are contrary to the genius of a free state and shall not be allowed.”10 Because this language is not limited to contracts made by the state, as Georgia’s appears to be, it should provide stronger protections against such monopolistic practices as CON laws.

Dr. Gajendra Singh founded Forsyth Imaging Center in Winston-Salem in 2017, to deliver quality healthcare services at lower costs to his patients. Forsyth provides medical imaging services such as x-rays, ultrasounds, and MRI scans at a fraction of the prices charged by hospitals. But under North Carolina’s CON law, licensed healthcare providers like Dr. Singh are prohibited from offering any “new institutional health service”—a term which includes “[t]he acquisition” of a “magnetic resonance imaging scanner”—unless they first get a CON from the state’s Department of Health and Human Services.11 And when Dr. Singh applied for one, he was turned down because existing providers (Dr. Singh’s would-be competitors) already possess MRI machines, which according to the Department meant that no new MRI scanner would be needed in Forsyth County.12 Thus, Dr. Singh is barred by from purchasing this diagnostic equipment for his practice—not because it would harm public health or because he is unqualified or incompetent, but solely to prevent economic competition against existing providers.

North Carolina’s first CON law, enacted in 1971, was struck down by the North Carolina Supreme Court for violating the anti-monopoly clause, among other things.13 Yet five years later, the state enacted another, substantially similar CON law,14 in order to take advantage of federal subsidies. That law remains on the books today, despite half a dozen recent attempts to repeal it15—and it is now the subject of an ongoing lawsuit.16

North Carolina’s current CON law requires the applicant to prove that (1) “[t]he population residing in the area served, or to be served, by the new institutional health service has a need for such services,” (2) “[e]xisting alternatives for providing services in the service area” are unavailable, and (3) “[t]he proposed new institutional health service has a positive relationship to the existing health care delivery system in the service area.”17 Qualifications and safety are not included in the lengthy list of considerations in the CON process.18 And state law provides no definition of a “positive relationship” to existing services—although the Department does not consider competing with existing services to create a “positive relationship.” Even if the applicant could prove all of the required elements (a logical impossibility, given the lack of definitions), the CON laws also allow competing healthcare facilities to object to any applicant—without showing any evidence—and, astonishingly, do not allow the applicant to speak in rebuttal at the subsequent hearing.19 Despite the failure of the Georgia lawsuit, there is hope in North Carolina. After all, the state’s anti-monopoly clause has been used successfully to strike down CON laws for other healthcare services. In 1969, a North Carolina appellate court held that although the licensure of ambulance services is a “valid and legitimate exercise of the police power,” the CON law exceeded the state’s authority because it tended to “turn the business over to a privileged class.”20Four years later, the state’s supreme court struck down an earlier version of the state’s CON law, noting that while the legislature may license medical facilities and impose other regulations to ensure that they meet “reasonable minimum specifications,” it cannot deny private parties the right to construct facilities for “the sole reason . . . that, in the opinion of the Commission, there are now in the area hospitals with bed capacity sufficient to meet the needs of the population.”21