Latest court CON dispute focuses on MRI for northeastern NC

North Carolina’s second-highest court could decide whether state regulators made the wrong choice when they allowed one health care provider to maintain a monopoly on MRI machines serving northeastern North Carolina.

A three-judge Court of Appeals panel heard oral arguments Wednesday in a case that pits Virginia-based Chesapeake Diagnostic Imaging Centers against Sentara Advanced Imaging Solutions and the North Carolina Department of Health and Human Services.

DHHS selected Sentara over Chesapeake to win a certificate of need in 2022 for a new MRI machine based in Pasquotank, Perquimans, Currituck, and Camden counties. Sentara already operated the region’s two existing MRI machines. Chesapeake had hoped to enter the region and provide competition.

Without a CON from the state, Chesapeake could not enter the northeastern North Carolina market.

Chesapeake’s lawyers argued that health regulators’ decision favoring Sentara was an agency error. That error caused substantial prejudice against Chesapeake, according to the court arguments. Chesapeake must prove an agency error and substantial prejudice to reverse a CON decision in court.

“If a new provider seeking to come into an area and needing a certificate of need is disapproved, and that disapproval is based on agency error, and that is not substantial prejudice, then in the CON context nothing is. Who could bring a case?” asked Noah Huffstetler, one of Chesapeake’s lawyers.

“It essentially eviscerates the law,” Huffstetler added.

Sentara argued during the state’s CON process that its new machine would increase competition for MRI services in the targeted four-county area of northeastern North Carolina.

“That’s pretty rich,” Huffstetler said, pointing to Sentara’s success in convincing state regulators five years in a row to remove a new MRI scanner from its plans for the four-county region.

When Chesapeake successfully advocated to keep the new MRI machine in the state’s 2022 health facilities plan, “Sentara flipped 180 degrees and said, ‘Not only is it needed, but we need it here.’”

“There is no possible way that approving the Sentara application — the monopolist who had the only service within that service area to supply MRI procedures — approving their application and denying the application of a would-be competitor, there’s no way that conforms” with CON competition standards, Huffstetler argued. That’s true “particularly given the undisputed facts of how Sentara over and over had attempted to prevent the need from being recognized.”

Sentara countered in the Appeals Court argument that Chesapeake has no legal basis to overturn a valid decision from DHHS.

“Look at the agency’s decision overall — it was a close one,” argued lawyer Alexander Gormley. “Both applications were found conforming, and then they applied a number of comparative factors. Sentara won, 3-2. What tipped it is they won on geographic accessibility.”

“They proposed to put their MRI in Currituck County, where none exists, whereas Chesapeake proposed to put theirs right on top of the existing MRI,” Gormley added. “So I think the agency exercised a lot of wisdom and common sense and found this is the better application. It’s going to spread the MRI’s throughout the area.”

Chesapeake asks the court to “make a new rule as to what substantial prejudice is,” Gormley argued.

Sentara disputed Chesapeake’s arguments about competition. “The right to compete is the right to file for and apply for a CON,” Gormley said. “It’s not the right to be in that market. At bottom, the allegation that being denied means they can’t put the MRI in that area is no different than the underlying allegations of the many denied applicants in the many ‘substantial prejudice’ cases when this court has said, ‘You’re just making a competition claim, and, I’m sorry, that’s not what substantial prejudice is.’”

State Special Deputy Attorney General Derek Hunter also urged the Appeals Court to reject Chesapeake’s arguments.

“Chesapeake invites the court to disavow decades of its own precedent,” Hunter said.

“The CON law is not designed to level the playing field between healthcare providers,” Hunter added. “Its purpose is to ensure that all North Carolinians, and particularly those in rural areas, are able to access necessary, cost-effective healthcare.”

There is no deadline for Judges Donna Stroud, John Tyson, and Allegra Collins to issue a decision in the case.

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