Wake Forest Law Review
14Nov

Don’t fall for the CON: A Challenge to North Carolina’s Certificate of Needs

Categories: Current Issues Blog
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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In 1986, Congress repealed the federal law giving incentives to CON states, but a substantial number of states continued to maintain modified versions of CON programs.[4] Today, North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versions of CON programs.[5] Notably, no state in the Fourth Circuit nor any neighboring state of North Carolina has repealed or severely cut CON programs since the repeal of the federal law.[6] However, in 2023, North Carolina passed a bill modifying the CON program to exclude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.

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31Oct

Fourth Circuit Upholds the Importance of the Family and Medical Leave Act (FMLA) by Affirming Dismissal of Fraudulent Claims

Categories: 4th Cir. Blog Civil Cases
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By Kelsey Hyde

On October 31, 2016, in the civil case of Masoud Sharif v. United Airlines, Inc., the Fourth Circuit affirmed the decision of the District Court for the Eastern District of Virginia dismissing plaintiff’s claims of unlawful retaliation by his employer. Because plaintiff failed to sufficiently rebut the defendant employer’s reasoning and factual support for their actions against him, the Fourth Circuit found the District Court had correctly granted defendant’s motion for summary judgment and dismissed plaintiff’s claims.

Sharif’s Claims and Subsequent Proceedings

On March 14, 2014, Masoud Sharif and his wife, both employees of United Airlines, Inc. at Dulles Airport in Washington, D.C., embarked on a planned vacation to South Africa. Their trip was scheduled to last until April 4, as a result of their successful bidding and receipt of approximately 20 days off, but, in the midst of those 20 days, Sharif was still assigned to work March 30 to 31 at customer service back in Washington, D.C.  Through the United Airlines “shift-swap” website, he was able to cover one day, but was still scheduled to work March 30.

However, back in 2009, Sharif had been diagnosed with an anxiety disorder, resulting in his qualifying for intermittent leave under the Family and Medical Leave Act (“FMLA”), 29 U.S.C. § 2601, et. seq. (2012), in order to handle his panic attacks. On the morning of March 30, the day of the shift he had unsuccessfully tried to cover, Sharif called from South Africa to take medical leave under the FMLA. Sharif had not made any prior reservations for a return flight to the U.S., but did fly to Italy with his wife the next day, and did eventually depart for Washington on April 3, arriving back just in time for his wife’s shift.

The circumstances of Sharif’s FMLA leave, coincidentally falling on the only day he was scheduled to work in the midst of planned time-off, did not go unnoticed. Instead, this incident, along with another prior instance in September 2013 where Sharif took FMLA leave under similar circumstances, inspired an investigation. Sharif was interviewed by a member of Human Resources and gave a series of inconsistent answers regarding his “unsuccessful efforts” to return home in time for his shift. As a result, senior management was notified that Sharif was untruthful in his answers, and changed his story many times, which, ultimately, led to the conclusion that he never intended to make it back in time to work his shift. Other evidence in employment and travel records also corroborated this conclusion. After being suspended without pay, Sharif was notified that United Airlines planned to terminate him for fraudulently taking FMLA leave and for making dishonest representations during the subsequent investigation. Sharif retired under threat of termination in June 2014.

Challenging Employer Action as Retaliation in Violation of FMLA

            The FMLA includes both a prescriptive element, guaranteeing substantive rights to employees who qualify, and a proscriptive limitation on employers, which makes it unlawful for employers to discharge employees for opposing employment practices that are unlawful under the FMLA. 29 U.S.C. §§ 2615(a)(1), 2615(a)(2). The proscriptive limitation effectively provides plaintiff employees with an avenue to legally dispute retaliation by their employers.

The Fourth Circuit reviewed relevant Supreme Court and Circuit Court decisions to navigate the standards of law and burdens of proof applicable in this case. To succeed on retaliation claims, a plaintiff must show that (1) they engaged in protected activity, (2) the employer took adverse action against them, and (3) this adverse action was casually connected to the protected activity. Yashenko v. Harrah’s NC Casino Co., LLC, 446 F.3d 541, 551 (4th Cir. 2006) (citing Cline v. Wal-Mart, 144 F.3d 294, 301 (4th Cir. 1998)). Thus, employer intent is especially relevant to such claims, and plaintiff can establish such intent by either direct evidence, or under the “burden-shifting framework” introduced by the Supreme Court in McDonnell Douglas Corp. v. Green. 411 U.S. 792, 800-06 (1973).

This burden-shifting framework entails: (a) plaintiff establishing a prima facie case of retaliation; (b) if successful, the burden shifts to the employer to provide some legitimate, non-discriminatory reason for the adverse action to rebut plaintiff’s prima facie case; (c) if successful, the burden shifts back to plaintiff to persuade fact-finders that employer’s explanation in (b) was a “pretext” for discrimination. Id. at 802-04. This third element requires plaintiff to produce sufficient evidence such that a reasonable fact-finder could conclude the employer’s reasons were impermissible.

In addition to these standards specific to the FMLA and retaliation claims, the summary judgment standard further requires that a reasonable jury could find for the non-moving party, in this case Sharif. See Fed. R. Civ. P. 56(a) (2016).

Legal Contentions on Appeal

Sharif filed suit against United Airlines for retaliation in violation of the proscriptive provision of FMLA, arguing they threatened to terminate him for taking FMLA leave and that their proffered reasons were a mere pretext for this discriminatory act. The District Court found that Sharif failed to create an issue of triable fact regarding United Airline’s explanation for his threatened discharge as allegedly pretextual, and awarded summary judgment to the defendant employer, dismissing Sharif’s claims. On appeal, Sharif contends that he has produced sufficient evidence of pretext to survive summary judgment.

Plaintiff’s Failed to Create a Triable Issue of Fact 

            Ultimately, the Fourth Circuit was unpersuaded by plaintiff’s argument that United Airlines’ actions were a pretext for impermissible discriminatory conduct under the FMLA. The Court considered the evidence as a whole, in a light most favorable to the plaintiff, yet could not find any cause for dispute over the logic and reasoning of United Airline’s conclusion. On the contrary, they found all evidence supported the nondiscriminatory motivations for their action against Sharif, based on the facts available from Sharif’s employment records, his noted FMLA leave, and the results of the subsequent investigation. Additionally, the Court found that Sharif’s inconsistent narrative throughout the investigation, as well as his failure to provide any documentation or verification of his own version of the events, did not effectively dispute the evidence proffered by United Airlines, or offer any alternative, such that a fact-finder could reasonably rule in favor of him. Thus, he failed to meet his burden to provide sufficient evidence and create a genuine dispute of material fact regarding his employer’s motives as pretext.

Affirming Dismissal and Defending the Purpose of the FMLA

            Based on their analysis of the case under applicable Supreme Court and Fourth Circuit precedent, the Fourth Circuit affirmed the dismissal of plaintiff’s claims. In doing so, the court also highlighted the fundamental importance of the FMLA, allowing employees to take leave for legitimate family needs and medical reasons without threatening job security, and emphasized that fraudulent invocations and dishonest representations for claims under the FMLA greatly compromise this Congressional goal. As such, their decision reflected the importance in providing employers the ability to sanction employees who threaten to abuse this statute and undermine its purpose.

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9Mar

Writ of Mandamus to Compel HHS to Adjudicate Administrative Appeal Denied

Categories: 4th Cir. Blog Civil Cases
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By Mikhail Petrov

On March 7, 2016, in the published civil case of Cumberland County Hospital v. Burwell, the Fourth Circuit reviewed the decision of the district court to deny Cumberland County Hospital System’s (“the Hospital”) request for a writ of mandamus to compel the Secretary of the Department of Health and Human Service (“HHS”) to adjudicate immediately the Hospital’s administrative appeals on claims for Medicare reimbursement. The Forth Circuit agreed with the district court, finding that (1) the Hospital  did not have a clear and indisputable right to a hearing within a ninety-day time frame, and (2) that the political branches are best suited to address the backlog in the administrative process.

Facts

Both the Hospital and the Secretary agree that, as of February 2014, HHS had 480,000 appeals awaiting assignment to an Administrative Law Judge (“ALJ”), and the Secretary conceded in her brief that the number had already climbed to more than 800,000 appeals, creating a ten-year backlog. While acknowledging the unacceptability of the backlog, the Secretary attributes it to an increased number of appeals within the Medicare system and inadequate funding by Congress to hire additional personnel.

The Hospital operates a number of facilities in eastern North Carolina, delivering medical services to beneficiaries of Medicare. In 2012 and 2013, the Secretary denied payment to the Hospital on over 900 claims for reimbursement for Medicare services that she had initially authorized. By September 2014, the Hospital had over 750 appeals on these claims that had been pending for more than ninety days before the Office of Medicare Hearings and Appeals (“OMHA”) within HHS. Those appeals related to claims for some $12.3 million in reimbursement. Because reimbursement of such a large sum is essential to the Hospital’s operations, the Hospital commenced this action for a writ of mandamus.

Rule of the Case

The Hospital asked the district court for a writ of mandamus to require the Secretary to docket, assign to an ALJ, and decide an appeal within ninety days, as required by the Medicare Act. See 42 U.S.C. § 1395ff(d)(1)(A). A writ of mandamus is a “drastic” remedy that must be reserved for “extraordinary situations” involving the performance of official acts or duties. Kerr v. U.S. Dist. Court for the N. Dist. of Cal., 426 U.S. 394, 402 (1976). Accordingly, to show that it is entitled to mandamus relief, a plaintiff must show, among other things, that it has a “clear and indisputable right to the relief sought” and that the responding party has a “clear duty to do the specific act requested.” United States ex rel. Rahman v. Oncology Assocs., P.C., 198 F.3d 502, 511 (4th Cir. 1999).

Reasoning of the Fourth Circuit

As bleak as the circumstances appeared to be, the Fourth Circuit was unpersuaded that Article III treatment of the ailing Article II issue in the manner the Hospital urged was the answer or, indeed, even possible or desirable.

The Hospital asserts that the Secretary’s delay violates the congressional mandate that its appeals be heard and decided by an ALJ within ninety days as per 42 U.S.C. § 1395ff(d)(1)(A). The Fourth Circuit agreed with the district court and dismissed the Hospital’s complaint, relying on two independent grounds. It held (1) that the Hospital does not have a clear and indisputable right to an ALJ hearing within a 90-day time frame, as required for issuance of a mandamus order, and (2) that the political branches, rather than the courts, are best suited to address the backlog in the administrative process.

First, the Hospital contends that the Medicare Act gives it a clear and indisputable right to have its appeals decided within ninety days and that it imposes on the Secretary a clear duty to accomplish that. In support of this contention, the Hospital emphasizes the mandatory language of the Act, which provides that an ALJ “shall conduct and conclude a hearing . . . and render a decision on such hearing by not later than the end of the 90-day period beginning on the date a request for hearing has been timely filed.” 42 U.S.C. § 1395ff(d)(1)(A). The Secretary, by contrast, maintains that the Medicare statute does not confer on the Hospital a right to a hearing within ninety days that is enforceable through mandamus, emphasizing that the statute provides that the consequence of failing to adjudicate an appeal within ninety days is that the provider (the Hospital) may escalate that appeal to the Departmental Appeals Board.

The Fourth Circuit agreed with the Secretary in that, instead of creating a right to go to court to enforce the ninety day deadline, Congress specifically gave the healthcare provider a choice of either waiting for the ALJ hearing beyond the ninety day deadline or continuing within the administrative process by escalation to the next level of review at the Departmental Appeals Board. The Hospital’s argument focuses on only the provision creating the ninety day time frame and fails to account for its context in the comprehensive administrative process. Thus, while the Act gives the Hospital the clear and indisputable right to this administrative process, it does not give it a clear and indisputable right to adjudication of its appeals before an ALJ within ninety days.

Second, the Fourth Circuit agreed with the district court’s conclusion that to grant mandamus relief would inappropriately “inter-meddle” with the agency’s problem-solving efforts and would fail to recognize HHS’s comparative institutional advantage in crafting a solution to the delays in the adjudication of appeals.

The Fourth Circuit concluded that if it were to interfere in the administrative process, it would be undermining important separation-of-powers principles. In the Medicare Act, Congress required healthcare providers to engage in an Executive Branch administrative process in making claims for Medicare reimbursement, thus precluding court suits in the first instance that would bypass the process. But, in doing so, it did not deny healthcare providers judicial review; indeed, it guaranteed such review, but only after the Secretary is given the opportunity to grant or deny the claims in accordance with the specified process. A writ of mandamus would have courts interrupt the specified administrative process and cross the lines of authority created by statute. Additionally, even if the backlog was fully attributable to the Secretary’s mismanagement, a court must “respect the autonomy and comparative institutional advantage of the executive branch” and must be “slow to assume command over an agency’s choice of priorities.” In re Barr Labs., Inc., 930 F.2d 72, 74 (D.C. Cir. 1991). Moreover, it is unlikely that any judicial intervention into HHS’s administrative process, as urged by the Hospital, would improve anything. Thus, the political branches are best-suited to alleviate OMHA’s crippling delays.

Holding

The Fourth Circuit agreed that the delay in the administrative process for Medicare reimbursement is incontrovertibly grotesque. Still, the Fourth Circuit held that the Medicare Act does not guarantee a healthcare provider a hearing before an ALJ within ninety days, and affirmed the decision of the district court to dismiss the case.

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20Oct

Health Care Fraud Conspiracy Conviction Affirmed

Categories: 4th Cir. Blog
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By Dan Menken

Today in United States v. Garnes, the Fourth Circuit affirmed the conviction of Charlotte Elizabeth Garnes for conspiracy to commit health care fraud, obstruction of an official proceeding, and ten counts of making a false statement relating to a health care benefit program.

Defendant Raises Three Claims Challenging the Conviction and Sentence

First, Defendant claims that the district court abused its discretion by permitting the government to cross-examine her regarding an extramarital affair with her former boss.

Second, Defendant claims that the district court erred by denying her motion for a judgment of acquittal because the evidence presented was insufficient to establish that her convictions for conspiracy to commit health care fraud and for making false statements relating to a health care benefit program were “knowing and willful.”

Finally, Defendant claims that the district court improperly held her responsible for losses caused by her co-conspirator when calculating her sentencing guidelines range.

 Defendant Involved in a Conspiracy to Commit Health Care Fraud

Defendant, along with two unlicensed counselors, entered into an agreement to defraud the North Carolina Medicaid agency. Defendant submitted numerous reimbursement claims in which she falsely represented that she had provided therapeutic services. Many of the claims were facially invalid because claimed therapy sessions exceeded 24 hours in a single day. Additionally, Defendant submitted claims for services rendered in North Carolina when she was in a different state, and she claimed services were provided to patients who testified that they never received services from Defendant.

During cross-examination, the government sought to show that Defendant had been fired from her previous employment for failure to maintain proper records. Defendant responded to this line of questioning by stating that the owner’s significant other had fraudulently used Defendant’s Medicaid number. In response, the government sought to impeach Defendant’s alternative explanation by questioning Defendant regarding her extramarital affair with the owner.

 Claim One: Evidence Impeaching Witness Testimony Allowed on Cross-Examination

Reviewing for an abuse of discretion, the Fourth Circuit held that the district court correctly overruled the objection of Defendant’s counsel because Rule 404(b) does not control evidence offered for impeachment on cross-examination. The evidence in question was probative of Defendant’s character for truthfulness.

 Claim Two: Knowledge and Intent May Be Inferred From Circumstantial Evidence

Reviewing de novo, the Court noted that in order to convict Defendant of conspiracy to commit health care fraud, the government has to show that Defendant “knowingly and willfully executed” a fraudulent health care scheme. The Court further noted that the jury may infer knowledge and intent from circumstantial evidence in conspiracy cases. In this case, there was sufficient evidence regarding Defendant’s reimbursement claims to establish that Defendant had “knowingly and willingly” agreed to participate in a fraudulent health care scheme with her co-conspirators.

Furthermore, in order to convict Defendant of making a false statement relating to a health care benefit program, the government must show that Defendant knowingly and willfully made materially false or fraudulent statements in connection with the delivery of or payment for health care benefits, items, or services. Similarly, on this charge, the Fourth Circuit ruled that there was sufficient evidence from which a jury could find that the false statements made by Defendant were made knowingly and willfully.

Claim Three: Conspirator Responsible for Foreseeable Acts of Co-Conspirators

The Fourth Circuit held that the district court was entitled to include the amount of losses caused by co-conspirators in calculating the sentencing guidelines range. Defendant’s relevant conduct includes all reasonably foreseeable acts in furtherance of the jointly undertaken criminal activity.

 Conviction and Sentence Affirmed

Holding that there was no reversible error committed by the district court regarding the three claims of the Defendant, the Fourth Circuit affirmed Defendant’s conviction and sentence.

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