South Carolina Certificate of Need Law Remains in Force

April 15, 2014

Yesterday the Supreme Court of the State of South Carolina decided that the South Carolina Department of Health and Environmental Control (DHEC) must continue to implement and enforce the State’s certificate of need (CON) program despite the governor’s veto of all funding for the program for this fiscal year (Amisub of South Carolina, Inc. et al. v. South Carolina Department of Health and Environmental Control, Op. No. 27382 (S.C. Sup. Ct. filed April 14, 2014)).

Last year, Governor Nikki Haley issued a line-item veto that eliminated funding for the CON program within DHEC, commenting specifically that “[t]he [CON] program is an intensely political one through which bureaucratic policymakers deny healthcare providers from offering treatment. We should allow the market to work rather than politics.” In response, DHEC Director Catherine Templeton on June 28, 2013 issued a letter to healthcare providers notifying them that DHEC would not operate the CON program beginning July 1, 2013. This unprecedented action caused widespread confusion in the healthcare industry and prompted ten (10) healthcare providers, along with the South Carolina Health Care Association and the South Carolina Hospital Association, to petition the Supreme Court for a ruling in the matter.

The Governor of South Carolina has a constitutional right to a line-item veto over specific items contained in an appropriations act. However, DHEC also has a statutory obligation under the CON Act to administer the CON program (S.C. Code Ann. §§ 44-7-110 to -394 (2002 & Supp. 2013)). The tension between these two principles was the focus of the Court’s opinion. The Court noted that the Governor clearly had the intent to abolish the entire CON program by operation of her line-item veto. In contrast, the Court concluded that the General Assembly did not intend to eliminate the CON program entirely simply by sustaining the Governor’s veto. Rather the Court viewed this action by the legislature as merely denying funding to a program that was otherwise properly authorized by a permanent law.

The Court held that DHEC has a responsibility to administer the CON program and to enforce the CON Act, and further that DHEC’s responsibility is not discretionary. The Court provided two potential solutions for DHEC:

  1. First, DHEC specifically has the authority under the CON Act to charge and collect fees to cover the cost of operating the CON program. DHEC objected to this as a workable solution for continuing the CON program because the CON Act specifically requires the first $750,000 that DHEC collects in administrative fees every year to be remitted to the general fund of the State. The Court did not find this argument persuasive and maintained that DHEC still had the power to collect fees at any level of its choosing.
  2. Second, the Court noted that DHEC had the power to shift funds from other programs within the agency to fund the CON program.

Ultimately (as many expected), despite the fact that the CON program was not allocated specific funding in last year’s appropriations bill, the CON Act is still the law of the land and remains binding on healthcare providers. In the dissenting opinion, Justice Pleicones agreed with the ultimate holding of the Court, but stated the line-item veto should have resulted in the CON program and its requirements remaining the law of the land, but all applications in process should have been suspended, no new applications should have been accepted, and all other matters should have remained “in limbo” until the CON program was again funded. Justice Pleicones noted that the Court should not have the power to order DHEC to fund the CON program despite the House’s failure to override the Governor’s line-item veto, nor does he think that DHEC should have the power to negate the Governor’s line-item veto by simply redistributing other funds to the CON program. Finally, he opined that allowing an agency to revive a dormant program for which no funding was allocated simply by raising fees would violate the authority of the legislature and the Governor.