NC NC AG Advisory Opinion (1978-08-29) 1978-08-29

If a hospital or other health provider has already started building or developing a new health service before North Carolina's new Certificate of Need law was ratified in mid-1978, but the project will not be finished by the January 1, 1979 effective date, does the provider have to go back and get a Certificate of Need from the state to keep going?

Short answer: No, the AG concluded, if the provider had already 'proceeded with development' before the Act was ratified on June 16, 1978. The Act applies to new institutional health service projects, but reading it to require a Certificate of Need for projects already underway and with substantial expense incurred would raise serious constitutional questions about retroactive impairment of vested property rights (Whaley v. Lenoir County). To avoid that constitutional problem, the AG construed the statute prospectively. The Section 4 Section 1122 exemptions cover the June 16, 1978 to January 1, 1979 window; the question whether any given provider has 'proceeded with development' under G.S. 131-171(8) is a case-by-case factual question.

Disclaimer: This is an official North Carolina Attorney General advisory opinion. AG opinions are persuasive authority but not binding precedent like a court ruling. This summary is for informational purposes only and is not legal advice. Consult a licensed North Carolina attorney for advice on your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official AG opinion. The original opinion (linked at the bottom of this page) is the authoritative source for any reliance.

Plain-English summary

The State Health Planner asked a transition-rule question about North Carolina's new Certificate of Need law. The North Carolina Health Planning and Resource Development Act of 1978 was ratified by the General Assembly on June 16, 1978, added a new Article 18 to Chapter 131, and was scheduled to take effect January 1, 1979. The Act required anyone proposing to "undertake, develop, or offer a new institutional health service" to first obtain a Certificate of Need (CON) from the Department of Human Resources.

The transition question: what about projects that were already in development on June 16, 1978? The Act's own Section 4 carved out two specific exemptions tied to federal Section 1122 (Social Security Act) approval, but those exemptions did not cover all in-progress projects. Did the providers of un-exempted in-progress projects have to stop and apply for a CON before continuing?

The 1978 AG said no, if the provider had already "proceeded with development" before the Act was ratified.

The opinion's reasoning relies on the constitutional avoidance canon. Interpreting the Act to apply to projects already substantially underway, where the provider had committed real expense and effort under the prior legal regime, "would invade personal and property rights protected under the Constitution of this State" (citing Whaley v. Lenoir County, 5 N.C. App. 319 (1969)). A statute will not be construed to raise constitutional questions if a different reasonable construction avoids them (citing State Milk Commission v. National Food Stores, Inc., 270 N.C. 323 (1967); State v. Barber, 180 N.C. 711 (1920)).

The constitutional-avoidance reading: the Act does not apply to a project whose development had substantially begun before the June 16, 1978 ratification date. The textual hook is the definition of "Certificate of Need" itself. G.S. 131-171(3) describes a CON as something that "affords the person so designated as the legal proponent of the proposed project the opportunity to proceed with the development of such project." If the proponent had already proceeded with development before ratification, the CON would be definitionally unnecessary. The 18-month CON validity period in G.S. 131-174(a) and (b) reinforces this reading: the CON is a forward-looking authorization, not a retrospective audit tool.

For the June 16, 1978 to January 1, 1979 window (between ratification and effective date), the protection mechanism is different. A proponent in that window is protected only by securing Section 1122 approval as specified in the Act's Section 4 exemptions.

The "proceeded with development" test. G.S. 131-171(8) defines "proceeding with development" as undertaking "those activities which will result in the offering of institutional health service not provided in the previous 12 month reporting period or the incurring of a financial obligation in relation to the offering of such a service." Whether a particular provider has done so is a question of fact, decided case by case.

Scope limitation. The opinion explicitly does not address providers who, after January 1, 1979, proceed with development of a new institutional health service without a CON. The effective date applies normally to those.

Currency note

This opinion was issued in 1978. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The Certificate of Need framework has been substantially restructured since 1978 and is now codified in Article 9 of Chapter 131E. Federal Section 1122 was repealed in the 1980s. Current CON law has its own transition and grandfathering provisions that supersede the 1978 framework.

Historical context: what the AG concluded

The opinion is a textbook application of constitutional avoidance to a transition rule. The General Assembly had passed a major new regulatory regime in mid-1978 with a six-month delay before the effective date. The delay window was unusual: it created a class of projects that had been initiated under the old regime but would not be complete under the new effective date. The Act's Section 4 exemptions handled one sub-class (those securing federal Section 1122 approval) but did not address the broader question of projects already substantially underway at ratification.

The AG resolved the ambiguity by reading the Act's CON requirement as a forward-looking permit, not a retroactive audit. The textual support is the definition of CON in G.S. 131-171(3): a CON authorizes development. By definition, it cannot authorize development that has already happened. The 18-month CON validity period and the performance-requirement structure in G.S. 131-174(a) and (b) reinforce that the CON is meant to govern future activity within a defined window.

The constitutional anchor (Whaley v. Lenoir County, 5 N.C. App. 319 (1969)) addresses the vested-rights doctrine: once a property owner has incurred substantial expense in reliance on the legal regime in place, retroactive application of a new restrictive regime raises serious constitutional concerns. The AG does not rule the Act unconstitutional. The AG construes the Act narrowly, so that the constitutional question does not arise.

For health providers in 1978, the practical guidance was: if you started developing your project before June 16, 1978, document what you did and what you spent before that date. The "proceeded with development" test is factual, and the documentation will be the evidence. For projects between June 16, 1978 and January 1, 1979, get Section 1122 approval to fit within the Section 4 exemption. For projects starting January 1, 1979 or later, the full CON regime applies.

Common questions

Did the AG say the CON Act is unconstitutional?

No. The AG construed the Act narrowly to avoid the constitutional problem. Under the AG's reading, the Act does not apply to projects substantially underway before ratification, so the constitutional issue does not arise.

When did the CON Act take effect?

The Act was ratified June 16, 1978, and Section 4 set the effective date as January 1, 1979. The opinion's transition analysis applies to the June 16, 1978 to January 1, 1979 gap and to projects begun before June 16, 1978.

What does "proceeded with development" mean?

G.S. 131-171(8) defines it as "undertak(ing) those activities which will result in the offering of institutional health service not provided in the previous 12 month reporting period or the incurring of a financial obligation in relation to the offering of such a service." Whether a particular provider has done so is a case-by-case factual question.

What were the Section 4 federal exemptions?

Two exemptions: (1) projects that received Section 1122 approval before January 1, 1979, where construction starts before January 1, 1980; and (2) projects with a Section 1122 application made between July 1, 1978 and January 1, 1979, that the federal authority approves and where construction starts before January 1, 1980.

Does the opinion apply to providers starting development after January 1, 1979?

No. The opinion explicitly limits itself to providers who proceeded with development before ratification (and, indirectly, those in the June 16, 1978 to January 1, 1979 gap). For development beginning January 1, 1979 or later, the full CON regime applies.

Background and statutory framework

The 1978 CON Act. Chapter 1182, 1977 Session Laws (Second Session, 1978), ratified June 16, 1978, effective January 1, 1979. Adds Article 18 to Chapter 131. G.S. 131-170 et seq. requires a Certificate of Need from the Department of Human Resources before undertaking, developing, or offering a new institutional health service.

Section 4 exemptions. Two carve-outs tied to federal Section 1122 approval of capital reimbursement: pre-January 1, 1979 approval plus pre-January 1, 1980 construction start, and July 1, 1978 to January 1, 1979 application plus subsequent approval and pre-January 1, 1980 construction start.

Definitional structure. G.S. 131-171(3) defines CON. G.S. 131-171(8) defines "proceeding with development." G.S. 131-174(a) and (b) specify the CON's validity period and performance requirements.

Federal framework. Section 1122 of the Social Security Act, 42 U.S.C.A. 1320a-1, was the pre-CON federal mechanism for capital expenditure review tied to Medicare/Medicaid reimbursement under Titles V, XVIII, and XIX.

The constitutional doctrine. Whaley v. Lenoir County, 5 N.C. App. 319 (1969), is cited for the vested-rights principle. State Milk Commission v. National Food Stores, Inc., 270 N.C. 323 (1967), and State v. Barber, 180 N.C. 711 (1920), supply the constitutional-avoidance canon: a statute is not construed to raise constitutional doubt if a different reasonable construction avoids the doubt.

Citations

Chapter 1182, 1977 Session Laws (Second Session, 1978)
Chapter 131, Article 18 (G.S. 131-170 et seq.)
G.S. 131-171(3), G.S. 131-171(8)
G.S. 131-174(a), G.S. 131-174(b)
Section 4, Chapter 1182, 1977 Session Laws (Second Session, 1978)
Section 1122 of the Social Security Act, 42 U.S.C.A. 1320a-1
Titles V, XVIII, and XIX of the Social Security Act
Whaley v. Lenoir County, 5 N.C. App. 319 (1969)
State Milk Commission v. National Food Stores, Inc., 270 N.C. 323 (1967)
State v. Barber, 180 N.C. 711 (1920)

Source

Landing page: https://ncdoj.gov/opinions/health-certificate-of-need-coverage-of-projects-commenced-before-january-1-1979/

Original opinion text

Requested By: Mr. Charles W. Houseworth, Jr., Health Planner, State Health Planning and Development Agency Department of Human Resources

Question: If work has commenced, but not completed by January 1, 1979, on a "new institutional health service" proposal and the proposal has not received approval under Section 1122 of the Social Security Act, 42 U.S.C.A. 1320a-1, is the person required to obtain a Certificate of Need pursuant to Chapter 1182, 1977 Session Laws (Second Session, 1978), (to be codified at G.S. 131-170 et seq.) before proceeding further with work on the proposal?

Conclusion: No, if prior to ratification of the Act he has proceeded with development of the new institutional health service as explained below.

The North Carolina Health Planning and Resource Development Act of 1978, ratified by the General Assembly on June 16, 1978, adds a new Article 18 to Chapter 131 of the General Statutes which requires that before a person undertakes, develops, or offers a new institutional health service he must obtain a Certificate of Need from the Department of Human Resources. Chapter 1182, 1977 Session Laws (Second Session, 1978). Section 4 of the Act provides that it will be effective January 1, 1979. In addition, Section 4 provides two examples from coverage: 1) those proposals which received approval for capital reimbursement under Section 1122 of the Social Security Act, 42 U.S.C.A., 1320a-1, prior to January 1, 1979, as long as construction commences before January 1, 1980; and 2) those proposals for which application is made between July 1, 1978 and January 1, 1979 under the Section 1122 program, if the application is approved and if construction commences before January 1, 1980. The question at hand is whether a Certificate of Need is required for a proposal which does not qualify under the two exemptions and which is not completed by January 1, 1979.

A Certificate of Need "affords the person so designated as the legal proponent of the proposed project the opportunity to proceed with the development of such project." Section 131-171(3) of Section 2, Chapter 1182, 1977 Session Laws (Second Session 1978). The Act reveals that a Certificate of Need will be granted only to those proposals which the Department of Human Resources finds to be needed and in conformity with other standards and criteria asset forth in the Act and developed by the Department. Immediately prior to ratification a new institutional health service would be submitted to the Department of Human Resources for a finding of need only if the proponent desired reimbursement for capital expenditures under Titles V, XVIII, and XIX of the Social Security Act, 42 U.S.C.A. 1320A-1. The passage of the Act by the General Assembly imposes an entirely new limitation on the opportunity to proceed with the development of the new institutional health service.

If the Act is interpreted to require a Certificate of Need when prior to the ratification of the Act the proponent had already proceeded with development of the new institutional health service and incurred substantial expense the Act would invade personal and property rights protected under the Constitution of this State. See, Whaley v. Lenoir County, 5 N.C.App. 319 (1969). On the other hand, if the Act is interpreted so that it does not apply where a proponent, prior to ratification, had already proceeded with development of the new institutional health service such rights will be protected. The basic rules of statutory construction require the latter, if reasonable, as a statute will not be construed so as to raise questions as to its constitutionality if a different construction which will avoid such question of constitutionality is reasonable. State Milk Commission v. National Food Stores, Inc. 270 N.C. 323 (1967); State v. Barber, 180 N.C. 711 (1920). The definition of Certificate of Need reasonably supports a construction of the Statute which makes it inapplicable to someone who prior to ratification has already proceeded with development of the new institutional health service. As previously noted, the Certificate of Need allows the proponent to proceed with development. If the proponent had done so prior to ratification the Certificate of Need, by definition, would be unnecessary. Such a construction is also consistent with the provision that the certificate shall be valid only for the time specified by the Department of Human Resources, not to exceed 18 months, and that within such time the proponent must fulfill the specific performance requirements set forth in the Act for incurring a financial obligation. Section 131-174 (a) and (b) of Section 2, Chapter 1182, 1977 Session Laws (Second Session, 1978).

In order to be exempt from the Act, the proponent must have proceeded with development prior to ratification. Subsequent to June 16, 1978 and prior to January 1, 1979, the proponent may be protected only if he receives approval under Section 1122 of the Social Security Act, 42 U.S.C.A. 1320a-1, in accordance with Section 4 of the Act.

A person proceeds with development when he "(undertakes) those activities which will result in the offering of institutional health service not provided in the previous 12 month reporting period or the incurring of a financial obligation in relation to the offering of such a service." Section 131-171 (8) of Section 2, Chapter 1182, 1977 Session Laws (Second Session, 1978). Whether or not a person has undertaken such activities is a question of fact to be settled on a case-by-case method.

It should be noted that this opinion does not address the application of the Act to those who, subsequent to January 1, 1979, proceed with development of a new institutional health service without a Certificate of Need.

Rufus L. Edmisten
Attorney General

Robert L. Hillman
Associate Attorney General