High court rules ‘certificates of need’ unconstitutional, again: Ivo Vegter

The North Gauteng High Court has reaffirmed that the Health Act’s “Certificates of Need” (CONs) are unconstitutional, drawing a definitive line against central planning in private healthcare. This ruling, echoing a 2022 decision, invalidates the requirement for government-issued permits to establish or modify health facilities, citing violations of Constitutional rights and inefficiency. The judgment challenges government overreach and sets a precedent for limiting licensing practices across industries.

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By Ivo Vegter*

High Court ruling reconfirms that the Health Act’s “Certificates of Need” are unconstitutional and draws a line in the sand.

Stop me if you’ve heard this one before: the North Gauteng High Court has declared that Certificates of Need, as contemplated in sections 36 to 40 of the National Health Act, are unconstitutional.

You’ll have heard it before, because it happened before. These clauses were struck down in a 2022 ruling, but that judgment was rescinded in 2023 because the Health Minister didn’t to turn up to court, thanks to a snafu in legally serving papers by the sheriff of the court.

Section 36 of the National Health Act says that nobody may establish, construct, modify or acquire a health establishment or health agency; increase the number of beds in, or acquire prescribed health technology at, a health establishment or health agency; provide prescribed health services; or continue to operate a health establishment or health agency…without being in possession of a certificate of need.

Essentially, it tells private doctors and healthcare facilities that they may operate only if, and where, government decides they are needed. The requirement had not yet entered into force.

Central-planning madness

The decision on whether there is sufficient need for a given health service in a given location was to be made by the director-general of the Department of Health.

For each certificate of need, the DG had to consider a multitude of factors. These include “the need to ensure consistency of health services development in terms of national, provincial and municipal planning; the need to promote an equitable distribution and rationalisation of health services and health care resources, and the need to correct inequities based on racial, gender, economic and geographical factors; the need to promote an appropriate mix of public and private health services; the demographics and epidemiological characteristics of the population to be served; the potential advantages and disadvantages for existing public and private health services and for any affected communities; the need to protect or advance persons or categories of persons designated in terms of the Employment Equity Act, 1998 (Act No. 55 of 1998), within the emerging small, medium and micro-enterprise sector; the potential benefits of research and development with respect to the improvement of health service delivery; the need to ensure that ownership of facilities does not create perverse incentives for health service providers and health workers; if applicable, the quality of health services rendered by the applicant in the past; the probability of the financial sustainability of the health establishment or health agency; the need to ensure the availability and appropriate utilisation of human resources and health technology; whether the private health establishment is for profit or not…”

You get the idea. It’s central-planning madness.

“Invalid in their entirety”

In a comprehensively reasoned judgment, a different judge reached the same conclusion as did the judge in the 2022 matter: requiring a Certificate of Need for the provision of private healthcare services violates several Constitutional rights, is irrational, is procedurally unfair, and that, consequently, sections 36 (and 37 to 40 which depend upon it) are invalid in their entirety and are severed from the Act.

The respondents – the Minister of Health, the President of the Republic of South Africa, and the Director-General of the National Department of Health – were ordered to pay the costs of the applicants, who include the Solidarity Trade Union, the Alliance of South African Independent Practitioner Associations, the South African Private Practitioner Forum, the Hospital Association of South Africa, and several individuals.

It is ridiculous that this case took not one, but two court cases to resolve. It is heartening that the addition of a response by the government did not materially change the opinion of the court.

The judge held that requiring a permission slip from the government to provide private healthcare services in a particular location, or even just to expand and improve existing private facilities, is a violation of the Constitutional rights to dignity, to freedom of movement and residence, to freely choose a trade, occupation or profession, not to be arbitrarily deprived of property, and also infringes the right of access to healthcare for the general public.

Cornerstone demolished

The Democratic Alliance’s spokesperson on health, Michele Clarke, said in a statement: “The ruling has important implications for the implementation of the National Health Insurance (NHI) Act as the Act heavily relies on CONs for the placement of service providers, like doctors or nurses, in specific communities.”

This is true, and Solidarity rightly presented this judgment as having demolished a cornerstone of the NHI, which bodes well for the broader legal campaign to have the NHI Act declared invalid.

“In essence, these sections would have empowered the government to capture medical practices almost entirely and to manage them at will – rather than them being run at the discretion of the doctors. We cannot simply hope that the government would simply always apply its wide discretions responsibly. A government should not have such powers at all,” explained Dirk Hermann, the CEO of Solidarity.

Price mechanism versus central planning

When the previous judgment was rescinded last year, I explained why the government is in principle not in a position to determine “need”. The information needed to evaluate the multitude of factors the law would have required the Health DG to take into account is widely dispersed among private individuals acting according to their subjective value judgements.

In particular, “the probability of the financial sustainability of the health establishment or health agency” cannot reliably be predicted by an outside agency.

Such information can be aggregated by markets through the price mechanism, but it is simply not available to would-be central planners. For this reason, government planning will always be less efficient than the spontaneous market-based organisation of productive resources.

Wider precedent

This judgement sets a wider precedent, however. It strictly limits the extent to which the government can intervene to “plan” private sector production. It clearly declares that private property and private resources are not available to the government to harness in the pursuit of its own planning and objectives.

That will – or it should, at least – ripple through a multitude of industries where the freedom to trade is limited by the requirement to obtain a licence from the government.

Not all licence conditions are irrational, or violate Constitutional rights, but many do. All manner of licence conditions could be challenged on the basis of this precedent, using very similar arguments to those the applicants made in this case.

The practice of limiting the number of licences available for certain kinds of industry or commerce could also be challenged on the same basis.

This judgment should be welcomed as having drawn a line in the sand that tells the socialist planners in government: this far, and no further.

That line should be vigorously defended, if the private sector is to reinvigorate the economy and return the country to robust economic growth.