Hospitals fight Delaware push to regulate health care cost

Why Should Delaware Care?
The proposal to institute a health care cost review board would be a major change in regulation for the state’s hospital system at a time when the cost of care is rising, effectively putting political appointees as the final decision-makers. Other states have attempted such a model, but have found uneven improvements in the cost and access to care.

Editor’s Note: The House Administration Committee voted Wednesday to advance House Bill 350.

One of the biggest legislative battles quietly brewing in the Delaware General Assembly this year is the fight over who should oversee spending by the state’s five health care systems.

Between fiscal years 2019 and 2021, spending on health care grew by nearly 14%, eclipsing $9.1 billion, according to data tracked by the Delaware Department of Health and Social Services. A spending benchmark required to be calculated on the necessary rate of health care costs – taking inflation, hiring costs, and more into account – has been exceeded two out of three years, with the outlier being 2020 amid the outset of the COVID pandemic.

House Bill 350, sponsored by Speaker of the House Valerie Longhurst and supported by Gov. John Carney, seeks to create the Diamond State Hospital Cost Review Board, which will be responsible for reviewing and approving annual budgets for the state’s major hospitals beginning in 2026.

The board would feature three appointments from the governor and one each from the leaders of the state’s House of Representatives and Senate. The appointees are expected to have a knowledge of health care or business.

Delaware’s major hospitals have uniformly opposed the bill, however, calling it a “grave threat to quality health care in the state.”

On Wednesday, the Democrats on the House Administration Committee voted along party lines 3-2 to move the bill to the full House of Representatives for consideration. The nearly two-hour-long hearing featured some reform advocates speaking in favor of the bill, but a majority of health care leaders criticizing the proposal. It ended with even more registered to testify remotely

A new regulator

Under HB 350, hospitals would be required to submit their proposed operating budget as well as detailed financial statements, treatment and procedure utilization information, a projected three-year capital budget, and contracting information, among other info, to the Diamond State Hospital Cost Review Board on an annual basis.

Beginning in 2026, the board would be responsible for reviewing and approving hospitals’ budgets, taking into consideration the state’s health care spending benchmarks, the financial health of each hospital, and other economic factors. Should a proposed budget be deemed outside of the benchmark, the sides will have to reach a compromise, modified budget. Failure to abide by the board’s regulation could result in a fine of $500,000.

As a temporary measure until the board begins operations, hospitals would be prohibited from charging more than 250% of Medicare costs to any payer for hospital services in 2025.

If approved, Delaware would not become the first state to institute such a review board, as others like Maryland and Vermont have used them for years. Even the federal government, which has managed price caps on drugs and procedures under Medicare for decades, has operated under a form of the board.

Experts debate the effectiveness of those bodies, however, and a decade after the creation of the Green Mountain Care Board in Vermont, the state still ranks behind Delaware in health care quality, according to the U.S. News & World Report.

‘A tricky thing’

Ben Chartock, an associate professor of economics at Bentley University in Massachusetts who has studied health care funding reform for a decade, explained that there no easy answers.

“This is quite a tricky thing to do. Costs have been increasing in health care since the 1960s,” he noted.

New medical interventions, technologies, procedures, and quality care models are being developed every year, which helps to inflate the cost of care.

“It’s not like the health care from 20 years ago is the same thing as health care today. It’s a better quality and so you would expect cost to rise,” Chartock said.

However, the consolidation of health care systems and the lack of competition in the market has also been academically proven to have inflated the cost of care. Lacking nearby competition leads patients to seek care at the closest provider rather than the cheapest one.

“In some sense, what matters for high prices and high cost of care is how those hospitals bargain with the insurers who are ultimate purchasers for the patients,” he said, noting that solutions have ranged from price transparency requirement on care to global price caps under Maryland’s unique Total Cost of Care model.

Chartock advised that studying the causes of the rising cost of care in Delaware could at least be a path forward here.

‘A critical step’

In announcing her bill on March 12, House Speaker Longhurst said that government intervention was need to stem the tide of the rising cost of care in Delaware that ultimately hit insurance ratepayers and patients’ bank accounts.

“Year after year, we’ve witnessed concerning spikes in health care costs, reaching levels that pose a serious threat to both our state budget and the well-being of our constituents,” she said. “Establishing this review board is a critical step to managing the rise in health care spending, ensuring we strike a balance that controls costs while guaranteeing quality health care for Delawareans.”

Senate Majority Leader Bryan Townsend, who is sponsoring the bill in the upper chamber, compared the need for health care reform to the regulation of public utilities.

“Just as utilities operating in Delaware are required to justify hikes in water, electric and cable rates, our hospital systems also should be held accountable for the fees they charge and the outcomes they produce,” he said.

Meanwhile, Gov. Carney noted that the state government was seeing health care costs rise by $200 million next fiscal year – a cost that would eventually fall on state taxpayers. He sees the cost review board as an important way to get the state government’s financial health in order before he leaves office next year.

‘A risky plan’

Arguing that budgeting decisions are best left to hospital boards that are typically made up of locals who best know their community needs, the board chairs for ChristianaCare, Bayhealth, Beebe Healthcare, TidalHealth, and Saint Francis Healthcare wrote a letter this month to legislative leaders warning that HB350 is “a risky plan to grab control of our health system’s ability to recruit and retain skilled doctors and nurses is destined to worsen our workforce challenges.”

“We know all too well that medical costs are rising but singling out the industry patients most rely on is not the answer and will fail the needs of the public. Solving the challenge of health care costs requires all the players – health insurers, pharmaceutical companies, government, providers, practitioners, labor and medical device firms – to develop an approach that puts patients and community health first,” they added.

Aside from their boards and lobbyists though, Delaware’s major hospital systems are also calling upon their employees and influential advisors to help oppose the shift.

“If passed, this proposal would have a significant negative impact on our ability to maintain existing operations and services as well as our commitment to expanding community access to critical services. The Delaware Healthcare Association (DHA) has taken a strong stance in opposition to this proposal, and we have been in active communications with the bill sponsors to share our concerns and the impact this measure would have on our current operations as well as investments and growth in Delaware – including health care services, jobs, and new construction,” ChristianaCare CEO Dr. Janice Nevin recently wrote in a message to the health system’s Council of Advisors, which includes more than 250 executives, educators, doctors, and more.

Brian Frazee, president and CEO of the DHA, which represents the interests of the state’s hospitals, said that they share the concerns about the rising cost of care, but they don’t believe that additional red tape will solve the issue.

“What we’ve seen in the hospital world over the last couple of years is that pharmaceutical costs, insurance costs, labor costs, and general inflation have driven those [cost] increases. We certainly have a role to play along with other stakeholders in terms of figuring out how we can control costs, but also how we can make sure that the health care delivery system is as strong as it can be here in Delaware,” he said, noting that the state’s nonprofit hospitals have continued to see annual budget deficits since the pandemic.

Frazee said that the DHA has been meeting with legislators in recent days and weeks to express their concerns and lobby for a more collaborative approach, but “this particular proposal is just simply a non-starter for us.”