Why Should Delaware Care?
Hospital costs in Delaware are some of the highest in the nation, which impacts residents’ pocketbooks and the state’s, with its obligation to fund Medicaid and retiree benefits. In response, Delaware lawmakers last year created the Diamond State Hospital Cost Review Board with the authority to veto hospital budgets if they deemed them excessive. But that authority has opponents saying it damages Delaware’s chief brand as a regulator of corporate governance.
Late last year, attorneys for the state of Delaware asked a judge to toss out a lawsuit challenging a landmark new law that had created a state board with the authority to rein in spending by private hospitals.
On Friday, the Delaware judge ruled against the state on one key constitutional claim, stating that arguments brought by ChristianaCare – Delaware’s largest hospital system and the plaintiff in the case – could proceed.
Touching on Delaware’s corporate-friendly ethos, the judge said the question of whether the state board’s authority over hospital budgets unconstitutionally usurps a hospital board of directors has merit.
“In Delaware, the managerial power of boards of directors is sacrosanct,” the judge, Vice Chancellor Lori Will, said.
As part of its new authority, the state board — called the Diamond State Hospital Cost Review Board — will be able to veto hospital spending plans if they deem them to be excessive.
Delawareans face some of the highest hospital costs in the country, and the rate of growth of health care costs has continuously surpassed state goals. Lawmakers approved the creation of the new regulatory board last year in an attempt to slow the growth of those costs, which are led by state hospital systems like ChristianaCare, Bayhealth and Beebe Health Care.
Will’s opinion echoes a public statement that ChristianaCare officials made in February when they said the work of the state board would cause “further erosion of the integrity and viability of the (Delaware) corporate franchise.”
The statement then was a clear reference to a budding national controversy at the time over Delaware’s role as the pre-eminent incorporator of businesses.
In her opinion, Will also said that one other ChristianaCare argument had merit and could proceed — specifically that regulations under the new hospital cost-cutting law may be unlawfully treating different kinds of hospitals differently.
As a result of Will’s opinion, ChristianaCare’s lawsuit seeking to strip the state board of its power will continue. But it will do so even as state lawmakers may already be negotiating changes to the new law.
Earlier this year, Delaware Healthcare Association President Brian Frazee said that such negotiations were ongoing between lawmakers and his trade group, which represents ChristianaCare.
‘Disappointing but not surprising’
Responses to the Friday opinion showed how neither side scored a complete victory in the ruling.
Frazee said in a statement that the judge showed that the law creating the state board “raises significant constitutional questions.”
But, Senate Majority Leader Bryan Townsend (D-Newark), a leading supporter of the board, said that the judge “dismissed all but one of ChristianaCare’s claims,” noting that transparency mandates within the law will not be challenged.
In his statement, Townsend also took shots at Frazee’s group and at ChristianaCare’s operations.
“The Delaware Healthcare Association took a neutral position on the bill. It was disappointing but not surprising that ChristianaCare then filed a lawsuit in the Court of Chancery. All along, they have resisted any kind of transparency and accountability, even as they purchase multiple out-of-state health systems,” he said, referring to ChristianaCare’s announcement last week that it won an auction for multiple Crozer Health sites in Pennsylvania for $50 million.
In her opinion, Will dismissed several of ChristianaCare’s claims because the state board is not yet fully operating.
“As a result, most of the plaintiffs’ claims are unripe and dismissed without prejudice,” Will said, indicating the claims could be brought again if the regulations still being developed unfairly impact ChristianCare.
Delaware’s biggest victory from Will’s opinion came when she dismissed ChristianaCare’s claim that price caps imposed by the state on patient bills were unconstitutional.
Her ruling followed oral arguments on the motion to dismiss earlier this year when ChristianaCare lawyers called the hospital review board “draconian.”
The state’s lawyers argued then that the lawsuit had no place in Delaware’s business court.