Why Should Delaware Care?
For more than a year, Delaware’s largest hospital has sought in court to upend a law regulating hospital spending. A breakthrough in the fall led to a proposed legal settlement compelling Delaware lawmakers to amend that law.
Delaware lawmakers introduced a bill last week that would defang the state’s hospital oversight board following a settlement agreement last fall between Gov. Matt Meyer and the state’s largest health system, ChristianaCare.
ChristianaCare sued the state in 2024 over its passage of House Bill 350, which created the Diamond State Hospital Cost Review Board in response to ballooning hospital spending.
In October, the state and ChristianaCare agreed to pause the lawsuit on the condition that lawmakers introduce and pass a bill that removes a key oversight mechanism of the cost review board that allowed it to modify and veto hospital budgets it deemed excessive.
Now, it seems the state is taking the first step toward resolving the legal dispute. Democratic leaders in Delaware’s legislature introduced Senate Bill 213 on Dec. 30, which strips the board of that main enforcement lever.
Senate Majority Leader Bryan Townsend (D-Newark), the prime sponsor of the updated bill, said while SB 213 may remove some of the board’s enforcement levers, transparency is still at its core.
“Let’s see what kind of better affordability and accountability we can forge with this new model, and if it turns out we need to do better, then we will come back and have that conversation,” he said.
Townsend questioned lawmakers’ ability to pass the bill before the end of January, as required in the settlement between the state and ChristianaCare, but said he is hopeful it will get through.
While he said only time will tell how effective the updated bill will be, Townsend said it represents a step in a new direction for hospital pricing and accountability.
“This still represents a very important departure from the status quo, which is essentially Delaware hospitals being able to enjoy monopolistic pricing in so many ways,” he said.
Gov. Matt Meyer’s office declined to comment on the new legislation, but Townsend told Spotlight Delaware that the governor’s office along with ChristianaCare drafted the bill.
Townsend said he questioned some initial language that could have inadvertently removed some of the hospital’s financial reporting requirements for group salary information.
He also said the initial draft would have removed the board’s access to contracts between insurers and the hospitals. Ultimately, if the bill passes as it is now, the cost review board would still have access to both sets of information, Townsend said. But that information may be confidential to internal board reviews and discussions.
Meredith Stewart Tweedie, the vice president of government affairs at ChristianaCare, said the health care system supports the new legislation and that it will “put Delaware on a path to a more collaborative framework in which hospital systems and the state are working together to address healthcare affordability.”
Brian Frazee, president of the Delaware Healthcare Association, which represents the state’s hospitals’ interests, said his organization supports the new bill, and he appreciates leaders in the legislature and governor’s office that helped make it happen.
Frazee, who also is a non-voting member on the cost review board, has been a staunch opponent of HB 350 and some of the board’s enforcement abilities, like budget vetoes and modifications.
But the updated bill came about after a “very deliberate” process, he said. He added that the new bill would require “an unprecedented level of transparency” into hospital finances, which is something he said his organization supports.
What’s in the bill?
Before SB 213, the hospital cost review board would have followed a four-step process.
Hospitals would submit detailed financial documents to the board, which then would review them. Board members would decide whether to put a hospital on a “performance improvement plan,” if it deemed a hospital’s spending was too large. If a hospital failed to correct its overspending, the board could then modify or veto its budget.
But if SB 213 passes, the board will no longer have the power to modify or veto hospital budgets found out of compliance. ChristianaCare had challenged the constitutionality of those powers in court and a judge was set to further examine that question, should the lawsuit continue.
The new bill also makes technical adjustments to some of the language in the bill, now calling the performance improvement plans a “benchmark compliance plan.”
At the center of those plans are whether hospitals keep their spending below a state projection for how much they believe health care will cost Delawareans.
Should a hospital’s spending exceed the state’s projected benchmark, the cost review board would now require it to send in a compliance plan outlining how it intends to bring it down.
The law also introduces “meaningful cost containment arrangement” plans, which are described as “contracts between hospitals and payers” meant to hold the hospitals responsible for controlling health care spending in a specific area.
Hospitals can enter these agreements and be exempt from the benchmark plans for one year, the law said. But it does not exempt them from the financial reporting requirements outlined in the law like sharing budget information and labor costs.
How did we get here?
In 2024, the Delaware legislature passed House Bill 350, which established the Diamond State Hospital Cost Review Board. The law would later be signed by former Gov. John Carney.
The board was tasked with reducing hospital spending in Delaware, and given the power to veto hospital budgets it deemed excessive.
Prior to the law’s passing, the state’s hospital systems blitzed the statehouse, attempting to lobby lawmakers against the bill. Ultimately, that effort failed, and HB 350 was signed into law.
Shortly after, ChristianaCare sued the state. In its lawsuit, the hospital called the review board “draconian,” saying its ability to reject hospital budgets violated the state’s corporate charter.
State lawyers denied those claims, saying the regulations have nothing to do with Delaware’s corporate law. In previous court filings, they further said ChristianaCare’s arguments amount to an “army of strawmen” designed to halt the regulations.
Following an attempt by the state to dismiss the lawsuit, a judge in Delaware’s Court of Chancery allowed the lawsuit to continue.
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,” said the judge, Vice Chancellor Lori Will.
On his way out of office, Carney stacked the board with five of its seven appointed board members, leaving Meyer only two appointments. Once inaugurated, Meyer tapped two longtime ChristianaCare executives to serve on the board.
One of those Carney-appointed members, the former Secretary of Finance and chair of the board, Rick Geisenberger, stepped down as chair after a spat with Meyer.
In a letter sent to Meyer on June 7, Geisenberger recounted how he had declined the governor’s request to cancel meetings of the board, saying instead that the public body was “duly authorized” by the legislature and had a responsibility to perform its business “impartially and free from undue influence.”
“You have stated to me that holding any further meetings of the Board at this time would be a waste of State resources in light of recent developments and uncertainties,” Geisenberger said in a reference to the ongoing lawsuit.
Soon after, the state and ChristianaCare agreed to pause proceedings on the lawsuit until Sept. 30 in “the interests of the parties and the public.” In October, the state and the hospital announced the proposed settlement agreement.
The review board also halted its meetings until new regulations could be passed in the statehouse.
According to the agreement, the board would still operate, and current board members would remain seated.
“The core of HB 350 remains: Hospitals must present detailed budget information annually to the Board, and the Board determines compliance with the State’s healthcare spending benchmark,” the agreement said.