Why Should Delaware Care?
Delaware ranks as one of the top states in the nation for health care costs. For years, lawmakers have tried to bring down prices, often meeting fierce resistance from hospitals. A new bill introduced this week, if passed, would impose new caps on how expensive care can be in the state.
Weeks after Delaware ended a bruising fight with the state’s biggest hospital systems, a new bill introduced Thursday threatens to bring back the battle over whether the state should regulate how hospitals set their prices.
Senate Bill 1, filed ahead of lawmakers’ return this week for the remainder of this year’s legislative session, quickly drew the ire of Delaware’s powerful and litigious hospital apparatus.
Introduced by Senate Majority Leader Bryan Townsend (D-Newark/Glasgow), the bill is, on the surface, an attempt to bolster primary care in Delaware and better compensate providers proactively working to improve Delawareans’ health outcomes.
But under the bill’s hood, it is a referendum on hospital pricing in a state that has some of the highest costs in the country. If passed as is, SB 1 could deal a major blow to hospitals’ bottom lines.
Within the bill are changes that would regulate the rate at which insurers carrying plans for state employees and some commercial plans regulated by the Department of Insurance can reimburse hospitals for covered services.
Health care providers generally earn the bulk of their revenues by negotiating with insurers who represent large groups of patients. The negotiations determine how much money the insurer will pay for the health care services, and in turn what costs will later be passed onto patients.
Delaware rates are currently regulated with some growth caps limiting how high they can increase year over year, but SB 1 represents a step toward stricter price-setting measures.
By setting a reimbursement ceiling, the state could rein in insurance payments to large-scale hospital systems while also providing more negotiating power to smaller providers, like private medical practices, to seek higher rates than they may have otherwise been able to secure in the past.
Brian Frazee, CEO of the Delaware Healthcare Association, a trade group that represents the state’s hospitals, said his organization has “major concerns” with Senate Bill 1. He homed in on the rate-setting, saying it would cut hospital funding and “severely” limit resources.
“Put simply, it threatens health care quality and access in our state,” Frazee said. “We have been doing the real work in good faith to improve access and develop value-based solutions that lower costs without sacrificing quality and access.”
Townsend said he hopes to work with the hospitals collaboratively to address health care in the state, but he also said the current system is unsustainable.
Through Senate Bill 1, he hopes further investments in primary care would help sustain a health care business model that treats people effectively before they become sick and need complex and expensive care.
“They have become addicted to a framework that involves high costs after people are already sick,” Townsend said. “That is not sustainable. It is not moral. We have to change it.”
A spokesperson for Highmark Blue Cross Blue Shield, the largest commercial health insurer in Delaware, said it is collaborating with stakeholders on the bill, and hopes it will lead to an “impactful and sustainable solution” for residents.
The insurer said it is focused on ensuring spending measures included in the bill translate to improved health outcomes for Delawareans.
“We appreciate the intention behind Senate Bill 1 and share its goal of strengthening primary care to improve health throughout Delaware,” the spokesperson said.
What’s in the bill?
One provision in the bill would introduce reference-based pricing to medical services covered under both insurance for state employees and some commercial plans regulated by the Department of Insurance. Essentially, this would limit the amount of money a provider could be reimbursed by insurers, tying that amount to a predetermined benchmark.
Under Delaware’s proposal, that benchmark would cap reimbursement rates at 250% of what the federal government pays providers through Medicare.
For services covered under the state’s health plan that don’t have a Medicare rate to compare to, like pediatrics, the state would be able to set those rates through the State Employees Benefits Committee.
“Even while continuing investments in primary care, Senate Bill 1 could conservatively save a cumulative $282 million over the first five years of full implementation across state-regulated health plans and enrollees,” the Department of Insurance said in a press release after announcing the bill.
In an interview with Spotlight Delaware, Delaware Insurance Commissioner Trinidad Navarro said the bill would make the state more competitive for private practice and rural physicians.
When it comes to the regulation of rate-setting for some procedures covered under both state and private plans, Navarro said pricing is typically “all over the place” and that some hospitals and providers are reimbursed at much higher rates than others.
With these proposed regulations, Navarro said the state is trying to “level the playing field and spread the wealth” among providers.
Frazee, of the hospital association, pointed to that Medicare benchmark, saying it was a provision lawmakers tried, and failed, to introduce in previous legislation that led to a year-and-a-half long lawsuit between the state and Delaware’s largest hospital system.
Efforts to introduce a 250% Medicare benchmark into Senate Bill 1 are a “blatant attempt” to slip in provisions that were removed from House Bill 350, the recently amended law that put an end to the state’s most recent fight with hospitals over health care costs.
Senate Bill 1 also includes language that would exempt hospitals and other health care providers from the 250% requirement if they use a “global budget model” that is approved by the state insurance department.
Global budget models set annual fixed prices for inpatient and outpatient procedures, meaning hospitals are paid on the front end to deliver services at a cost set by their previous Medicare and Medicaid reimbursements from previous years.
In neighboring Maryland, the state implemented global budgeting for all of its acute care hospitals in 2014, according to a report from Mathematica.
Another House Bill 350?
Shortly after lawmakers filed Senate Bill 1, Frazee’s organization quickly jumped to denounce the bill.
It harkens back to early 2024, when legislators first introduced House Bill 350, drawing immediate and sustained scrutiny from the state’s hospitals.
In 2024, the Delaware legislature passed House Bill 350, establishing 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.
By June 2025, following an attempt by the state to dismiss the lawsuit, a judge in Delaware’s Court of Chancery allowed the lawsuit to continue and signaled that she may support the health systems’ arguments.
Last October, state and hospital lawyers tentatively agreed to end the lawsuit challenging the state’s hospital oversight board, in exchange for lawmakers removing the board’s key enforcement mechanism.
By the end of January 2026, lawmakers did pass a bill meeting those conditions, prompting the hospital review board to resume its work and ChristianaCare to dismiss its lawsuit.
Now, as the legislature stares down another fight with the state’s health care systems, it is yet to be seen if the state is walking into another arduous legal battle with hospitals that stand to lose money under SB 1’s current provisions.
Asked if he worries SB 1 may lead to another legal fight, Townsend said he believes the language in this bill does not give the hospitals the same “legal hook” that HB 350 did.
But even if the hospitals do fight back in court, he said it is a fight worth having.
“We can’t run away from lawsuits if it means running away from what Delaware is desperately needing, which is to save our primary health care,” Townsend said. “So if this is going to invite another lawsuit, then so be it.”