Why Should Delaware Care?
Last month, Delaware introduced legislation meant to bolster the state’s primary health care infrastructure and keep patients healthier on the front end. But within that bill are provisions that would cap how much providers, including the state’s powerful and profitable, health systems can charge for care.
As Delaware’s hospital systems claim a primary care reform bill would spell armageddon for their revenues, a state on the West Coast that implemented similar measures in 2017 said it realized massive savings while hospitals only saw minor reductions in revenue.
Oregon applied regulations on its hospitals in a manner similar to proposed legislation in Delaware that would cap how much providers can charge for care at 250% of what the federal government pays providers through Medicare. Oregon set its own cap even lower, at 200% of Medicare’s payout — which typically underpays providers.
Like Delaware’s Senate Bill 1, Oregon’s law focuses on its state employee health plan in an effort to bring down costs. Within a couple years, Oregon officials said the provisions saved the state more than $112 million.
In Delaware, the bill would “conservatively” save the state more than $280 million over the first five years of implementation, the Department of Insurance said in a press release after announcing the bill.
But Delaware’s proposal faces a powerful opposition from the state’s hospital systems that have a history of challenging unfavorable regulations in court, securing a victory earlier this year in a watered down oversight board meant to rein in hospital spending.
Impacts in Oregon
As Delaware lawmakers weigh the merits of SB 1, which they introduced last month, Oregon’s model offers a similar framework.
Where Delaware and Oregon differ in their proposals is in their exemptions. Oregon’s price caps exempted rural hospitals and providers that serve primarily Medicare patients. Additionally, Delaware’s bill would implement investments for primary care providers — an effort to reward practices that keep patients healthy and away from costly emergency room visits.
Ali Hassoun, the director of Oregon’s Public Employees Benefit Board, said in an email price caps saved the state more than $112 million in 2021.
Since its price cap legislation passed in 2017, he said one hospital had closed and another applied for a “critical access designation” to receive larger reimbursements from Medicare.
But Hassoun said neither of those hospitals were subject to the state’s price cap regulations, and some are still struggling to recover from the COVID-19 pandemic. Additionally, upcoming cuts to Medicaid and Medicare are slated to have an impact on hospital budgets, he said.
Hassoun also pointed to a research paper that said changes made by Oregon “didn’t meaningfully change hospital revenues or operations during its first two years.”
Roz Murray is one of the authors of that paper and an assistant professor of health services, policy and practice at Brown University. Murray also testified at a hearing in March as one of the Delaware Department of Insurance’s experts on the bill.
Murray said the ratio of Oregon state employees covered under its state health plan is around 15%, which is close to Delaware. And like Oregon, Delaware does not have the power to regulate payment caps for those covered under private insurance plans.
She also said Delaware’s proposal would include some additional commercial plans regulated by the state’s insurance department like the Affordable Care Act and fully insured plans.
In Murray’s paper, published in 2025 she and her team did not observe any cuts to staff or reductions in payments to physicians. The paper also said the program’s “broader impact” on health care employment was unknown.
But should nothing change, the paper said the revenue losses would simply spell minor reductions in hospital budgets.
Sabrina Corlette, founder and co-director of the Center on Health Insurance Reforms at Georgetown University, said Oregon and other states implemented health care price caps, known as reference based pricing laws, in reaction to a “breakdown of the free market.”
She said as hospitals have consolidated and strengthened their foothold in their respective regions, they have been able to demand higher reimbursements from insurers. She said that oftentimes, those elevated costs do not actually reflect the cost of care.
Corlette said that passing laws like SB 1 is a “political balancing act” for legislators who have to weigh the impact on hospitals against the already existing cost burdens on patients.
Still, she said the revenue reductions do not always translate to job losses.
“Now it is absolutely true, though, that if you cut revenue to hospitals, they will have to tighten their belts,” Corlette said. “I don’t think it necessarily translates to, ‘Oh, we have to lay people off.’”
What’s in Delaware’s bill?
Senate Bill 1 is poised to be one the most consequential health care bills in recent memory, if passed in its current form.
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 do not have a Medicare rate to compare to, like pediatrics, the state would be able to set those rates through the State Employees Benefits Committee.
By taking aim at how high Delaware health care providers can negotiate their prices with insurers in addition to making those insurers spend 11.5% of their medical costs on primary care, the state hopes to better compensate providers proactively working to improve Delawareans’ health outcomes.
Insurance Commissioner Trinidad Navarro said in an email those investments would apply to 45% of the state’s commercial insurance market with the addition of the state health plan and Medicaid.
In a March interview with Spotlight Delaware, 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.
Brian Frazee, of the Delaware Healthcare 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.
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.
