Delaware hospital cost review board would be stripped of budget approval authority in proposed settlement

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Delaware Gov. Matt Meyer and the state’s largest nongovernmental employer, ChristianaCare Health System, have reached an agreement in a lawsuit the regional hospital system filed last year.

“Every Delawarean deserves access to world-class, affordable healthcare, and together we are working to make that a reality,” Gov. Matt Meyer said in a statement. “This agreement keeps healthcare dollars with patients, not in the courtroom.”

But the proposed settlement hinges on state lawmakers passing changes to last year’s law, which ChristianaCare calls a “state takeover” of hospital boards.

The agreement announced Wednesday would strip the newly created Diamond State Hospital Cost Review Board of its authority to approve and modify hospital budgets. Those changes would require new legislation and the governor’s signature.

Majority Leader Bryan Townsend was the Senate sponsor of the bill creating the review board. He said he offered to pass legislation next year  striking the  board’s budget authority from the law during talks with the hospitals in June. But he said they opposed the suggestion, even though they support it in the lawsuit.

“It’s important to bear in mind they had said to the judge, ‘We want you to overturn the law because of this budget control mechanism.’ The judge said, ‘Hmm, you might have something here,’” Townsend said of negotiations earlier this year. “I say ‘Let’s strike it in legislative language,’ the hospitals say, ‘No, no, no, we don’t support that,’ which was quite a ridiculous position for them to take.”

When contacted for a response to Townsend’s remarks, ChristianaCare had no comment. Delaware Healthcare Association CEO Brian Frazee did not address Townsend’s remarks, but said he looked forward to collaborating with him, other state leaders and health care partners on legislation that codifies Wednesday’s agreement.

Capping rapidly rising health care prices

Then-Gov. John Carney established the Diamond State Hospital Cost Review Board in June 2024 to rein in spending by private hospitals. The board is made up of political appointees selected by the governor.

The new law required hospitals to submit detailed annual budgets to the panel, which is charged with ensuring that hospitals align their price increases with annual health care cost growth benchmarks set by the state. The board could reject a budget plan if the spending was deemed to be excessive.

According to an annual assessment by the Delaware Department of Health and Social Services, health care spending in Delaware increased 9.1% for 2023 calendar year to nearly $11 billion. That dramatically outpaced that year’s 3.1% spending benchmark.

Hospital lawsuit calls law ‘draconian’

The Diamond State Hospital Cost Review Board was controversial from the beginning, with hospitals and the Delaware Healthcare Association opposing it.

The lawsuit argues its creation was unconstitutional, describing it as a “politically appointed, unelected, and unaccountable ‘Super-Board.’”

“The General Assembly rushed its approval of HB 350 and its draconian and unconstitutional measures, without any meaningful investigation concerning their expected effects, which will undoubtedly have a negative impact on patient care in Delaware,” the lawsuit states.

The legal filing also argues the creation of the board includes unlawful and discriminatory price caps for hospital services and forces them to disclose proprietary information.

In May, Chancery Court Vice Chancellor Lori Will allowed two claims of the hospital to move forward and rejected the rest, including the claim that price caps were unconstitutional.

Will decided that ChristianaCare’s argument that the review board’s budget authority over hospital boards is unconstitutional had merit, as well as the assertion that the legislation should have been passed by a supermajority in both chambers.

Legal agreement suggests other changes to hospital review board

The potential lawsuit settlement proposes other legislative alterations, including that the board would evaluate hospitals based on the most recent year’s budget instead of approving prospective ones. Salary transparency would be curtailed, with it only applying to officers, directors, key employees and the highest-compensated employees.

Under the agreement, hospitals would also have more time to comply with the state spending benchmark by not requiring performance improvement plans until 2027.

The health care provider also said ChristianaCare’s Delaware hospitals will enter into data use agreements and that it, the hospital association, the governor and other stakeholders plan to explore new investments in health care workforce loan forgiveness.

Townsend said lawmakers need to look further into the particulars of the agreement to see what they will support.

“On behalf of our constituents, we want to dive into the details, hold committee hearings and see where that leaves us,” he said. “To be very clear but very hopeful that this can all work out and we can get transparency and accountability fully up and running so the Delawareans can try to have better health care at lower costs than they do right now.”