Delaware hospital cost review board one step closer to governor’s desk

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This story was supported by a statehouse coverage grant from the Corporation for Public Broadcasting.

A bill designed to rein in Delaware’s rising health care costs passed the state Senate Thursday.

The measure, which would establish the Diamond State Hospital Cost Review Board, would require hospitals to submit their budget to ensure they’re in compliance with government spending benchmarks.

Senators passed the bill on a nearly party-line vote, with Democratic Sen. Russ Huxtable of Lewes joining the six Republicans in opposition.

Democratic leadership and Gov. John Carney said earlier this week they had reached a compromise with the state’s largest hospital systems on the bill, despite their previous fierce pushback on the concept.

Senators approved an amendment to the bill that made various changes, but most significantly eliminated the original temporary cost containment measure for FY25 and FY26, with one that caps growth using the state’s healthcare benchmark and the Core Consumer Price Index. The review board would begin reviewing and approving hospital budgets in 2026.

Hospitals fought the previous cap, which prohibited them from charging more than 250% of the cost of a service charged to the Medicare program for 2025 and 2026.

State Sen. Trey Paradee, D-Dover, said hospital system administrators have scared medical providers, claiming the bill would cause them to lose their jobs. He said he supported more oversight over the hospitals, suggesting Delaware should regulate hospital systems in a similar way as utilities. He said those companies are required to demonstrate how their rates are not detrimental to their customers.

“It is killing our state budget; it’s killing the group health insurance plan for the state,” Paradee said. “We’re having to dump hundreds of millions of dollars, and that number just keeps going up year after year after year. Small businesses are dealing with it, too. There’s something really wrong and somebody needs to be taking a look at it.”

The board would have eight members, with seven of them voting. Delaware Healthcare Association President and CEO Brian Frazee would be an ex-officio member. Townsend said helping hospitals meet state spending benchmarks would be a multi-year process, with implementing a performance plan process.

According to a news release from Delaware Health and Social Services earlier this month, health care spending in Delaware increased by 6.3% in 2022, outpacing the 3% growth rate benchmark. The previous year saw an 11% increase as more people resumed health care visits they had put off during the pandemic.

“The 6.3% per capita increase in 2022 is significant, but there was an expectation of some continuing health care spending rebound effect in the post-pandemic period,” the news release said. “Moving forward into 2023 and beyond, DHSS expects Delaware’s health care market to be in a steadier state.”

Carney set a spending benchmark in 2018, which was an aspirational goal for annual per-capita-rate health care spending growth. The 3.8% benchmark took effect in 2019. It’s since fluctuated to various percentages below 4%.

Once up and running, the review board would review each hospital’s budget annually. If a hospital failed to meet spending benchmarks, it would be required to develop a performance improvement plan. Once a hospital met spending targets for three consecutive years, the board would release it from the performance plan oversight. When a hospital successfully meets its budget goals for three consecutive years, it would no longer be required to participate in the budget approval process.

“This legislation is not about punishing hospitals, but rather ensuring our constituents are able to access quality and affordable health care and to put a system into place to slow down the skyrocketing costs that we have experienced in Delaware,” House Speaker Valerie Longhurst said during a debate in the House.

Advocates of the legislation say hospitals are the primary driver of higher costs. However, DHA President and CEO Brian Frazee has argued pharmacy drugs and long-term care are more significant cost drivers than hospitals.

Senate Minority Whip Brian Pettyjohn, R-Georgetown, said he was concerned about an “attack on hospitals” and that the hospitals were forced to come to the table after being backed into a deal.

“It disturbed me greatly when one hospital had told me two days ago that before House Bill 350 was introduced, no one from the General Assembly, not from this chamber, not from the other chamber, picked up the phone and called them to discuss and understand hospital costs,” he said. “Not one. Is this a collaboration? Is this a partnership? Not in any definition that I’m familiar with.”

The bill heads back to the House for approval of the Senate amendment, where it passed 21-16 on a near party-line vote, with three Democrats voting in opposition. If the House signs off and no other changes are made, it will then head to Gov. John Carney’s desk.