By Jacob Owens
This story was produced by Spotlight Delaware, a community-powered, collaborative, nonprofit newsroom covering the First State. Learn more at spotlightdelaware.org
Delaware lawmakers are poised to pass the most dramatic reform to health care in decades, despite the latest hours-long hearing on the matter in which doctors, nurses and health care administrators packed the tight confines of the Legislative Hall to protest the plan.
What the impact of House Bill 350 – which proposes to create a government panel to oversee hospital spending – will be upon passage remains up for debate.
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Proponents believe it will bring needed transparency to a critical industry that thousands of residents depend on daily and help to curb the exploding cost of care. Opponents say it is a dramatic overreach by the government that threatens health care systems’ ability to recruit providers and expand services in a competitive market.
What is certain is that the fight over health care reform has become the fiercest debate seen in the state legislature in some time.
Democratic leaders in both chambers have managed to advance the bill through passage in the House and to the finish line in the State Senate in less than two months. On Wednesday, the five Democratic members of the Senate Executive Committee voted to advance the legislation to a full Senate vote, where Democrats once again control enough seats to see it passed.
Meanwhile, the health care industry, led by the Delaware Healthcare Association (DHA), has launched a full-court press of opposition. They have solicited written opposition from employees, garnered the support of business leaders around the state, funded text message and online advertising campaigns, and placed a blitz of op-ed columns in local newspapers. In Dover, state records show that the DHA or individual health systems have hired virtually every prominent lobbyist in the state to fight the bill and turned out dozens of supporters to pack hearings.
Delaware commercial hospital prices are among the highest in the nation, with inpatient facility services costing 281% of Medicare rates while outpatient costs 369% of Medicare rates, according to a 2022 RAND report on health care costs nationwide. The state ranked in the top 12 for both.
How to reduce those costs has become the sticking point, with health leaders placing blame and rising costs of pharmaceuticals and provider compensation in a tight mid-Atlantic market. Lawmakers believe the not-for-profit’s bottom lines are too fat, and too much of that profit is going back into the same system rather than lowering costs to consumers.
What does HB350 do?
Under the current version of HB 350, hospitals would be required to submit their proposed operating budget as well as detailed financial statements, treatment and procedure utilization information, a projected three-year capital budget, and contracting information, among other info, to the newly created Diamond State Hospital Cost Review Board on an annual basis.
The board would feature six appointees from the governor, who would be subject to approval by the State Senate. The appointees are expected to have a knowledge of health care or business. The executive director of the DHA would serve as an ex-officio member of the board, but would not receive a vote on matters before it.
Beginning in 2026, the board would be responsible for reviewing and approving hospitals’ budgets, taking into consideration the state’s health care spending benchmarks, the financial health of each hospital, and other economic factors.
Should a proposed budget be deemed outside of the benchmark, the sides will have to reach a modified budget by compromise. Failure to meet the state’s health care benchmark, aside from extenuating circumstances, would require the hospital to submit a performance improvement plan to the board.
Failure to abide by that plan would lead the board to directly modify a hospital’s annual budget for at least the succeeding three years. If a hospital refuses to comply with the regulatory measures or fails to meet agreed upon goals after the multi-tiered interventions, the board could impose penalties up to the net revenues exceeding the budgeted amount.
If approved, Delaware would not become the first state to institute such a review board, as others like Vermont, Massachusetts and Maryland have used them for years. Even the federal government, which has managed price caps on drugs and procedures under Medicare for decades, has operated under a form of the board.
Experts debate the effectiveness of those bodies, however, and a decade after the creation of the Green Mountain Care Board in Vermont, the state still ranks behind Delaware in health care quality, according to the U.S. News & World Report.
Hint of compromise
Legislators and DHA Executive Director Brian Frazee have spent many closed-door sessions attempting to iron out a compromise on the bill, including a change in the temporary spending limit before the board begins operations
Originally, the hospitals would have been prohibited from charging more than 250% of Medicare negotiated costs to any payer for hospital services in 2025. The industry recoiled at that figure, which they claimed would result in a net loss of $360 million across the state – and also imperil a separate deal working through the legislature to expand Medicaid services.
Instead, lawmakers are now proposing to allow hospitals to increase their 2025 budgets by the higher of 2% or the regional consumer price index rate plus 1 percentage point. House Bill 395 to make that change has already begun its legislative process, potentially prolonging the debate over the law when the original HB 350 could still be amended.
During testimony Tuesday evening, bill sponsor and Senate Majority Leader Bryan Townsend (D-Newark) expressed frustration in the negotiations over “continuous shifting positions” by the health care leaders though.
“The dominance in this sector of specific entities can have an inherent distorting effect. It doesn’t make them bad people, necessarily. It means that’s the nature of a dominant economic force. There’s a host of other laws in this jurisdiction and others that try to account for that, and this is part of that. You know, you could have provisions that are far more onerous in regards to those dynamics but it’s more about the transparency and the conversation trying to keep costs at a sustainable place,” he noted.
Hospitals see threat
After weeks of lobbying state legislators, DHA head Frazee said the biggest point of contention remains the crux of the bill: that government appointees could eventually tell hospitals how to spend their money.
“We’re being held to a benchmark that includes things that are out of our control,” he said of the Health Care Spending Benchmark that is established by the Delaware Economic and Financial Advisory Council.
The benchmark rate is established by examining health care costs and revenue broadly, but includes more than just hospital operations. Over the last four years, however, the health care industry has routinely exceeded the benchmark rate to the frustration of lawmakers.
The industry argues that further constraint of spending in Delaware could limit their ability to add physicians and service locations at a time when Delaware’s population is rapidly growing, especially with older retirees who need more care.
“One thing we’ve heard loud and clear from our members is we need to maintain that growth in order to maintain access to care and that’s one of our top priorities,” Frazee added.
In urging the committee to deny the bill, ChristianaCare President and CEO Dr. Janice Nevin added that “ U.S. News & World Report just ranked Delaware sixth in the nation for hospital quality, unlike Vermont, which is 43rd. If approved, HB 350 sends our hospitals in the wrong direction.”
Mark Marcantano, the president of the Delaware Valley region for Nemours Children’s Health, told the committee that the bill “ feels to us like an attack; It feels punitive, it feels destructive.”
“You look at artificial price cap, politically appointed board stepping in the shoes of leadership and governance, a flawed benchmark that doesn’t get to controllable hospital operating costs, seizure of assets – that looks like an attack to us,” he said.
Vermont leaders see frustration
With much of HB 350’s framework borrowed from Vermont’s Green Mountain Care Board, opponents have highlighted the uneven results in the state.
On Tuesday, Senate Republicans hosted remote testimony from Dr. John Brumsted, the former president and CEO of the University of Vermont Health Network, who said that the Green Mountain Care Board’s negotiated hospital budgets have seen artificially low margins, frequently below the rate of inflation, and that they have been “implemented in a very non-collaborative, top-down fashion.”
“The results have been dramatically declining hospital and health system margins,” noting that most have operated on negative margins in recent years. “If there’s no margin in the hospital, there’s no capital reinvestment. So there really hasn’t been any investment in facilities programs, rejuvenation, or certainly innovation over the past several years.”
Nemours Children’s Health Chief Population Health Officer Dr. Kara Odom Walker, who serves on the UVM board of directors today, concurred with Brumsted’s assessment, calling it a “very restrictive regulatory environment.”
“[The Green Mountain Care Board] was intended to create collaboration with the health system. It went sideways and certainly did not … live up to its full potential,” said Odom Walker, who is also a former secretary of the Delaware Department of Health and Social Services. “We’re really trying to create a focus on health care costs, but the way to get there is not by just cutting costs and creating more pressures and moving away from investments. It really requires that collaboration.”
