Delaware lawmakers OK bill enabling board of political appointees to oversee hospital budgets

DOVER, Del. — The state House gave final approval Tuesday to a bill aimed at limiting the rise in healthcare costs in Delaware by creating a state board with the authority to impose budgets on the state’s largest hospitals.

The legislation passed the House on a 24-16 vote, with two Democrats joining Republicans in voting against the measure. It provoked strong opposition from the medical and business communities.

It now goes to Democratic Gov. John Carney, who released a statement after the vote saying the bill will help reduce the growth of healthcare costs in Delaware.

“I look forward to signing it into law,” he said.

Democratic lawmakers have revised the legislation in recent days to address concerns from opponents, including dozens of doctors who have demonstrated at Legislative Hall in recent weeks to oppose the measure. The revisions prompted the Delaware Health Care Association, or DHA, the trade group for Delaware hospitals, to drop its opposition to the measure and take a neutral stance.

The bill, modeled after a similar program in Vermont, establishes the Diamond State Hospital Cost Review Board, a board of “health experts” appointed by the governor. Hospitals would be required to submit detailed annual budgets to the panel, which would be tasked with ensuring that hospitals align their price increases with annual health care cost growth benchmarks set by the state.

For 2025 and 2026, the price increase benchmark will be 2%, or the core consumer price index plus 1%, over the previous year’s rates. Then the benchmark will be tied to health care cost benchmarks set by the state board, which also sets Delaware’s official revenue estimates.

A hospital that exceeds the benchmark will be required to submit a performance improvement plan with concrete measures and a timeline to curb costs. If the improvement plan fails to keep prices under control, the state board can require the hospital to submit next year’s budget for approval. If the hospital and the board cannot agree on that budget, the board can impose a budget on the hospital.

The panel’s decisions could be challenged in Superior Court, but the legislation requires the court to “take due account of the presumption of official regularity and the specialized competence of the board.”

Hospitals that fail to provide required information or comply with the rules may be subject to a civil penalty of $500,000.

Republicans indicated the bill could face a lawsuit over whether it gets enough votes because it gives a state panel authority over hospital boards. They argue that Delaware general corporate law reserves the authority to manage the affairs of a corporation, including a hospital corporation, to a board of directors. Any change to the corporate law requires a two-thirds majority in each chamber of the legislature, which the hospital bill failed to achieve.

Opponents of the measure also questioned the wisdom of following Vermont’s lead in allowing the state to set hospital budgets.

“Health care costs are not going down in Vermont,” Brian Frazee, president and CEO of DHA, said during a Senate hearing earlier this month. “It does not work.”

According to the Centers for Medicaid and Medicare Services, annual cost increases for hospital services in Vermont averaged 6.8% between 1991 and 2020, a period that included the creation of Vermont’s Hospital Cost Review Board in 2011. Delaware, with no state review board, also saw an average annual cost increase of 6.8% during that period. Only five other states had higher average annual cost increases.

Per capita, the annual growth rate of hospital services in Vermont averaged 6.4% from 1991 to 2020, behind South Dakota’s average annual growth rate of 6.6%, according to the CMS. In Delaware, the annual per capita growth rate in the cost of hospital services averaged 5.4% from 1991 to 2020, tying with Montana for the eighth largest percentage increase in the nation