New intrusive state bureaucracy is not answer to rising healthcare costs

A contentious bill that would require Delaware hospitals to get state approval for their spending is sparking concern about the future of healthcare in the First State.

Sponsored by House Speaker Rep. Valerie Longhurst, D-Bear, House Substitute 1 for House Bill 350 seeks to create the Diamond State Hospital Cost Review Board. All hospitals in the state would have to submit their annual budgets to the five-member board, which would have the authority to approve them, negotiate modifications or, failing that, impose its own spending plans.

Among the factors the board would consider when setting a hospital's budget would be its operating costs, financial obligations and market factors. The board's decisions could be appealed to the Superior Court. Those institutions found willfully violating the proposed law or any related regulations could face fines of up to $500,000 and other penalties.

This bill proposes a disturbing shift, giving government the power to dictate policy to an entire private-sector category. That view was shared by Delaware Alliance for Nonprofit Advancement President and CEO Sheila Bravo in a letter sent to all state lawmakers: "The nonprofit sector has specifically experienced how the state balances its budget by paying below market rate for services to its nonprofit contracted service providers," she wrote. "If the goal of this legislation is to control the cost of healthcare services, then there are concerns that the solution will be to again under budget for those services."

Just as concerning, the bill would introduce a partisan element into the management of our state's healthcare industry. The five members of the Diamond State Hospital Cost Review Board would be appointed by just three elected officials: the governor, the speaker of the House, and the Senate president pro tem – all offices currently held by one political party.

Testifying before a recent House Administration Committee hearing on her bill, Speaker Longhurst legitimized her proposal by noting that Delaware hospitals have consistently exceeded a healthcare budget growth benchmark the state established in 2018 as a cost-control mechanism. I found the criticism somewhat hypocritical. 

I am a member of the nonpartisan Delaware Economic and Financial Advisory Council, which is responsible for issuing predictions about annual state revenue. Part of DEFAC's work is setting an annual state spending benchmark, a targeted budget growth rate we are not supposed to exceed. However, in the five years we've set this threshold, it's been repeatedly surpassed. A June 2023 report on the benchmark noted that every enacted state budget exceeded the growth index except for Fiscal Year 2021, when the COVID pandemic created unusual conditions.

It is a bit disingenuous to condemn hospitals for violating budget growth thresholds when the State of Delaware – with spending set by the Legislature – has similarly failed the same test over the same period of time.

House Bill 350 is patterned after a Vermont law that 12 years ago gave the Green Mountain Care Board sweeping authority over hospital budgeting. That system has not always led to functional results.

In a 2022 interview, Vermont Public Reporter Howard Weiss-Tisman noted, "nine of the state's 14 hospitals” were expected to lose money that year. In fact, data posted by the board reveals Vermont hospitals have struggled with sustainability under the system of severe state oversight.

Hospital profitability is a potential patient-care problem. Hospitals with red ink on their balance sheets will be hard pressed to offer competitive salaries for doctors and nurses, maintain or expand critical staff, and provide a complete array of programs and services.

Erin Booker, the chief bio-psycho-social officer at ChristianaCare, told lawmakers at the hearing that she feared that the bill would create an environment where programs serving people with special needs, such as those with Down syndrome or cerebral palsy, would be sacrificed due to cost.

I fully understand the concern and frustration that led to the introduction of this legislation. The cost of healthcare is growing at an unsustainable rate. Still, if we want vibrant hospitals capable of delivering the best patient outcomes, we cannot hang this albatross of a law around their necks. It is a massive intrusion of government authority into the private sector, destined to fail in its laudable but doomed goals.

The best aspect of this bill is the unease it's generated. Now that all the stakeholders have been adequately motivated, I urge the supporters of this bill to withdraw it in favor of opening an aggressive, constructive dialogue to produce innovative cost-cutting solutions that can be introduced at the start of the 153rd General Assembly in January.