State leaders continue to deliberate over a new healthcare spending benchmark formula as hospitals prepare for a new budget review process.
Delaware's healthcare spending benchmark was established via a 2018 executive order from former Gov. John Carney in an effort to control the state's rapidly growing healthcare costs.
The benchmark has hovered close to 3% over the past 4 years and is set at 4.2% for 2025. Most recent data shows the state has more than doubled — if not tripled — each annual growth target from 2021 to 2023.
The spending benchmark up to this point has been calculated based on the Potential Gross State Product (PGSP) methodology.
PGSP utilizes expected growth in U.S. labor force productivity, Delaware’s civilian labor force, U.S. inflation and Delaware’s population.
While Gov. Carney's executive order required the subcommittee to consistently review the methodology, that consideration became much more real under House Bill 350.
The controversial HB 350 was passed by the state legislature last year, establishing a politically appointed board to review hospital budgets and ensure they are adhering closely to the state’s healthcare spending benchmark.
The benchmark comprises all facets of the state’s healthcare system, including pharmacy, physician, paramedical and hospital expenditures. But under HB 350, only hospitals could face potential penalties if they spend over the targeted growth rate.
Hospitals make up the largest category of the state's healthcare spend at 42%. Physician spend comes in second at 22%, pharmacy at 19% and paramedical at 17%.
In addition to creating a hospital budget review process, which is set to begin in 2026 pending litigation against the board brought forth by ChristianaCare, the legislation also requires the current benchmark methodology to be reviewed to potentially include healthcare and macroeconomic trends.
That review process is currently underway by the the Delaware Economic and Financial Advisory Council (DEFAC) Health Care Spending Benchmark Subcommittee.
In December, the subcommittee sent full DEFAC — the state's official revenue and expenditure forecasting body — a letter recommending the current healthcare spending benchmark formula be revised to include equal weightings of the 3-year average of all of the following: Delaware personal income growth, Delaware population growth and growth in the price index for relevant healthcare personal consumption expenditures.
Despite the body settling on this recommendation to meet HB 350's December deadline, it is still in the throws of finalizing the formula.
The subcommittee held a meeting Wednesday where tension continued to surface over how the new formula will affect hospitals.
Subcommittee member and President and CEO of Beebe Healthcare Dr. David Tam took concern with personal income growth being included in the formula when retirees — living largely on fixed incomes — make up an exorbitant amount of healthcare expenditures.
But Delaware Department of Finance Director of Research & Tax Policy David Roose explains the benchmark isn't intended to factor in which populations are spending the most on healthcare.
"The intent of this is, can the state's economy sustainably support spending," Roose said. "It is not at all intended to say pregnant women and old folks use healthcare, so we need to target this measure at them. Because we're not using the resources of those people to support healthcare, we're using the resources of everybody."
Dr. Tam says while he understands the subcommittee has been asked not to consider the penalization factor for hospitals under HB 350 if they don't meet the benchmark when developing the new formula, he feels its too important to ignore.
"The challenge, though, is when the legislature and administration signed the bill, and made the linkage real, that became a difficult factor. And I say that not out of any insult or disrespect, but just recognizing the reality of how those two things now are inexplicably linked and how we make the best decision possible," Dr. Tam said.
But Subcommittee Chair and Delaware Department of Health and Social Services (DHSS) Secretary Josette Manning argues the implications of HB 350 cannot be the sole influence over how the new methodology for the healthcare spending benchmark is developed.
"Everyone should have always looked at the benchmark and tried to obtain it. And just because HB 350 dropped, it shouldn't suddenly become important in a way that it wasn't before. It should have always been that," Manning said, arguing the inclusion of personal income growth and healthcare personal consumption expenditures is an improvement over how the benchmark was previously calculated.
“We either need to get to a meeting of the minds and adopt a methodology and recommend that to DEFAC and have DEFAC vote on that and approve that, or the current benchmark methodology will remain as it is," she said.
The subcommittee does not yet have another meeting scheduled, but it plans to continue meeting and finalize a new formula before DEFAC's next full meeting in October, where it would likely vote to approve the agreed upon methodology.
