Amid Delaware’s newly implemented hospital cost review board, the state intends to rework how it formulates its healthcare spending benchmark.
After noting Delaware's per capita health care spending consistently ranks in the top ten highest spending states and has historically outpaced the state's economic growth, Gov. John Carney decided to create a Health Care Spending Benchmark in 2018.
The executive order charged the Delaware Economic and Financial Advisory Council (DEFAC) Health Care Spending Benchmark Subcommittee with setting the health care spending benchmark, with a predetermined rate for the first several years.
His order set the 2020, 2021, 2022 and 2023 healthcare spending benchmark at 2.5%, 3.25%, 3.0% and 3.0% per capita spending growth respectively.
Those percentages were set by a model known as the per capita Potential Gross State Prduct (PGSP) growth rate, which is calculated using national labor force productivity growth, expected population growth and a transitional market adjustment.
Delaware modeled this formula off of Massachusetts, the first state to implement a healthcare spending benchmark, but other states have since taken different approaches.
But even after setting the benchmark, aside from 2020, healthcare spending in Delaware has consistently exceeded the set growth rate — by over double.
Most recent data shows per capita health care spending increased 6.3% in 2022 to $9,657, outpacing a 3% growth rate benchmark. And in 2021, reflecting the rebound from the COVID-19 pandemic, health care spending grew at a rate of 11.2% compared to a benchmark of 3.25%.
Per the executive order, the DEFAC Health Care Spending Benchmark Subcommittee must evaluate the results of PGSP methodology after 2023 and recommend any appropriate changes to the DEFAC full body and the governor.
Now the subcommittee is deciding if the formula should also include adjustments for median household income, age considerations and healthcare trends.
The timing of this review is particularly unique due to the recent implementation of the Diamond State Hospital Cost Review Board.
One of the most contentious bills this legislative session, House Bill 350 creates a politically appointed body that will begin annually reviewing hospital budgets starting in 2026 to ensure their compliance with the state’s healthcare spending benchmark.
Under the bill, when a hospital fails to meet spending benchmarks, it would be required to work with the board on a performance improvement plan. When a hospital successfully meets its budget goals for three consecutive years, the hospital would no longer be required to participate in the budget approval process.
The bill faced fierce initial opposition from the hospital community, although legislative change eventually prompted a neutral public stance from healthcare providers.
But the hospital community has continued to push back on the legislation, including the filing of a lawsuit by ChristianaCare, which argues the bill violates Delaware’s general corporation law and constitution by authorizing state control over decision-making authority from certain private hospital boards.
Another large point of contention from hospital leaders is the fact that the healthcare spending benchmark is comprised of all healthcare entities, not just hospitals, yet hospitals are the only one's being held accountable.
This point was reiterated by Beebe Healthcare’s President and CEO Dr. David Tam at the DEFAC subcommittee's Oct. 24 meeting.
"We need to move forward and work together, but I am publicly saying I'm going to hold people accountable to say we're all going to get pharma, payers, insurance companies, skilled nursing facilities — all these for-profit industries on the record to help us achieve this benchmark together," Tam stated.
Department of Health and Social Services Secretary Josette Manning says she understands the worries from the hospital community but believes the healthcare spending benchmark must be considered separately from the new hospital cost review board.
“We still need to have the benchmark. The benchmark doesn't translate to penalty, and I feel like we're getting stuck instead of focusing on creating what we think is an appropriate health care benchmark," Manning said.
She went on to argue other healthcare entities can be held accountable in the future if hospitals identify that those sectors are the one's driving costs.
"If it's pharmaceuticals that's the big driver — that's the thing that's costing everybody all the money — then when we go to that process, assuming it happens with [House Bill 350], and the pharmaceuticals is the driver, hospitals aren't going to be penalized for that," Manning explained. "But we still need to have the benchmark. The benchmark doesn't translate to penalty, and I feel like we're getting stuck instead of focusing on creating what we think is an appropriate health care benchmark.”
The subcommittee is currently looking at other state's methodologies, healthcare trends and Delaware's income growth as potential informers of the new formula for setting future benchmarks.
The body intends to begin making decisions at its Nov. 18 meeting.
