Delaware Takes Bold Action to Improve Health Care Affordability 

This spring, Delaware took a bold step to mitigate hospital spending growth. HB 350, signed into law in June, creates the Diamond State Hospital Cost Review Board, tasked with reviewing and regulating hospital budgets. 

The new Review Board is designed to support Delaware in achieving the goals of its health care cost growth benchmark, which is a target for statewide annual growth. With the exception of 2020, health care spending growth has exceeded Delaware’s benchmark every year since the program was established by executive order in 2018, and the program has identified hospital prices as the leading health care cost driver. With the new Review Board, legislators sought a new paradigm for addressing high hospital prices. The new law was passed and signed by the governor despite strong opposition from health care providers and the business community. 

Key Features of the Diamond State Hospital Cost Review Board 

Membership and responsibilities. The new law requires that the eight-member Review Board include at least one member from each of Delaware’s three counties. Seven voting members will be appointed by the governor and approved by the Senate; the President of the Delaware Healthcare Association will act as a non-voting member. The Review Board is authorized to collect a wide array of documents from Delaware hospitals annually, including financials, utilization data, and information about health plan contracts, among other items; many of these documents will be protected from disclosure under the state’s public records statute. The Review Board will assess these submissions for compliance with the state’s cost growth benchmark, evaluate and approve hospital-developed performance improvement plans (PIPs) for hospitals that are not in compliance, and approve or modify budgets for hospitals that fail to improve their spending rates.  

Timing and enforcement. For calendar years 2025 and 2026, temporary price growth caps will prevent outsize growth in Delaware hospitals’ prices, limiting most hospitals’ year-to-year price growth to the greater of 2% or the Consumer Price Index plus 1%. The Review Board begins its oversight of cost growth in 2025, for 2026 hospital budgets. Hospitals with spending growth higher than the cost growth benchmark will be required to develop a PIP to be approved by the Review Board. By law, the Review Board is permitted to consider “discretionary factors” in deciding whether to require a PIP, including hospital finances, any investments to improve access, quality, or efficiency, population growth in the hospital’s service area, or other factors the board determines are relevant. PIPs must identify causes of growth and strategies that will address them within 12 months or fewer.  

If a hospital fails to produce an acceptable PIP or does not sufficiently improve within 12 months, the Review Board can require the hospital to submit its next fiscal year budget for review and approval or modification. For hospitals that fail to keep to a board-approved budget, the Review Board either can reduce the subsequent year’s budget by the amount of the budget overage or allow the hospital to retain the extra revenue. The Review Board’s authority to approve a hospital’s budget expires after three years in which the hospital successfully meets its budget goals.  

Vermont Green Mountain Board comparison. As an appointed board tasked with controlling hospital spending growth, the Review Board shares some DNA with Vermont’s Green Mountain Care Board, which provided some of the initial inspiration to Delaware legislators. However, there are important differences. Delaware’s law requires significant iterative back and forth between the Review Board and hospitals that are found to be out of compliance with the cost growth benchmark. While Delaware uses PIPs, the Green Mountain Care Board can take legally binding enforcement action against hospitals that do not comply with approved budgets. The PIP approach is likely more politically palatable than Vermont’s approach, and may provide an opportunity for increased buy-in and hospital-led transformation, but they will also stretch out the regulatory process. 

Questions Remain 

Delaware’s legislature has taken decisive action to slow hospital price growth. Nonetheless, questions remain about how — and whether — the new law will be implemented: 

Data and Regulatory Timeline. Data lag — the time it takes for current and prior year hospital data to be available in its final form — could hinder the Review Board’s ability to promptly review budgets, inform hospitals of the need for a PIP, and approve a PIP. Additionally, the requirement that that Review Board finalize its budget decisions at least 90 days prior to the start of the hospital fiscal year means analysis of whether the hospital has met the conditions of the PIP must be based on prior year budget performance, or use of just one or two quarters of financial reports.  

Industry Reaction and ChristianaCare Lawsuit. In July 2024, Delaware’s largest health system, ChristianaCare, filed suit against the State of Delaware. In a press release about the lawsuit, ChristianaCare alleged that HB 350 violates state law and the Delaware constitution by “authorizing state control over the strategic and business decision-making authority from the boards of certain private hospitals” as well as by compelling hospitals to submit confidential documents and targeting only private hospitals. 

Looking Ahead 

If HB 350 survives legal challenges, the Review Board could be a powerful tool to help Delaware achieve its cost containment goals and improve health care affordability for Delawareans. Other states have also taken steps recently to hold hospitals more accountable for high costs. Indiana passed legislation in 2023 requiring hospitals to submit details about their prices and finances, and new Oregon Health Authority regulations will subject health care providers, including hospitals, with excessive cost growth to a performance improvement plan or financial penalties. These and other states will be carefully monitoring the process and outcomes that result from Delaware’s new authority.