WILMINGTON — ChristianaCare has filed a lawsuit against Delaware to stop new regulations allowing the state to review the financial information of hospital systems — and require hospitals who do not meet targeted health care costs to go on a performance improvement plan.
Delaware’s largest health care system announced it filed the lawsuit with the Court of Chancery on Monday afternoon, less than two months after Gov. John Carney signed House Bill 350 into law. That bill, proposed by House Democrats, created a board with seven voting members that will examine hospitals budgets, audits and other related financial information to ensure that Delaware’s seven hospitals remain close to health care spending.
The lawsuit names Carney, Delaware Health Commission Chair Nancy Fan, Delaware Department Health and Social Services Secretary Josette Manning and the seven unnamed voting board members of the cost review board. In the complaint, ChristianaCare seeks injunctive relief of the law, as it authorizes a “state takeover of the strategic management and business judgment of boards of private hospitals.”
ChristianaCare CEO and President Janice Nevin told patients and ChristianaCare’s Council of Advisors that the lawsuit was necessary to ensure its arguments that were not heard in the legislative process were properly heard.
“ChristianaCare raised constitutional concerns during the legislative process that were not addressed and has filed this lawsuit as a necessary next step in protecting the community’s continued access to excellent hospital care, close to home,” Nevin wrote in an email. “This lawsuit is necessary to preserve and ensure independence in clinical decision-making and patient care, critically necessary hospital services and resources, non-profit board autonomy, and a strong health care delivery system in this community for generations to come.”
Setting the stage
Delaware government officials have been weighing the rising health care costs this year, particularly as Carney had set aside $200 million to address health care inflation for state employees and retirees alone. The state spends nearly $2 billion on insurance plans, comprising 40% of the operating budget.
Carney had also introduced a health care spending bench mark in 2020, as part of a strategy to evaluate where the state stood on costs for patients, providers and payers — and as part of a long game to find a way to contain costs. However, Carney previously told the Delaware Business Times that the cost review board, which has only been enacted by one other state, would not have been his first choice. He also said he delayed any action he may have taken, as the COVID-19 pandemic took precedence.
Delaware’s health care costs are driven by the fact that the state has an older population, and over time, more retirees are flocking to the state. The U.S. Census shows that the First State’s total population has grown 1% over the past 15 years. The state’s 65 and older population, however, grew 3.4% in the same amount of time.
Delaware’s hospitals, particularly in the southern region, have been racing to meet the growing demand. ChristianaCare alone bought a hospital system in an adjacent county in Maryland, opened primary care offices in central and southern Delaware. Recently, it also took over several urgent care facilities across the state previously operated by MedExpress.
Signed into law, HB 350 requires Delaware hospitals to submit financial information to the new review board. If those hospitals do not meet the benchmark in 2025 and 2026, currently set at a 2% growth or the core consumer index plus 1% over the previous year’s rate, whichever is higher, hospitals would be placed on an improvement plan and required to modify its budget. Fines may also be applied.
The arguments
ChristianaCare had filed the lawsuit in the Chancery Court, in part, because HB 350 requires immediate steps that impact business operations, contracts with private payers and more.
More than a century of Delaware law maintains that a corporation’s board of directors manages a corporation, but the complaint prepared by Catherine Dearlove, Alexander Krischick and John O’Toole of Richards, Layton & Finger maintains that HB 350 wrests power from the already established hospital system-based boards and places it with the governor.
The cost review board is appointed entirely by the sitting governor, although the president and CEO of the Delaware Healthcare Association (DHA) is also listed as a non-voting member.
“HB 350 thus does more than give the state a peek into a hospital’s budget: it ultimately gives the State control over that hospital’s healthcare. The state may not change the rules of the game for targeted corporations so casually, nor may it tear away the heart of Delaware’s corporate governance model in this manner,” the complaint reads.
ChristianaCare argues that the law violates a section of the Delaware General Corporate Law, which states that businesses and affairs of every corporation will be managed by a board, except otherwise stated in a certificate of incorporation. If the legislature desires to change the terms, it must amend the corporate law, which requires a supermajority vote, according to the complainant.
“House Bill 350 raises important questions about the integrity of the corporate franchise in Delaware, and whether it is legal for the government to usurp authority over core business decisions such as setting the budget from a corporation’s duly elected board,” ChristianaCare Health System Board Chair Nicholas Marsini said in a prepared statement.
“We are hopeful that the Court of Chancery will provide clear guidance on these important legal questions that impact not only ChristianaCare, but potentially any corporation that does business in Delaware,” he added.
Response
Members of ChristianaCare’s boards called the lawsuit a necessary pursuit to ensure that health care focuses on patient care rather than costs.
“This lawsuit is necessary to preserve and ensure independence in clinical decision-making and patient care, critically necessary hospital services and resources, non-profit board autonomy, and a strong health care delivery system in this community for generations to come,” said Lolita Lopez, chair of ChristianaCare’s Health Services Board.
It’s unclear at this time if other health systems in Delaware will join ChristianaCare’s legal battle. The DHA heavily lobbied against the bill for weeks and officially changed its stance to neutral in May as compromises were gained through the legislative process.
“The DHA supports our members, including ChristianaCare, as they seek a better path forward, and looks forward to continuing working with policymakers and all stakeholders to ensure access to high-quality, affordable care for Delawareans today and for generations to come,” DHA President and CEO Brian Frazee told the Delaware Business Times.
Meanwhile, House Speaker Valerie Longhurst (D-Bear), who was the primary sponsor of HB 350, and Senate Majority Leader Bryan Townsend (D-Newark) said they were confident that the board proposed by the law would withstand the lawsuit and “constitutional scrutiny.”
The legislators said they were disappointed that ChristianaCare had chosen to continue to oppose HB 350 rather than continue to work with legislators to refine the process, even before Carney had publicly announced his board members.
“The delivery of high-quality and economically sustainable health care is of paramount concern to the state government and to our constituents, and House Bill 350 went through many iterations as we tried to craft a solution that would deliver for Delaware’s hard-working taxpayers, while accommodating practical and policy concerns raised by the hospital industry – including Christiana Care,” Longhurst and Townsend said in a joint statement.
Meanwhile, the House Republican Caucus issued a statement that supported ChristianaCare’s lawsuit, arguing that the bill was rushed as it was introduced in mid-March and its final version was introduced in late May. The House Republicans also state that the House Health Committee was “never allowed to scrutinize the bill, with Speaker Longhurst gaming the system by assigning it instead to the House Administration Committee, which is exclusively controlled by herself and the two other leaders of the House Democratic Caucus.”
“This poorly conceived law is symptomatic of the bad policymaking that occurs when a single party controls the lawmaking apparatus. A state government with one-party rule does not engage in consensus building nor reflect any perspective that is not in keeping with its monoculture of political thought,” the statement from the House Republicans reads. “The result is a growing list of plaintiffs like ChristianaCare who are forced to head to court to secure the fair consideration they should have received in the legislature and by the governor.”
Editor’s note: This story has been updated to include a statement from House Republicans.
