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By the numbers: A deeper look at health care spending in Delaware

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Health care spending in Delaware

Health care leaders and legislators have compromised on House Bill 350 which seeks to start regulating hospital spending in Delaware. l PHOTO COURTESY OF THE NATIONAL CANCER INSTITUTE/UNSPLASH

DOVER— As Delaware’s health care spending continues to increase, legislators and industry leaders are taking a stand to make a change with what has become a very controversial debate.

This week, legislators and hospital executives reached a deal on House Bill 350, which would create the seven-member Diamond State Hospital Cost Review Board, effectively managing the budgets of all the nonprofit hospital systems in Delaware with few exceptions with hopes of reining in ever-mounting costs.

HB 350 required hospitals to submit budgets to the board and would use the health care spending benchmarks set by the Delaware Economic and Financial Advisory Council.  Delaware hospitals have met that benchmark once: in 2020 when the COVID-19 pandemic delayed preventative and elective treatments.

But recent amendments allowed flexibility if the hospital’s budget reflects growth equal to or less than the benchmark. Other revisions include requiring hospitals to reduce costs compared to a price index — more flexible than tying it to 250% of Medicaid rates as previously proposed —as well as a more geographically diverse board.

Beebe Healthcare President and CEO Dr. David Tam told the Delaware Business Times that “250% of Medicare rates is still at or below, in many cases below, how much we need to cover the cost of care in general.”

The amended bill also removes the board’s ability to seize hospital assets if hospitals are unable to meet the budgetary constraints, which was a major point of contention for hospital leaders around the state.

If HB 350 passed without the amendments, Tam said that Beebe would have faced $60 million in reduced revenue over the next two years. All told, Delaware Healthcare Association (DHA) President and CEO Brian Frazee said hospitals and health care systems in the First State were at risk of losing nearly $360 million in immediate cuts based on the original legislation.

The cost of caring

For Beebe, hospital assets include critical funds needed for community charitable benefits which helps the nonprofit health care system support its local community by covering bills that go unpaid, screenings for homeless community members, clinics in school settings and, as a recent example, mobile drug addiction clinics with Narcan distributions.

“We do get some grant money to provide some of those services, but then we add to it through the community charitable benefits. Beebe doesn’t get reimbursed for that,” Dr. Tam told DBT. “The LOWN Institute identifies how much health systems must pay over their threshold to be a nonprofit. We provide[d] $15 million above and beyond that requirement [in FY21]. So, when we look and review the things that need to be cut, it becomes very challenging.”

Dr. Tam told DBT that Beebe Healthcare will now maintain neutrality alongside DHA “as a result of the various proposed amendments to HB 350. . .” adding that the nonprofit “is appreciative of the willingness of the leaders of the General Assembly to work on this very important issue of healthcare cost management and look forward to further engagement on improving quality and access of care for the people of Sussex County.”

“I have faith in Beebe’s Board and Leadership to overcome any challenges that we still may face as a result of this bill,” Tam added. “We remain determined to execute our strategic plan because its essence is to create greater healthcare value – lower costs, improve access and provide quality care to the people of Sussex County. The proposed changes to HB350 ensure that Beebe Healthcare can continue to responsibly provide the needed healthcare services for the rapidly growing and aging population of Sussex County, and I am ready to work with the Governor, House Speaker, and Senate Majority Leader to grow care and services in the fastest growing county of Delaware.”

Unregulated costs in Delaware

Since DEFAC began setting health care spending benchmarks, both financial and quality-based, Delaware’s total growth rates have been publicly captured by the Benchmark Trend Report Dashboard on the Health Care Commission’s website.

Benchmarks include quality of care targets such as improved adult obesity, breast cancer screenings, opioid usage and deaths and emergency room utilizations among other topics.

Updated financial numbers from Delaware officials stated that health care spending in Delaware increased by 5.8% in calendar year 2019 – above the previously set 3.8% spending benchmark.

That benchmark was reduced for the calendar year 2020 at 3.5% and was met by health care leaders with a decrease in spending of 1.2%. According to the 2021 benchmark report, this was likely due to the COVID 19 pandemic during which many procedures and other expenditures were postponed.

The following year, in calendar year 2021, Delaware saw a whopping 11.2% increase in health care spending with a spending benchmark set at just 3.25% for the year.

“While the increase in per capita health care spending is significant, it was not surprising as this figure reflects Delaware’s health care market rebounding from the reduction in health care spending and utilization in 2020 caused by the COVID-19 pandemic,” Then-Health and Social Services’ Secretary at the time Molly Magarik said in a prepared statement. “We know many Delawareans delayed preventive health care services or procedures at the height of the pandemic in 2020. As individuals started to return to schedule those services in 2021, we anticipated that the spending growth would increase as well.”

In 2022, Delaware saw a slower increase in health care spending at 6.3% while the benchmark was set at 3%. A report to the Health Care Commission also detailed total medical expenses by category. These included a 341.1% decrease in non-claims and cited the following health care expenditure increases:

  • Hospital inpatient, 3.5%
  • Hospital outpatient, 4.1%
  • Physician, 4.3%
  • Professional (Other), 6.7%
  • Pharmacy (Net of rebates), 12.4%
  • Long-term care, 9.4%
  • Other, 6.1%

According to data from the U.S. Bureau of Economic Analysis, spending growth in the First State continues to outpace surrounding states including New Jersey, Pennsylvania and Maryland and Washington, D.C.

Granite State vs. First State

Legislators have taken to comparing Delaware to Vermont in hearings and session discussions, stating multiple times that Vermont’s current board is the closest national example to their original efforts. Massachusetts was later added to the discussion offering differing examples of oversight models in action.

“We wanted to look at places that have an actual tested policy, you know, not something that was just put on the books in the last year or two but something that has been around for a while,” former state representative David Bentz of DHSS said during the Senate Executive Committee hearing May 8, citing Vermont and Massachusetts now as the two closest models to Delaware’s efforts.

Similar in nature to what legislators are attempting in Delaware, the five-member Green Mountain Care Board (GMCB) in Vermont oversees the budgetary process for 14 hospital systems in the northern state. Their board also regulates health insurance premium rates, certificates of need and Accountable Care Organizations (ACOs).

Vermont’s Board opened through the legislative process back in 2011 in an effort to reform health care and drastically lower expenditures.

Installation of the board included an advisory board which was set up to offer guidance and expertise when needed, something that is not provided for in Delaware’s HB 350. At the time, budgetary oversight had been performed in Vermont by a state office for 20 years prior to that process being handed off to the new GMCB, health care analysts told the Delaware Business Times

In recent years, documentation on Vermont’s website indicates that the board instituted maximum growth targets which were used to monitor health care spending, specifically as it relates to hospital expenditures. According to that data:

  • Systemwide health care spending grew 2.9% from FY18 to FY19, below the GMCB’s 3.2% maximum growth target.
  • Health care spending decreased by decreased by 6.3% from FY2019 to FY2020 while the maximum growth rate was set at 3.5%.
  • Collectively, health care spending in the state’s 14 hospital systems increased 13.1% from FY20 to FY21. The maximum growth rate was set at 3.5% for this year, as well.
  • In FY21 to FY22, spending increased 9.9%. The board noted a change in its reporting from “growth rate” to “All-Payer Model Growth Range” which was set for 4.3% for FY22.

Quality and access in 2022

According to the State Health Access Data Assistance Center (SHADAC), the percentage of people with a high medical cost burden was similar between the two states with both coming in above the national average of 16.3% for 2022. Delaware came in with a rate of 18.3% while Vermont’s rate sat at 17.4%.

The Kaiser Family Foundation found that 7.3% of Delaware adults reported not seeing a doctor in the past 12 months because of cost with a disproportionate amount stemming from the Hispanic population. The number of adults who reported not seeing a doctor went down to 5.1% in Vermont for 2022 with disproportionate numbers applying to both Black and Hispanic community members in that state. Nationally, the average was higher at 9.3%.

The Milbank Memorial Fund, which routinely offers guidance to states and entities diving into review and regulatory processes, has found that there isn’t a simple cookie cutter solution to the nationally mounting health care cost crisis. Unique state-by-state solutions have been captured by Milbank through extensive research, offering a watchful eye for states like Delaware which is looking into its own health care spending crisis.

“I know this has become a contentious bill for the hospitals. This is not meant to be an attack,” Bentz said to members of the Senate Executive Committee. “This is really just looking at one of those cost drivers as identified and developing a policy to try to address it. There are others that we should be looking at, as well. I’ll highlight pharmaceuticals again, but again, we have to do something about these.”

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