NEW CASTLE — In a small chapel on the Delaware Health and Social Services campus, hospital executives and state officials met to start considering on how Delaware will calculate its health care spending benchmark.
For years, the Delaware Economic and Financial Advisory Council (DEFAC) Health Care Spending Benchmark Subcommittee has met to set a guideline for how much the state should be spending on health care per capita each year. Between 2019 and 2022, Delaware has often spent more than the benchmark set with the exception being 2020 where health care costs declined by a little more than one percent.
But unlike previous years, this subcommittee will now vote to set a benchmark that will soon be tied to new compliance measures for Delaware’s seven hospitals. Under the final version of House Bill 350, hospitals that do not meet the new standard would have to start a performance improvement plan to be overseen by the Diamond State Hospital Cost Review Board.
For now, hospitals will be measured against either 2% growth or the core consumer index plus 1% over the previous year’s rate, whichever is higher. By 2027, hospitals will have to work to meet the health care spending benchmark – or require budgetary approval by the Diamond State Hospital Cost Review Board.
“We need a target in the sense of how the state spends on health care. There is such a crowd out in the budget and not being able to invest in other areas of the government, health care spending is dominating what we can spend,” said Steven Costantino, Director of Health Care Reform and Financing for Delaware Health and Social Services. “When you see a budget that has to add $200 million to both Medicaid and state employee benefits, it really robs the government of investing in critical issues.”
During a hybrid meeting held on Oct. 24, Michael Bailit of the consulting firm Bailit Health gave an overview of what the seven other states which use a comparable benchmark procedure are following in an effort to control health care spending. He explained that all seven states use Potential Gross State Product, median wages and inflation. Only Connecticut and Rhode Island include one-time inflation adjustments, and none use age adjustments, though most incorporate age-related adjustments to trend reports.
Benchmarks set for all of those states fall between 2.9 and 3.6% and only four states have policies that hold the various health care systems accountable to those standards. Massachusetts has held its benchmark policy since 2012 which is possibly the longest amongst the group, while California and Delaware established benchmarks this year.
In Bailit’s presentation, he noted that the benchmark is a tool best used to help uncover where the highest expenses are – and that it has been working in states like Rhode Island.
“Rhode Island has one of the lowest annual growth of all possible benchmarks, and they’re close to meeting it every year. And that’s because they’ve been doing a bunch of things each year to get there,” he said. “They’ve been aggressive in pursuing population-based contracts for health care, and they have inflation caps and diagnosis-based payments. That, plus the investment in primary care have all been factors.”
Still, the hospital executives at the table raised concerns on whether the data would include primary care visits, pharmaceuticals, contract work costs and labor. Many of those factors are outside the control of the health care systems —and even though the first step of failing to meet the benchmark is a performance improvement plan that includes strategies to rein in costs, another consequence is budgetary approval from an outside board.
“What I’m hearing is also about partnership, and I don’t think the hospitals feel the partnership because we’re the only ones at the table,” ChristianaCare Vice President of Finance and Population Health Rebecca Ford said. “We cannot control all health care spending in a hospital environment, as health care goes to the root of how people live their lives. It’s how they eat, how they exercise and how they live their lives. Hospitals can’t bear the full burden of it.”
Other factors the DEFAC subcommittee will consider in the next two meetings when it decides on the methodology for the healthcare spending benchmark include whether adjustments to inflation should be made, health disparities, behavioral health costs, demographics and how to measure income growth.
DHSS Secretary Josette Manning said that while she understood the concerns raised by some committee members, the benchmark was still needed to figure out from where the cost increases are coming from and hospitals could take the first step in understanding those numbers through data.
“We have to have a goal. With that said, if its pharmaceuticals that’s costing everyone the money, then we will go through that process, assuming it happens through House Bill 350, I assume they could be penalized for that. I know there’s a lot of requirements within 350, but if that’s the case, no hospital will be held accountable for something that’s directly attributable to another participant,” she said.
