We commend Representative Valerie Longhurst's efforts to rein in hospital costs in Delaware. However, the creation of a "Hospital Review Board" in Substitute 1 for House Bill 350 will not succeed. The fundamental problem of high hospital costs in Delaware is due to a lack of competition.

 

NOTE: Hospital costs are clearly the largest component of healthcare costs in Delaware, and they have been currently and historically excessive in comparison to those nationally and in nearby states. Furthermore, hospital profit margins are well above the norm, and their spending on charity care is below the norm. 

 

During the Delaware House Appropriations Committee hearing on April 17, 2024, there was strong support for establishing a five-member "Hospital Review Board" to oversee and regulate Delaware hospital budgets, despite sharp resistance from hospital lobbyists. This Bill follows a similar effort to control hospital costs in Vermont.

 

 There is also a push to significantly increase the proposed budget for this board since the initial funding request falls far short of the budget of a similarly "tasked board" in Vermont.

 

Yet, while meritorious, these efforts are overshadowed by significant failures:

 

1. Vermont's Green Mountain Care Board has failed colossally despite a bloated budget;
2. The similarly tasked Delaware's Health Care Commission (DHCC) has failed in its oversight and planning mission;
3. Delaware's current Health Resources Board (board created by DHCC) has also failed, by both internal and external assessment.

 

 

What Accounts for These Repeated Failures in Controlling Hospital Costs?

 

The fundamental issue lies in attempting top-down oversight and regulation of a highly complex healthcare marketplace. This approach, marked by a disconnect between healthcare recipients and payment systems, is fundamentally at odds with the law of economics: supply and demand.

 

It's worth noting the sheer impracticality of expecting a five-member board, with two full-time professionals earning approximately $70,000 each, to comprehend and regulate the intricacies of a highly complex multibillion-dollar hospital industry. In fact, no two experts of such caliber exist even at five times that salary.

  

There are hundreds of ways hospitals could stymie this effort. One is to limit access to low-profit services, especially those for the uninsured. Another is to use it to bargain/force lower payment to hospital workers. Or just pay the doctors less. In Delaware, doctors' fees are near the lowest in the US already; and this would worsen the doctor shortage that already exists in Delaware.

 

However, given the monopolistic power of Delaware's hospital industry, a slowing of the extraordinary rise in administrative salaries is unlikely. Low product quality is a hallmark of monopolies, and in this case, access to care and quality of care outcomes would likely deteriorate.

 

The most likely outcome would be regulatory capture, wherein the hospitals would simply populate the proposed Hospital Review Board with their people, as they have already done now with the Delaware Health Care Commission and the Health Resources Board. By doing this, they have given the hospitals effective control over the supra-regulatory Certificate of Public Review (aka Certificate of Need). As a result, they outright block competing hospitals and other healthcare services from entering Delaware, thus maintaining their current regional monopolies.

 

 

It's Time for Delaware to Try Something Different: Competition

 

While we share Representative Longhurst's concerns about healthcare costs, we believe incentivizing more hospitals and insurers to operate in Delaware offers a more promising solution than attempting to regulate an uncompetitive market- more choices, better care, and lower prices.

 

Therefore, the Caesar Rodney Institute cannot endorse House Substitute 1 for House Bill 350 regarding Hospital Costs.