Delaware lawmakers passed a sweeping healthcare bill this summer that caps hospital price growth and forces insurers to increase investment in primary care.
The multi-faceted bill also requires some payers to tie nearly half of their business to alternative payment models by 2023 and create shared responsibility for the cost and quality of care. Essentially, it forces payers and providers to close these deals faster, in the hope of paying for the quality rather than the quantity of care.
Modeled on similar reforms in Rhode Island, the legislation has passed through both houses and is now awaiting the signature of Governor John Carney, a Democrat. However, providers have been successful in pushing for a sunset clause that will require lawmakers to renew certain aspects of the bill by January 1, 2027, including price caps.
Still, one of the state’s health regulators hopes the reforms will lower the cost of care while strengthening primary care.
“We think this is going to have a profound impact,” said Trinidad Navarro, Delaware’s insurance commissioner, who called the bill aggressive.
Delaware is the latest state to try to stem rising health care costs. More recently, Nevada passed legislation to launch a public option plan that aims to offer residents cheaper plans in the Affordable Care Act market by requiring some insurers to sell plans with premiums below one. certain threshold.
Hospitals face price caps to fuel investments in primary care
Delaware’s bill attempts to tackle a few issues at a time to keep costs down.
One of the main goals is to increase investment in primary care by requiring insurers to spend a defined percentage of their total health care spending on services such as annual checkups and chronic care management.
In Delaware, spending on primary care is lower than the national average. At the same time, the state is seeing a decline in the number of primary care physicians, in part due to retirement and possibly poor reimbursement. At the same time, its residents tend to be sicker and older, according to a report from the state’s Office of Value-Based Health Care Delivery in partnership with Freedman Healthcare, consultants who have worked as independent contractor with the staff of the department.
Some research has established a correlation between the ratio of primary care physicians in a region and overall health care spending. In areas with a higher proportion of primary care physicians, Medicare spending tended to be lower that year, according to a report in Health Affairs, suggesting that a strong primary care network can lower the total cost. care.
Delaware’s effort is premised on the premise that a greater investment in primary care will eliminate patient health problems sooner – before they become more costly – and lead to better outcomes and less overall expense. .
To make insurers spend more on primary care, the bill seeks to limit spending elsewhere, leaving fully insured payers with more than 10,000 members to set caps on hospital price growth in their contracts, the second part of the plan. law Project. By 2022, the growth in prices for non-professional services in hospitals can be either the highest of 3% or the core CPI plus 1%. And for 2024 to 2026, either the higher of 2% or the core CPI plus 1%.
The CPI, the consumer price index, measures the cost of goods and services and how they change over time. And the core CPI excludes energy and food prices, which can be more volatile. By capping hospital prices at the CPI, it guarantees minimum increases and sets a cap on price spikes.
However, the core CPI was up 4.5% from a year ago, the largest 12-month increase since November 1991, which could lessen the impact of the bill if prices continue to rise. to augment. Even still, it caps hospital price growth, an area that previously had no limits.
Although not explicitly stated, the bill attempts to balance the balance of power between providers and payers, which is discussed in the Freedman report.
Like much of the United States, many Delaware hospital markets are highly concentrated, making it difficult for insurers to walk away from the price increase offered by a hospital system in any given year, according to this report. Of the state’s six acute adult hospitals, two control more than 80% of discharges to their service areas in 2018, the report notes.
The third prong of the bill attempts to move providers and payers away from fee-for-service reimbursement by enforcing the amount of care that must be provided through alternative payment models.
This fits with broader industry trends, as the country’s healthcare system evolves into one that pays for quality of service, not quantity.
ChristianaCare Health System, the state’s largest private employer, declined to comment. In an email, the Delaware Healthcare Association, which represents hospitals, said it had not taken a position on the bill.
Did it work in Rhode Island?
Delaware viewed Rhode Island as a model for its effort.
In 2010, Rhode Island implemented a series of what it called “affordability standards” to increase spending on primary care while slowing the rise in hospital prices. Similar to Delaware, Rhode Island bet that the more it spent on primary care, the less it would spend on health care overall.
Compelling evidence suggests that the strategy worked.
Researchers found that growth in total spending had declined without negatively affecting measures of health quality, according to a study that looked at spending over a decade.
“Rhode Island state regulators have achieved one of the most significant changes in total health spending seen since payments reforms to date,” the 2019 research paper reported in Health Affairs.
The study compared the expenses of a large group of commercially insured Rhode Islanders to a similarly sized cohort, about 38,000 adults, located in other states to serve as a control group. Researchers began to compare spending between the two groups in the years before the reform and in the years after.
The results are striking. The amount spent on care per adult decreased by $ 76 per registrant compared to the control group, a decrease of approximately 8.1% from 2009, before implementation. And the Rhode Islanders ended up paying less out of pocket than their control group peers.
Rhode Island didn’t start to see the effects until a few years after implementation.
Delaware lawmakers have included an amendment that will require them to renew certain aspects of this law before 2027.
“This is one of the challenges of these policies, like politically… it takes them a few years to show financial results, so longer term evaluations are really important,” said Aaron Baum, one researchers from the Health Affairs study. .