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Hospital Budget Review Act/Updates, the official text

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SPONSOR: Sen. Townsend & Sen. Sokola & Sen. Lockman &
                                                                 Rep. Harris & Rep. Minor-Brown & Rep. Osienski

                                                DELAWARE STATE SENATE
                                                153rd GENERAL ASSEMBLY

                                                 SENATE BILL NO. 213

    AN ACT TO AMEND TITLE 16 OF THE DELAWARE CODE RELATING TO HOSPITAL BUDGET REVIEW.

    BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:

1   Section 1. Amend § 9951, Title 16 of the Delaware Code by making deletions as shown by strike through and

2 insertions as shown by underline as follows:

3   § 9951. Definitions.

4   As used in this subchapter:

5   (5) “Manual” means the Uniform Reporting Manual for Budget Submissions to be adopted by regulation by

6   the Board to ensure the consistency of information provided by hospitals under this subchapter.

7   (6) “Meaningful Cost Containment Arrangement” means, with respect to the applicable benchmark

8   compliance plan year, any of the following:

9                   a. A Medicare or Medicaid Global Budget Arrangement.

10                  b. A Substantial Financial Downside Risk Arrangement.

11                  c. Any other qualifying written agreement approved by the Board on application of a hospital under §

12  9953(d)(7)c. of this title.

13  (7) “Medicare or Medicaid Global Budget Arrangement” means a written agreement among Medicare,

14  Medicaid, or other applicable federal or state governmental payer authorities or public programs; a hospital, health

15  system or affiliate; and, as applicable, any necessary third-party payers that is designed to cover the projected costs of

16  hospital-based care for a defined patient population covering at least 50% of the hospital’s historical patient volumes

17  and representing at least 3% of the hospital’s net patient revenue at risk for the applicable benchmark compliance plan

18  year, reflecting a historical baseline calculation adjusted for inflation, demographic shifts, risk adjustment, and other

19  factors for a defined performance period.

20  (12)a. “Substantial Financial Downside Risk Arrangement” means, for the applicable benchmark compliance

21  year, 1 or more written agreements between a payer, purchaser, or insurer and a hospital, health system, or affiliate for

22  providing health care services to a defined patient population that provide all of the following:

23                  1. That total annual costs are not less than 3% of the hospital’s net patient revenue.

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24                  2. That a minimum of 10% of the total annual costs for the defined patient population are at risk to

25  the hospital.

26                  3. That, for any hospital having an annual operating budget greater than $1,000,000,000, a minimum

27  of 5,000 covered patient lives are subject to the agreement.

28                  b. The Board may, by regulation, increase the amounts or percentages set forth in paragraphs (12)a.1.,

29  a.2., or a.3. of this section.

30  (13) “Total annual costs” means the aggregate yearly healthcare costs of a defined patient population in a

31  Meaningful Cost Containment Arrangement in the applicable benchmark compliance year.

32  Section 2. Amend § 9952, Title 16 of the Delaware Code by making deletions as shown by strike through and

33 insertions as shown by underline as follows:

34  § 9952. Diamond State Hospital Cost Review Board.

35  (f) (1) Four voting members constitutes a quorum of the Board and, except as set forth in paragraph (f)(2) of this

36 section, the Board may take action by affirmative vote of a majority of members present and voting.

37  (2) The following actions require the affirmative vote of a majority of the voting members of the Board:

38                  a. Approval of a hospital budget.

39                  b. Revision of a hospital budget.

40                  c.a. An enforcement action under § 9957 of this title.

41                  b. Adoption of a regulation under this subchapter.

42                  c. Adoption of written findings of fact and determinations under § 9953(d)(7) of this title.

43                  d. Approval of a performance improvement plan benchmark compliance plan under § 9954 of this title.

44  (g) The Board shall promulgate rules and regulations necessary for the implementation of this subchapter

45 including a schedule for submission of information required from hospitals under § 9953 of this title. title and a Manual

46 providing uniform definitions and submission criteria for the budget reporting categories listed in § 9953 of this title.

47  Section 3. Amend § 9953, Title 16 of the Delaware Code by making deletions as shown by strike through and

48 insertions as shown by underline as follows:

49  § 9953. Submission and analysis of hospital financial information.

50  (a) Hospitals shall annually submit to the Board any of the following information required by the Board under

51 rules, regulations, and guidance promulgated under this subchapter, including the Manual:

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52  (1) The hospital’s operating budget for the forthcoming year, including expenditures and revenues, revenues,

53  including the data described in paragraph (a)(2) of this section, redlined to reflect increases and changes from the

54  previous year.

55  (2) Spending and revenue data from the previous year.

56  (2)(3) Financial information, including costs of operations, revenues, assets, liabilities, rates, charges, units of

57  service, and wage, salary, and other labor costs for each service line and budget category. all of the following:

58                  a. Costs of operations.

59                  b. Revenues.

60                  c. Assets.

61                  d. Liabilities.

62                  e. Rates and charges in accordance with paragraph (a)(5) of this section.

63                  f. Labor costs by units of service and budget category.

64  (3)(4) Scope of services and volume of service information, including inpatient services, outpatient services,

65  and ancillary services by type of service provided.

66  (4)(5) Utilization information.

67  (6) New hospital services and programs proposed for the forthcoming year.

68  (7) Projected 3-year capital budget.

69  (8)(5) Contract information with public and private payers and purchasers. Information about payments by

70  payers and purchasers consistent with information subject to public disclosure required by 45 C.F.R. Part 180.

71  (6) A narrative regarding the budget reporting categories of this subsection, outlining the changes in the year-

72  over-year results and the actions the hospital has taken and will take in the coming year to adhere to the health care

73  spending benchmark.

74  (7)(9) Other information the Board determines to be relevant to the budget review process. Board’s

75  obligations under this section, including information relevant to any determination by the Board under paragraph

76  (d)(7)c. of this section.

77  (b) Hospitals shall submit audited financial statements to the Board, within 30 days of such audited financial

78 statements becoming finalized. This requirement begins with audited financial statements for 2023.

79  (c) The Board shall conduct reviews of each hospital’s proposed budget based on the information provided

80 pursuant to subsection (a) of this section. [Repealed.]

81  (d) In connection with budget reviews, the The Board shall do all of the following:

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82           (1) Review utilization information.

83           (2) Consider the expenditure and revenue analysis for the previous year and the proposed expenditure and

84   revenue analysis for the forthcoming year and determine whether the hospital has satisfied the State’s health-care

85   spending policy directives, including the health-care spending benchmark and the annual rate filing cost containment

86   requirements under § 2503 of Title 18. Analyze and consider the other information submitted by the hospital under

87   subsections (a) and (b) of this section.

88           (3) Meet with hospitals each hospital to review and discuss their each hospital’s budget proposals for the

89   forthcoming year. information.

90           (4) Review the hospital’s investments in workforce development initiatives.

91           (5) Consider the salaries for the hospital’s executive and clinical leadership and the hospital’s salary spread,

92   including a comparison to salaries in other states in the region. whose compensation is publicly disclosed in the

93   hospital’s Internal Revenue Service Form 990 filings.

94           (6) Offer the opportunity for the public to provide comment on hospital budgets and other aspects of hospital

95   costs.

96           (7) Issue written findings of fact and determinations as to any of the following:

97                   a. Whether a hospital has satisfied the State’s health-care spending policy directives, including, as

98          applicable, the health-care spending benchmark and the annual rate filing cost containment requirements under §

99          2503 of Title 18.

100                  b. Whether a hospital has satisfied the elements of the hospital’s benchmark compliance plan, if

101         applicable.

102                  c. On the application of a hospital, whether a hospital is participating in a Meaningful Cost Containment

103         Arrangement and therefore is not subject to the benchmark compliance plan process under § 9954 of this title for

104         the applicable benchmark compliance plan year.

105         (e) A hospital’s violation of the Board’s standards and procedures is subject to enforcement under § 9957 of this

106 title.

107         (f)(1) The Board may, by a written report, make policy recommendations to the Delaware Health Care

108 Commission, Senate Health & Social Services Committee, and the House Health & Human Development Committee

109 regarding how to better align hospital budgets with the benchmark, while promoting efficient and economic operations and

110 maintaining the ability of hospitals to meet hospitals’ financial obligations and to provide quality care.

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111           (2) If the Board submits a report under paragraph (f)(1) of this section, the Board shall provide a copy to the

112  Director and Librarian of the Division of Legislative Services.

113           Section 4. Amend § 9954, Title 16 of the Delaware Code by making deletions as shown by strike through and

114 insertions as shown by underline as follows:

115           § 9954. Performance improvement plans. Benchmark compliance plans.

116           (a)(1) Beginning in 2026, 2027, and except as provided in paragraph (a)(2) of this section, if the Board determines

117 that a hospital’s actual annual cost growth has exceeded the spending benchmark, the Board shall send the hospital notice

118 of that finding and may require the hospital to submit a performance improvement plan benchmark compliance plan within

119 45 days.

120           (2) A hospital that the Board determines is participating in a Meaningful Cost Containment Arrangement is

121  not subject to this section for the applicable benchmark compliance plan year.

122           (b) The Board shall promulgate additional regulations and written guidance about the performance improvement

123 planbenchmark compliance plan process, including discretionary factors that the Board may consider in deciding whether

124 or not a performance improvement plan benchmark compliance plan is required, taking into account a hospital’s financial

125 condition, any ongoing strategies or investments that the healthcare entity is implementing to improve patient access and

126 quality, future long-term efficiency, population growth in the hospital service area, and such other factors as the Board may

127 determine to be relevant.

128           (c) A proposed performance improvement plan benchmark compliance plan submitted by a hospital must identify

129 the causes of the hospital’s cost growth and must include specific strategies, adjustments, and action steps the hospital

130 proposes to implement to improve cost performance. The proposed performance improvement plan benchmark compliance

131 plan must include specific identifiable and measurable expected outcomes and a timetable for implementation. The

132 timetable for a performance improvement plan benchmark compliance plan may not exceed 12 months.

133           (d) If the Board determines that the performance improvement plan benchmark compliance plan is unacceptable or

134 incomplete, the Board shall provide written guidance explaining the criteria that have not been met and may provide an

135 additional time period, up to 30 calendar days, for resubmission. If the hospital and the Board are unable to agree to a

136 performance improvement plan, the Board may require the hospital to submit to the budget approval process under § 9955

137 of this title. The hospital shall address each deficiency noted by the Board in the Board’s written guidance, and resubmit the

138 hospital’s benchmark compliance plan to the Board, no later than 30 days from the date of the hospital’s receipt of the

139 Board’s written guidance.

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140  (e) If the Board determines that the performance improvement plan is acceptable, the Board shall notify the

141 hospital of the approval of the plan. A hospital implementing an approved performance improvement plan may be subject

142 to additional reporting requirements and compliance monitoring, at the discretion of the Board. [Repealed.]

143  (f) At the conclusion of the timetable established in the performance improvement plan, or at an earlier time

144 determined by the Board, the hospital shall report to the Board regarding the progress or outcome of the performance

145 improvement plan. If the Board finds that the performance improvement plan has not been successful, the Board may do 1

146 of the following:

147  (1) Extend the implementation timetable of the existing performance improvement plan.

148  (2) Require the hospital to submit a new performance improvement plan.

149  (3) Require the hospital to participate in the budget approval process under § 9955 of this title. [Repealed.]

150  (g) When determining whether to approve a performance improvement plan or an amendment thereto under this

151 section the Board shall consider whether the proposal will be effective in achieving the factors set forth under § 9955(c) of

152 this title. [Repealed.]

153  Section 5. Amend § 9955, Title 16 of the Delaware Code by making deletions as shown by strike through and

154 insertions as shown by underline as follows:

155  § 9955. Approval or modification of hospital budget. [Repealed.]

156  (a) If a hospital has undertaken a performance improvement plan under § 9954 of this title and failed to show

157 sufficient progress or has failed to submit an acceptable performance improvement plan under § 9954 of this title, the

158 hospital may be required to submit the next fiscal year’s budget to the Board for review and approval.

159  (b) When a hospital budget is submitted for approval under this section, the Board shall approve a hospital’s

160 budget as submitted or engage with the hospital in establishing and approving a modified budget. A budget must be

161 approved as submitted or as modified by 90 days before the start of the hospital’s fiscal year. Each hospital shall operate

162 under the original or modified budget as approved.

163  (c) Individual hospital budgets approved under this section shall:

164  (1) Adhere as closely to the spending benchmark as is reasonable given the hospital’s financial position and

165  associated economic factors.

166  (2) Promote efficient and economic operations of the hospital.

167  (3) Maintain the hospital’s ability to meet its financial obligations and provide quality care.

168  (d) The Board may not require a hospital budget to be modified if the budget submitted reflects growth equal to or

169 less than the spending benchmark.

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170  (e) If the Board and a hospital cannot agree on a modified budget, the Board may impose a modified budget and

171 shall issue a written decision enumerating the reasons why the Board’s modified budget will satisfy the factors under

172 subsection (c) of this section.

173  (f) The Board may, upon application, adjust a budget established under this section during the fiscal year upon

174 demonstration of need based on exceptional or unforeseen circumstances.

175  (g) The Board may request, and a hospital shall provide, information determined by the Board to be necessary to

176 determine whether the hospital is operating within a budget established under this section.

177  (h) When a hospital has successfully met its budget goals for 3 consecutive years, the hospital may no longer be

178 required to participate in the budget approval process under this section.

179  Section 6. Amend § 9957, Title 16 of the Delaware Code by making deletions as shown by strike through and

180 insertions as shown by underline as follows:

181  § 9957. Enforcement.

182  (a) A hospital that knowingly fails to provide information or adhere to standards, procedures, and deadlines related

183 to the budget review process as required by this subchapter under this subchapter, or a rule or regulation promulgated

184 thereunder under this subchapter, may be assessed a civil penalty of up to $500,000.

185  (b) In the event that a hospital subject to budget approval under § 9955 of this title fails to maintain its approved

186 budget, the Board may do any of the following:

187           (1) Factor the amount of net revenues exceeding the budgeted amount of net revenues into the hospital’s

188  budget for the forthcoming year.

189           (2) Allow the hospital to retain surplus funds if the surplus was achieved while the hospital stayed within its

190  budget.

191           (3) Allow the hospital to retain surplus funds generated primarily by volume in excess of what was projected

192  for the year in question. [Repealed.]

193  (c) An order under subsection (a) of this section may be issued only after a hospital has received notice and an

194 opportunity to be heard by the Board.

195  Section 7. Amend § 9958, Title 16 of the Delaware Code by making deletions as shown by strike through and

196 insertions as shown by underline as follows:

197  § 9958. Open meetings; records subject to disclosure.

198  (c) (1) The Board shall annually convene at least 1 public hearing per hospital subject to this subchapter to allow

199 the hospital to present its annual budget, and performance improvement plan where applicable, financial information

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200 required under § 9953 of this title and any benchmark compliance plan required under § 9954 of this title to the Board and

201 engage in dialogue with the Board regarding questions, concerns, or additional information necessary to determine whether

202 the hospital’s actual and projected annual spend growth is in line with the spending benchmark, other health-care spending

203 directives, and other discretionary factors that the Board may consider as promulgated in regulation.

204  Section 8. If any provision of this Act or the application thereof to any person or circumstance is held invalid, the

205 invalidity does not affect other provisions or applications of the Act which can be given effect without the invalid provision

206 or application; and, to that end, the provisions of this Act are declared to be severable.

                                                                         SYNOPSIS

               The Hospital Budget Review Act, House Substitute No. 2 to House Bill No. 350 (152nd General Assembly),
     enacted in 2024, ("HB 350") created the Diamond State Hospital Cost Review Board (“Board”) in an effort to bring greater
     transparency and accountability to hospital spending in Delaware. HB 350 requires hospitals to submit their budgets to the
     Board annually, disclose financial and operational information, and comply with the State’s healthcare spending
     benchmark. HB 350 also authorizes the Board to prospectively approve or modify hospital budgets and imposes penalties
     for non-compliance.

               Shortly after HB 350’s enactment, ChristianaCare filed suit in the Court of Chancery, alleging principally that the
     prospective budget approval and modification authority granted to the Board violates the Delaware Constitution. The
     litigation raised broader constitutional and policy questions about the balance between State oversight of health care
     spending and the autonomy of private, nonprofit hospitals.

               On September 30, 2025, the State and ChristianaCare signed an agreement pausing ChristianaCare’s lawsuit and
     setting forth the framework for this Act that, if enacted, will fully resolve the case. Under the agreement, the State admitted
     no fault. This Act incorporates the each of the terms of that agreement.

               HB 350 has 4 main components. First, hospitals must present detailed budget information annually to the Board.
     Second, the Board must determine whether the hospital has complied with the State’s healthcare spending benchmark.
     Third, if the hospital misses the benchmark, it must submit a Performance Improvement Plan (PIP) for approval by the
     Board. Fourth, if the hospital fails to submit an approved PIP or achieve its objectives, then the Board may prospectively
     approve or modify the hospital’s budget. This Act addresses constitutional concerns by eliminating the Board’s ability to
     approve or modify hospital budgets, while preserving the first 3 components of HB 350 with certain modifications and
     enhancements.

               First, under this Act, hospitals still must present detailed budget information to the Board each year. However, the
     Board will evaluate hospitals based on actual expenditure and revenue information for the most recent year, rather than
     prospectively approving future budgets. As with HB 350, hospitals must report financial information, including costs of
     operations, revenues, assets, liabilities, and expenditures, scope and volume of service information, and other information
     deemed relevant by the Board. This Act also requires hospitals to outline changes in year-over-year results and describe the
     actions it will take in the coming year to meet the benchmark, and further requires the Board to adopt a Uniform Reporting
     Manual for Budget Submissions to ensure the consistency of information provided by hospitals. Hospitals must provide
     labor costs by units of service and budget category, salary reporting is narrowed to officers, directors, key employees, and
     highest-compensated employees, and certain categories, such as payer contract information and three-year capital budgets,
     are no longer required.

               Second, HB 350 required the Board to determine annually whether each hospital has met the State’s healthcare
     spending benchmark. That requirement remains, but this Act expressly requires the Board to issue written findings of fact
     and determinations as to whether each hospital: (1) has met the benchmark; and, if applicable, (2) has satisfied the elements
     of the hospital’s Benchmark Compliance Plan (BCP), which replaces the PIP; and (3) is participating in a Meaningful Cost
     Containment Arrangement (MCCA). Further, the Board may also make policy recommendations to the Delaware Health
     Care Commission or the General Assembly regarding how to better align hospital budgets with the benchmark, while
     promoting efficient and economic operations and maintaining the ability of hospitals to meet hospitals’ financial
     obligations and to provide quality care.

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          Third, beginning in 2027, hospitals that fail to meet the benchmark must submit a BCP for the Board’s approval.
As with HB 350, if the BCP does not meet the criteria established by the Board, the Board may require the hospital to
amend and resubmit the BCP. If a BCP is required, the Board will examine and determine in writing the following year
whether the hospital has satisfied the BCP’s elements. However, if the hospital demonstrates that it is subject to an MCCA,
then the hospital is not required to submit to the BCP process for that year.

          MCCAs are contracts between hospitals and payers (including, in some cases, federal or state governments) that
are designed to reduce healthcare costs by holding the hospital financially accountable for controlling healthcare spend for a
specific population – including downside risk. However, even if a hospital has an MCCA and therefore is not required to
adopt a BCP, it still must present its detailed budget information to the Board every year so that the Board may determine
whether it has met the benchmark. A hospital’s adoption of an MCCA does not exempt it from that process, only the
requirement that it adopt a BCP—and only for one year.

          Civil penalties of up to $500,000 for knowingly failing to comply with reporting standards remain in effect.
                                                                                                                     Author: Senator Townsend

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