Delaware lawmakers passed a sweeping healthcare bill this summer that puts caps on hospital price growth and compels insurers to boost investment in primary care.

The multi-pronged bill also forces certain payers to tie nearly half of their business to alternative payment models by 2023, and create shared accountability for both the cost and quality of care. Essentially, it forces payers and providers to enter into these arrangements faster, hoping to pay for quality rather than quantity of care.

Modeled after similar reforms in Rhode Island, the legislation passed both chambers and is now awaiting the signature of Gov. John Carney, a Democrat. However, providers were successful in lobbying for a sunset provision that will require legislators to renew certain aspects of the bill before Jan. 1, 2027, including the rate caps.

Still, one of the state's health regulators is hopeful the reforms will curb the cost of care while strengthening primary care.

"We think it's going to have a profound impact," said Trinidad Navarro, Delaware's insurance commissioner, who characterized the bill as aggressive.

Delaware is the latest state looking to take a stab at stemming the rising cost of healthcare. Most recently, Nevada passed legislation to launch a public option plan that aims to give residents lower-priced plans on the Affordable Care Act marketplace by requiring some insurers to sell plans with premiums below a certain threshold.

Hospitals face price caps to fuel primary care investment

Delaware's bill attempts to tackle a few problems at once to curb costs.

One major objective is to increase investment in primary care by requiring insurers spend a defined percentage of their total healthcare spend on services such as annual checkups and the management of chronic care.

In Delaware, spending on primary care trails the national average. At the same time, the state is seeing a decline in primary care physicians, partly due to retirement and perhaps low 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 that worked as an independent contractor with the department's staff.

Some research has established a correlation between the ratio of primary care physicians in a region and overall healthcare 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 robust primary care network can bend the total cost of care.

The Delaware effort hinges on the premise that a greater investment in primary care will root out patient health problems earlier — before they become more expensive — and lead to better outcomes and spend less overall.

For insurers to spend more on primary care, the bill seeks to constrain spending elsewhere, letting fully insured payers with more than 10,000 members set caps on hospital price growth in their contracts, the second prong in the bill. By 2022, price growth for nonprofessional services at hospitals can be either the greater of 3% or core CPI plus 1%. And for 2024 through 2026, either the greater of 2% or core CPI plus 1%.

CPI, the consumer price index, measures the cost of goods and services and how it changes over time. And core CPI excludes energy and food prices, which can be more volatile. By capping hospital prices to CPI, it ensures increases are minimal and provides a ceiling on spiking prices.

However, core CPI rose 4.5% from a year ago, the largest 12-month increase since November 1991, which could dampen the bill's impact if prices continue to rise. Even still, it puts a ceiling on hospital price growth, an arena that previously had no limits.

Although not explicitly stated, the bill attempts to even the power balance between providers and payers, which is hinted at in the Freedman report.

Like much of the U.S., many of Delaware's hospital markets are highly concentrated, making it difficult for insurers to walk away from a hospital system's proposed price increase in a given year, according to that report. Of the six acute adult hospitals in the state, two control more than 80% of the discharges in their service areas in 2018, the report notes.

The third prong of the bill tries to push providers and payers away from fee-for-service reimbursement by mandating how much care must be delivered through alternative payment models.

That aligns with larger industry trends, as the nation's health system is moving toward a system that pays for the quality of services, not the quantity.

Health system ChristianaCare, the state's largest private employer, declined to comment. In an email, the Delaware Healthcare Association, which represents hospitals, said it took no position on the bill.

Did it work in Rhode Island?

Delaware looked to Rhode Island as a model for its effort.

In 2010, Rhode Island implemented a series of what it called "affordability standards" to increase spending in primary care while slowing hospital price increases. Similar to Delaware, Rhode Island bet that the more it spent on primary care, the less it would spend overall on healthcare.

Compelling evidence suggests the strategy worked.

Researchers found total spending growth decreased without negatively affecting health quality measures, according to study that examined spending over a decade.

"State regulators in Rhode Island achieved among the largest total health care spending changes observed from payment reforms to date," the 2019 research paper in Health Affairs reported.

The study compared spending among a large group of commercially insured Rhode Islanders to a cohort of a similar size, about 38,000 adults, located in other states to serve as the control group. Researchers began comparing the spending between the two groups in the years leading up to the reform and in the years that followed.

The results are striking. The amount spent on care per adult decreased $76 per enrollee compared to the control group, a decline of about 8.1% compared to 2009, before implementation. And Rhode Islanders ended up paying less out of pocket compared to peers in the control group.

Rhode Island didn't start to see the effects until a few years after implementation.

Delaware lawmakers included an amendment that will require them to renew certain aspects of this law before 2027.

"That's one of the challenges with these policies, like politically ... it takes a few years for them to show financial results, so longer term evaluations are really important," Aaron Baum, one of the researchers in the Health Affairs study, said.