Why Should Delaware Care?
A lawsuit filed by a major hospital in Delaware aims to stymie a new board aimed at bringing the cost of health care down in the state. It comes at a time when costs in Delaware are some of the highest in the region.
ChristianaCare – Delaware’s largest and most influential hospital system – is linking a national controversy over the state’s role as the pre-eminent incorporator of businesses to its opposition to a law that aims to lower health care costs.
In a statement sent to Spotlight Delaware on Monday, the hospital said that the law passed last year, which creates a state board to review hospital spending, will cause “further erosion of the integrity and viability of the (Delaware) corporate franchise.”
The statement followed arguments made by ChristianaCare lawyers recently calling the health care cost review board “draconian,” and claiming it would strip hospital boards of directors of their power to operate free from government intrusion.
Its lawyers made the arguments in court filings and in front of a judge Monday during a hearing for a lawsuit filed last July by ChristianaCare seeking to invalidate the law.
During Monday’s hearing, lawyers for the state scoffed at the hospital’s claims, arguing the regulations have nothing to do with Delaware’s corporate law. In previous court filings, they further said that ChristianaCare’s arguments amount to an “army of strawmen” designed to halt the regulations.
The state’s lawyers also argue that ChristianaCare – by filing its legal challenge to the 2024 law in the Court of Chancery – brought the case to the wrong venue and should instead take its claims to Superior Court.
During Monday’s hearing, Vice Chancellor Lori Will gave little indication as to whether she was swayed by either side’s arguments. She did not say specifically when she will issue a ruling on Delaware’s motion to dismiss the ChristianaCare lawsuit, only stating that it will come in “due course.”
If Will allows the lawsuit to proceed, it could deal a serious blow to the board tasked with reducing hospital costs in Delaware at a time when the state ranks among the highest in the nation.
Monday’s hearing follows statements from major companies announcing their intentions to move the incorporations of their businesses outside of Delaware to states that they say will be more hospitable to corporations.
What led up to the arguments?
In June, then-Gov. John Carney signed the controversial House Bill 350, which created the Diamond State Health Cost Review Board tasked with monitoring the budgets and spending of hospitals in an effort to reduce costs for patients.
The law directs Delaware’s governor to nominate seven people to serve as members of the the board.
The passage of the law followed a sustained lobbying front from hospitals and their administrators who flooded Dover in efforts to oppose the bill.
Ultimately, legislators and the hospital industry reached a compromise solution that eased the most stringent requirements of the bill.
But a month after it became law, ChristianaCare sued the state, arguing, in part, that the imposition of hospital price caps – one tool that the review board could employ – is “unlawful and discriminatory.”
It also contends that the cost review board takes fiduciary independence away from hospitals and their board of directors, violating the state’s corporate charter.
“The act wrests power from hospital boards and instead imbues the state’s executive branch with authority to direct the internal operations and affairs of privately-owned hospitals,” the complaint said.
Lawyers for the state filed a 71-page motion to dismiss the lawsuit in late November that attacked the merits of ChristianaCare’s case, and claimed it should be transferred to the state’s Superior Court.
“Christiana has brought unripe claims in the wrong court that each depend on either a mischaracterization of the facts or a misapplication of the law,” the state’s motion to dismiss argued.
Delaware’s largest hospital system responded a month later with a 73-page brief that defended many of its claims that HB 350 violates corporate law.
In a subsequent court filing, state attorneys filed additional arguments that opened with a quote from Lewis Carroll’s “Through the Looking Glass, and What Alice Found There,” referencing Humpty Dumpty shaping the meanings of words to mean what he wants them to.
“Christiana’s arguments are seemingly borrowed from Humpty Dumpty – scornfulness and all,” the brief said. “Words have just the meanings that Christiana chooses them to mean, regardless of their actual meanings.”
As decision awaited, negotiations continue
Attending the oral arguments in front of the judge on Monday were ChristianaCare CEO Dr. Janice Nevin and the Delaware Healthcare Association CEO Brian Frazee – both of whom were staunch opponents to HB 350.
Also in attendance was a recent appointee to the cost review board – Rick Geisenberger, Delaware’s former secretary of finance in the Carney administration.
Kurt Heyman, an attorney who represents the state, opened his arguments for dismissing the case by reiterating that the hospital’s lawsuit should be argued in Superior Court, not the Court of Chancery. He also said that ChristianaCare’s claim that it would be harmed by the law was “speculative,” and based on regulations that had yet to be drafted.
In response to the state’s motion, ChristianaCare attorney Ilana Eisenstein hammered on the idea that the cost review board strips the hospital’s board of its corporate autonomy over making decisions about the hospital’s budget.
She also argued the law improperly targets some hospitals based on HB 350’s definition of a hospital, while excluding others that exclusively provide psychiatric services or rehabilitative services.
When questioned by the judge about how the law differs from other regulations that constrain companies, Eisenstein said budgeting is a trade secret and the cost review board would make those budgets publicly available.
Will adjourned the hearing after she said both sides gave “exceptional” arguments.
Following the hearing, ChrisitanaCare shared a statement with Spotlight Delaware, hopeful that the court denies the motion to dismiss.
“The government overreach of House Bill 350 represents further erosion of the integrity and viability of the corporate franchise in Delaware and poses additional harm to Delaware’s reputation as a business-friendly state,” the statement said.
Frazee and the Delaware Healthcare Association, which represents the interests of all state hospitals, also provided a statement that called HB 350 “not the best approach” for the state. He claims a similar cost review board in Vermont has caused a “devastating” health care landscape.
Frazee also said negotiations with new Gov. Matt Meyer and legislative leadership on amendments to HB 350 were ongoing, but would not share specifics.
“DHA continues to work with our new legislature and new Governor’s office to find solutions that will meaningfully address affordability and support high-quality, equitable, and accessible care,” he said in the statement.
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