CRI Action Plans


The Caesar Rodney Institute (CRI) is the only organization with the plan and the policy solutions to lead Delaware toward the future it deserves. 
 
CRI is a 501(c)3 non-profit public policy research organization that brings a much-needed free-market voice to Delaware’s political debate.  We are a statewide network of leading Delawareans who believe in putting Delaware first.   We focus on solving Delaware’s biggest challenges: failing schools, the flight of jobs from our state, and the unsustainable direction of our state’s public finances. 
 
We truly believe that good things are in store for Delaware!



The BOLD Plan
The BOLD Plan is an education reform effort that changes the existing school system because, as Albert Einstein once said,” We cannot solve our problems with the same thinking that we used when we created them.” The emphasis is on local control and accountability.
 
Education is about much more than producing capable, productive kids.  Education is about economics, real estate values, population shifts, crime rates, development, retaining and attracting business, and a quality workforce.  Having kids is not a requirement for supporting public education reform.  If you live or work in Delaware you are affected by the state’s public school system.
 
In recent years much has been done in Delaware to improve public education.  We have experienced Races, Visions, Committees, and Task Forces.  The business community has been involved in much of it.  The efforts have been very good but significant improvement has been elusive.  NAEP (National Assessment for Educational Progress) reported that more than 60% of Delaware’s high school graduates were below proficiency in reading (African-Americans 80%).  Delaware colleges report that 53% of entering Delaware freshmen need remediation (73% of African-Americans and 69% of low-income).
 
In looking for an explanation for these results we can eliminate funding as a problem source.  Census Bureau data shows that Delaware is in the top ten states for educational spending.  In 2009 we were 6th at over $14,000 per pupil.  In 2017, 1/3 of the state’s budget ($1.4 billion) was spent on education.
 
Poor quality education has economic consequences.  Using regression equations, Dr. John E. Stapleford, President of ECON FIRST, calculated that over 10 years (2006 to 2016) if Delaware’s 8th grade math scores were equal to surrounding states it would have resulted in an additional $4.5 to $7.8 billion of output and 12,300 to 20,850 more jobs.
 
Within the school building teaching is a profession similar to the legal and medical professions.  However, once you get to the administrative level of education, similar to the administrative level of a law firm or a hospital, you are dealing with a business.  Our Races, Visions, etc., have done outstanding work but it has been primarily focused on traditional school issues – curriculum, tests, evaluations, technology, etc.  The part that has been missing is the business side of the education system.
 
The Bold Plan targets the systemic change that is necessary for Delaware’s education improvement efforts.  That systemic change was first introduced by the Delaware Department of Education in 1995 with the support of the business community and the Governor’s Office.  In many ways it is similar to the nonpublic systems that have been successful in Delaware for over a hundred years.  The change was tested by the Charter School of Wilmington under the supervision of some of Delaware’s largest companies (DuPont, Bell Atlantic now Verizon, Hercules now Ashland, Delmarva Power, Christiana Care, and Zeneca now AstraZeneca) and has proven to be nationally successful.   An evaluation sponsored by the Delaware Department of Education and conducted by Dr. Gary Miron, Head of the Evaluation Center at Western Michigan University, reported that students under the “Bold Plan” outperformed their counterparts at traditional public schools.  The “Plan” was able to advance the learning of its students at a faster rate than similar students in traditional public schools.  The original charter school was launched with only two directives: 1) “Just get the job done.”, and 2) “Failure is not an option.”
 
The vehicle for introducing the systemic change was charter schools.  The Charter Law states that its purpose was to “…improve public education overall…”  Charter schools were to be laboratories to try new things and then, change the traditional schools.  Dr. Gary Miron was quoted in a Brookings Institution publication, as saying, “Charter schools weren’t meant to duplicate the traditional public schools.  They were to be a lever for change…” That change included how traditional schools operate.  The Delaware Department of Education stated that the charter reform was based on local control and accountability.
 
But the change to the traditional schools never happened.  There has been no sharing.  The Wilmington Education Advisory Committee commented on the disconnect between charter schools and district schools. The original business, political, and education leaders of the systemic change are all gone.  That resulted in the traditional system taking control of the systemic change agent – charter schools.  Charter schools now mirror the traditional system.  While the number of charter schools has been increasing, an article in the August 2015 issue of Delaware Today magazine pointed out that, “Charters proliferated in a way never intended or anticipated.”
 
The Bold change is visible in the original draft of charter regulations prepared in October 1995 by Mike Ferguson, then State Superintendent of Public Schools and co-author of the Charter School Law.  That draft stated, “Reliance on bureaucratic decisions would be a thing of the past.” “…empower local communities to try new, unique solutions to problems that are facing their own schools...”  “Parents and teachers are less restricted by decisions made at a district or state level.”  “…empower local communities further with additional decision-making authority.”  “…try new approaches to learning without bureaucratic restrictions.” Superintendent Ferguson informed the founding president of the first charter school that, except for federal laws and laws involving health and safety, he was free to do whatever he thought was appropriate as long as he was willing to accept responsibility for the outcomes.  The Bold Plan of autonomy and accountability was emerging. 
 
More recently the “Bold” concept surfaced at the 2014 April Education Event sponsored by the Rodel Foundation.  At that gathering Andreas Scheleicher, a member of Rodel’s International Advisory Group, presented data showing that a school’s performance would be improved by giving the school greater autonomy coupled with involving teachers in the decision-making process (distributive leadership). 
 
The original Memorandum of Understanding offered to the Wilmington priority schools is another example of the “Bold” concept.   That document would have given the priority schools authority over employment decisions, developing and implementing their own budgets, deciding curriculum and instructional practices, school calendar, scheduling, and they would have autonomy from any district requirements not mandated by state or federal law.  An interesting question could be, if the drafters of the MOU believed that greater autonomy and accountability would improve student performance in the low performing priority schools, why wouldn’t they give it to all public schools?
 
This “Bold Plan” of autonomy and accountability leads to local control of schools.  That means our public schools will be customized and not standardized.  One size does not fit all therefore, we can focus on meeting the unique needs of the individual communities being served.  The Brookings Institution pointed out that decision-making authority must be transferred from school boards and bureaucracies and placed in the school buildings run by CEOs, Chief Education Officers, formally known as principals.  Placing operational control in local hands is quite logical.  Steve Jobs once said, “It doesn’t make sense to hire smart people and then tell them what to do; we hire smart people so they can tell us what to do.”
 
While some principals are “ready to go” most will require a transition that will take place over time as cadres of building principals are prepared and mentored to assume their new roles as CEOs.  As individual schools wait for the conversion they will operate as they currently do.  This will permit the transition to be as seamless as possible and provide for controlled growth.  CEOs will be responsible for operational issues – hiring, budget preparation, financial expenditures, curriculum, continuous improvement, etc. – with the assistance of teachers.  Boards and district officials will approve initial budgets, major capital projects, and will collaborate with CEOs to formulate goals.  They will review appeals of CEOs’ decisions, evaluate the performance of schools and CEOs, facilitate meetings of CEOs for the purpose of sharing ideas and experiences, and provide operational support in areas such as finance, legal, personnel, planning, marketing, etc. as requested by the CEOs.
 
The success of this systemic change is achieved through AA – Autonomy and Accountability.
The Bold Plan does not replace nor add to the efforts of Races, Visions, Committees, and Task Forces.  It enhances them.
 
Using AA the CEOs will establish a culture of success which will permeate the entire operation of the school (policies, practices, demeanor, expectations, curriculum, teachers, parents, students, etc.) and everything and everyone will align with it.  This is the same concept as self-fulfilling prophecy, positive attitude, or mental imaging.  The Charter School of Wilmington and the Newark Charter School attribute much of their success to the development of a positive culture.  In a 2012 speech delivered at the Delaware State Chamber of Commerce dinner, Marvin N. “Skip” Schoenhals, chair of Vision 2015 and WSFS Bank, credited the improvement at WSFS over a fifteen year period to a change in the bank’s culture.  He said public education had to do the same thing.
 
Adoption of the BOLD PLAN suggests other changes.  If schools are making operational decisions, do we need the expense and service duplication of 19 school districts?   Shouldn’t the state’s education funding formula be changed to accommodate the issues of poverty and special needs?  With parity established among schools could parental choice be far behind?


Certificate-of-Need and Health Care Costs: What the State Can Do
By Stacie Beck, Associate Professor of Economics, University of Delaware | 12/21/2018
 
Costs in any market, including health care, are reduced by raising productivity. The best way to achieve this is to release the forces of competition inherent in free markets. Proposed reforms of the Affordable Care Act (aka Obamacare) seek to do this on the demand side by incentivizing patients/consumers to shop for the best and lowest-priced care via i.e., health savings accounts (HSAs) and cross-state-border sales of health insurance.
However, less attention has been paid to supply side reforms.
 
When suppliers in any market are protected from competition they can charge higher prices.  They are also less efficient, adopt cost-saving technology more slowly and provide lower-quality services. Thus, the project of freeing the demand side is likely to backfire unless the supply side is also freed. A certificate-of-need program is an anti-competitive supply-side barrier under state control.
 
What is a Certificate-of-Need Program?
           
Under these programs applicants must establish to the state that there is a need for additional capacity before a certificate is granted to build additional health care facilities or make major equipment purchases. This was due to a mistaken idea that excess capacity raises prices, a plausible possibility under Medicare cost-plus pricing. Medicare reimbursement has since been reformed. Moreover, there was no evidence that health care costs were, in fact, restrained. For these reasons the federal government eliminated the incentive to establish certificate-of-need (CON) programs in 1987 after creating it in 1974. Nevertheless, state CON programs linger on in 34 states, including Delaware.
           
This planned-economy approach to health care supply is equivalent to denying a grocery store (like Walmart) a permit to build because there is already adequate grocery store supply in the area. A new, more efficient store enters because it can underprice existing stores. This creates excess capacity which forces less efficient stores to close. Even the threat of a new store will force existing stores to become more efficient, in order to deny the new entrant a market opportunity. This is how Walmart drove productivity gains in the retail sector throughout the US in the 1990s.[1]
           
Clearly, it is advantageous to existing health care providers to convince lawmakers to retain CON programs. One justification is that providers are required to provide free care to indigents. However, this is very inefficient.  Just as we provide EBT (food stamp) cards so families can shop at the best value grocery store, it would be more efficient and fair to switch to an explicit tax on health care providers to fund health care vouchers/HSAs for the indigent. Otherwise this anti-competitive barrier reduces the threat of entry, and insulates existing providers from price competition.
 
Delaware’s Certificate of Public Review (CON) Program[2]
           
Title 16, Chapter 93 of the Delaware Code establishes the program. It covers the construction or establishment of any health care facility, the acquisition of a nonprofit health facility, the expenditure of more than $5.8 million by a health care facility (with some exceptions), a change in bed capacity of 10 beds or more than 10% of licensed capacity (whichever is less), and the acquisition of major medical equipment (excluding replacement and with some exceptions).  The review process considers the ‘need of the population’, the effect on existing providers, the effect on cost and quality of health care, and the availability of less costly/more effective alternatives in-state or out and co-ordination with the Delaware Health Resources Management Plan (§9304-6).
           
In the application kit, applicants are asked to provide demographic data, utilization rates of existing providers, and impacts on existing providers. They also get the opportunity to describe the impact of the project on cost and quality of health care in the service area. There are even some irrelevant questions (e.g. Has the Applicant evaluated alternative uses to which these monies,..could be used…? Does the Applicant intend to employ energy conservation principles..?). Extensive financial data are expected and any other studies/analysis that Applicants may have conducted to reach the decision to file the application. More serious hurdles lurk in the Delaware Health Resources Management Plan.   
           
The Plan (last updated in 2014) explicitly prohibits the establishment of hospitals in Delaware for 5 years based on current versus projected capacity needs. Capacity needs are calculated using explicit formulas in the Plan. CPR applicants’ requirements for indigent (charity) care are laid out. While there is some discussion of other considerations, the major consideration appears to be whether additional capacity is justified based on demographic data and current capacity (existing providers). However, it is not really possible to determine how much weight is given to any one factor, including cost.
           
It is fair to conclude that Delaware’s CPR program is an anti-competitive barrier. Undue weight is given ‘current capacity’, i.e., existing providers. Applicants must provide highly detailed data, which will be made public thereby possibly giving away competitive advantage. Applications can be denied on a wide range of factors. Although only two applications of 47 were denied (2005-2016), there are no data on withdrawn and deterred applications.
 
Evidence of Effects
           
Statistical studies on the impact of CON programs such as Delaware’s CPR program on health care costs indicate that costs are not reduced. There is some evidence that costs are increased.[3] Studies on quality are mixed. However, it is difficult to measure the true impact of CON programs statistically because they are widespread (small control group) and their effect is through the deterrence of cost-saving activity which is hard to measure. Anecdotal evidence is easier to come by. The Federal Trade Commission and the Anti-Trust Division of the US Department of Justice make a very strong case for elimination of state CON programs, and cite specific instances of anti-competitive behavior by health providers that was facilitated by CON regulations.[4]
 
Conclusion
           
It is impossible to see any upside for health care consumers or insurers to Delaware’s Certificate of Public Review program, other than to ensure that providers are qualified and licensed to provide care. Excess capacity should not be a consideration, indeed, it is the mechanism through which new entrants to the market puts pressure on suppliers to reduce price. Nor should the financial/economic viability of new entrants or existing suppliers be a factor since it is better for consumers if inefficient providers are driven from the market. Right now, most care is paid for by third parties such as the State itself, or Highmark Blue Cross-Blue Shield. This may account for the failure to eliminate this program already. However, demand side pressure is likely to intensify as health care costs increase and the Affordable Care Act is reformed, as it must be to remain viable.
Two alternatives are possible. Political pressure could be brought to encourage the state legislature to repeal the law. Alternatively, CRI could investigate the possibility of suing to overturn the law. In the last two years, the Institute for Justice has brought cases in Iowa and North Carolina on behalf of market entrants who were blocked under CON laws.  
 
       

[1] The income gain through lower prices, especially to lower income families, has been established in the economic literature (Hausman and Leibtag, 2007)
[2] This information is available at dhss.delaware.gov/dhss/dhcc/hrb/cprpinfo.html
[3] See National Conference of State Legislatures at www.ncsl.org/research/health/con-certificate-of-need-state-lasws.aspx and Mitchell, Matthew “Do Certificate-of-Need Laws Limit Spending?” Mercatus Working Paper, September 2016.
[4] Joint Statement of the Federal Trade Commission and the Anti-Trust Division of the US Department of Justice to the Virginia Certificate of Public Need Work Group, October 26, 2015.