Maryland's hospital regulatory agency has granted two Johns Hopkins Health System hospitals a 5 percent rate increase to cover $15.6 million in costs associated with closing financially troubled Homewood Hospital Center.
In addition, the Health Services Cost Review Commission wants to increase the cost per admission of each of the 62 Maryland hospitals under its jurisdiction an average of $5 to pay off Homewood's $7.8 million bond debt, according to John Colmers, executive director of the commission, which sets rates for the majority of Maryland's hospitals.
The 5 percent increase is temporary and went into effect March 1 at Johns Hopkins and Francis Scott Key hospitals, Mr. Colmers said.
The rate increase was approved at the commission's "March public meeting and reviewed again at the April public meeting by the commission," Mr. Colmers said. "All the activities of the commission are done at public meetings with public scrutiny. We have given ample opportunity for third-party payers to comment on these activities."
Two months ago, Hopkins said it would close Homewood in May and let 600 employees go because of financial losses brought on by changing patient needs and occupancy rates of about 63 percent, below the state average of about 73 percent.
Homewood lost nearly $3.7 million during 1990, the highest deficit recorded for a Maryland hospital last year. The Johns Hopkins Health System has told the cost review commission it expects a $4.3 million deficit this year for Homewood.
Every year, the cost review commission sets rates for its 62 hospitals, using a formula that takes into account inflation, numbers of Medicare patients served and other factors.
Mr. Colmers said that in recent years, the Johns Hopkins Health System felt it was operating profitably enough to accept less than the full increase offered by the commission. For example, if the commission offered a 6 percent annual rate increase, Hopkins might accept only 4 percent. Through doing this, Hopkins accumulated a credit roughly equivalent to $30 million, Mr. Colmers said.
The temporary 5 percent rate increase Hopkins received for Homewood will result in $15.6 million being subtracted from the health system's $30 million credit, Mr. Colmers said. He added that the rate increases at Johns Hopkins and Francis Scott Key hospitals would be discontinued when the costs of closing Homewood are taken care of, which should take a year or less.
A Blue Cross-Blue Shield of Maryland executive, Fran S. Soistman, said his company would pay for the higher rates.
"This 5 percent increase is a one-time cost reflecting the winding down of operations," said Mr. Soistman, who is director of provider assistance and relations. "We recognize there is a cost to winding down operations. However, we are concerned anytime that hospital costs increase, as those high costs are passed on to all users of hospital services.
"We would expect that the increased costs at Hopkins and Francis Scott Key will be offset by the savings from closing Homewood, in the long run," he said.
Ultimately, Homewood's closing should strengthen Maryland's health-care network, according to Mr. Colmers. "We think that from the state's perspective, there are clear advantages to removing excess hospital capacity," he said. "That excess capacity costs the system money, and removing it saves money. And that's why I believe the state has an interest in encouraging rational downsizing of the system."
The Johns Hopkins Health System's general counsel, Paul M. Rosenberg, emphasized that the 5 percent rate increase is only for Homewood's closing costs, "but not for the historical losses sustained over time."
The $15.6 million closing-cost figure includes such one-time expenses as contract termination provisions, liquidation of Homewood's balance sheet, vacation pay and unemployment expenses, Mr. Colmers said.
A study done by an independent accounting firm hired by Hopkins indicated that Homewood's departure would save the health-care system $80 million over the next 10 years, Mr. Rosenberg said.
A decision on whether each hospital covered by the health review commission can charge an additional $5 per admission to cover Homewood's bond obligations will be made by the commission next month, Mr. Colmers said.
Maryland is the only state in the country where hospital rates are set by a governmental regulatory body.
Mr. Colmers said Homewood "had rates that were excessively high. The rates at the facility, from our standpoint, were clearly unreasonable and needed to go down."
Last year, Homewood and the cost review commission reached an agreement under which the hospital set target dates for gradually reducing its expenses.
In July 1988, the Johns Hopkins Health System merged two of the four hospitals then under its aegis, 213-bed North Charles Hospital and 75-bed Wyman Park Medical Center, to form Homewood Hospital.