Going private helps UM Medical System

PRESCRIPTION FOR CHANGE

May 24, 1992|By Patricia Meisol | Patricia Meisol,Staff Writer

When new managers at the newly privatized University of Maryland Medical System went looking for the source of the system's money troubles nearly a decade ago, they discovered a "Cost Overrun Approved" rubber stamp.

Astonished, they deposited the stamp with a historian and moved, successfully as it turned out, to change old habits. Last year the medical system -- University of Maryland Medical Center, Cancer Center and Shock Trauma Center -- reported net income of $5 million a year, about the same amount it used to lose annually in the rubber-stamp years.

In the eight years since the system went from public to private, non-profit status -- which freed it from state rules that hampered its competitiveness -- its cash flow has consistently increased, its patient volume has skyrocketed, and its facilities have undergone $130 million of long-overdue renovations the state couldn't afford.

Also in that time, the system has opened a new $43 million Shock Trauma building and and contracted with the state to manage Montebello Rehabilitation Hospital; it will take ownership Montebello, in Northeast Baltimore, July 1.

Construction on a more efficient and customer-friendly $85 million inpatient medical treatment center begins this summer. A second building for outpatient services is planned for 1996.

And the medical system and its public partner, the University of Maryland School of Medicine, embarked last week on a joint $125 million, five-year campaign to raise funds for more building improvements and new education and research programs.

"It is a very positive example of a state facility that the state government divested itself of and which turned around," said Del. Howard P. Rawlings, D-Baltimore, who led the 1984 fight in ** the General Assembly to privatize the then-failing hospital.

Despite the success of its turnaround, the future presents new challenges. As the hospital enters an era of fierce competition, it faces a growing bill for caring for the poor. In addition, it has built for itself a niche in specialties that are expensive to maintain -- trauma, cancer, cardiology, pediatrics and neonatal care.

"We are good at providing services at a very high level to very sick patients," said Roger Lipitz, chairman of the hospital's board, which is appointed by the governor. "My concern is, we have enormous capital needs because of the age of our buildings and, secondly, the uncertainty of where health care is going in the 21st century."

The 747-bed medical system in downtown Baltimore was hemorrhaging in the early 1980s when hospital regulators began arguing that a private institution would cost less.

Lawmakers took notice. At the time, the medical system was the most costly in the state. It remains one of the most expensive, partly because it treats a higher proportion of seriously ill patients than any other hospital in the state. But its costs have grown only about two-thirds as fast as other hospitals' in the state. (This year they are 3.4 percent above the state average, compared with a high of 8 percent above in 1988, when state regulators forced the system to slim down by denying it an annual rate increase for inflation.)

Except for the Shock Trauma Center, it pays its own way, saving taxpayers an estimated $49 million and increasing productivity 16 percent in the past five years, according to hospital estimates.

The medical system's historic mission of providing comprehensive care for the poor and elderly of West Baltimore continues. But the medical specialties it successfully nurtured over the past decade also have attracted more private-payment patients. From 1986 to 1990, a period when hospital admissions nationwide were unchanged, the number of patients admitted to the medical system grew 22 percent.

By going private, the medical system increased productivity in a number of ways. First, employees' paid holidays were cut in half, to seven from the 14 state workers get. A new patient billing and collection system improved cash flow.

"We invested heavily in computers," said Robert A. Crencik, senior vice president for finance. "The thinking was, if we can bill and collect more efficiently, it would reduce [the cost of] uncompensated care."

The cost of providing charity care, as a percentage of revenues, dropped more than 1 percentage point at the medical system from 1982 to last year, Mr. Crencik said, while the statewide bill in the same period increased 2.38 points.

In addition, a private structure left the system free to set competitive salaries to attract and retain nurses and other health professionals, to join consortiums that buy equipment at a discount and to renovate without waiting up to seven years -- when technology could have changed dozens of times -- for state approval.

"You can't run a hospital and keep it modern and up-to-date when you have to go through the state bureaucracy," said John M. Dennis, who retired in 1990 as dean of the medical school after 17 years.

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