2 hospitals seek OK for lower prices

January 08, 1994|By Patricia Meisol | Patricia Meisol,Staff Writer

In a development that signals a major change in Maryland's unique system for controlling health care costs, two hospitals are seeking special permission to lower their prices for selected services to compete with entrepreneurs who are treating an increasing number of their patients in offices, malls, industrial offices -- anywhere but hospitals.

Maryland rate setters, under pressure from key players in the state's $4.5 billion hospital industry to provide relief from these lower-cost centers, say they are willing to entertain more such proposals and allow different pricing arrangements on a trial basis.

In an application made public this week, the Greater Baltimore Medical Center is asking the Maryland Health Services Cost Review Commission to approve a lower rate for certain endoscopy procedures to match that charged by competitors.

The hospital said it would find ways to cut costs to justify the lower rate and that, if necessary, it would borrow money from cash reserves to subsidize the cost of operating-room time and other items that GBMC is required to charge for endoscopy.

The application for an exception to the state's highly touted rate-setting system, apparently the first of its kind, comes as hospitals everywhere are losing business to free-standing outpatient centers. GBMC and others say the current system doesn't allow them to compete fairly. Their prices are higher partly because they treat the uninsured and partly because they are not as efficient.

"We believe the hospital industry will have to change the way it operates by offering the insurance companies fixed, 'bundled' prices for selected services to be competitive with the free-standing facilities," GBMC said in proposing the plan in November.

Endoscopy involves minimally invasive procedures in which doctors use a tube with a tiny video camera to examine organs of the digestive system. GBMC is proposing to charge $397 for certain major endoscopy procedures, $100 to $200 below its current rate.

GBMC filed its proposal two months after it asked state planners to withdraw permission from four independent endoscopy centers to operate. A hearing officer has rejected its plea; a final decision is due next week.

Normally, Maryland hospitals may not discount their rates below cost. This is to prevent the cost-shifting that has driven up prices in other states. Over the years, the Maryland system has been praised for keeping overall cost increases lower than the national average but criticized for failing to permit or encourage competition that could lower costs even more.

This week, in response to GBMC's proposal and a second one from North Arundel Hospital, state regulators said they would consider alternative pricing arrangements from any hospital. John M. Colmers, the executive director of the cost review commission, said the plans would be judged on how well they fulfill the system's goal of ensuring access and its prohibition against cost shifting.

The second case comes from North Arundel Hospital. The Glen Burnie facility, which lost $1.2 million last year, wants permission to develop its own managed-care network and take the risk of treating patients whose care may cost more than the flat monthly fee it would charge insurance companies.

Both proposals represent attempts by the hospitals to show the marketplace that they can compete on price and quality.

"I think it is an intelligent, anticipatory response to what is happening in the health care marketplace," said George D. Pillari, chairman and chief executive of HCIA Inc., the Baltimore-based hospital information company.

"The rate commission has always hindered this kind of activity, leveled the playing field to a certain extent. The hospitals are realizing that they don't have to be lumped in there with everybody," he said.

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