Has the Maryland hospital regulatory system outlived its usefulness? Is Maryland the leader or the laggard of health reform? Those are the questions the state's business leaders are asking these days. With good reason:
* For the first time in 18 years, Maryland hospital costs rose faster than the national average in 1993.
* At the same time, Maryland hospitals earned record profits on declining admissions.
* At least two hospitals in the past two months asked for and received permission to lower their prices. They are doing this to stem a heavy loss of patients to less expensive medical providers, and they have convinced regulators they can attract enough patients so they won't lose money.
Tomorrow the panel that sets hospital prices, the Maryland Health Cost Review Commission, is expected to take emergency measures to reduce rates for next year. For the first time, hospitals may have to forego automatic annual increases for new services and capital projects. In the past, they routinely spent this money and raised rates in the process.
The regulatory system began in 1971 to control what were then the second-highest hospital admission charges in the country.
Its chief benefit is this: A person without insurance can get free medical treatment at any Maryland hospital. People with insurance pay for it in higher prices for services, but even with the add-on, their hospital costs have been rising more slowly than the national average.
Moreover, everybody -- except for the poor -- pays the same rate for the same service at the same hospital. One doesn't have to negotiate at the door for an operation as if it were a used car. In other states, the middle class pays a premium, and people with clout get huge discounts. In Maryland, there are no discounts.
The chief complaints against the Maryland system are (1) hospital costs continue to rise faster than the rate of inflation, and (2) there is no incentive to lower prices, since hospitals get back their costs plus a fixed increase for inflation and for 'N expansion or improvements, as long as they improve efficiency. Thus, the cost of a night's stay in the hospital is more expensive than ever, even if people stay there less.
If the Maryland system is so good, asks Doug Sherlock, a Philadelphia managed care consultant, why haven't other states rushed to copy it? Why do hospitals like it so much? Have consumers really enjoyed savings? He argues instead that the system has stabilized prices at a very high level.
His research shows that per-person costs for Medicare patients in regulated Baltimore hospitals now outpace those in unregulated San Francisco hospitals by $518 to $444. His point is that hospital prices in a regulated environment keep rising.
And the higher costs have spurred the growth of cheaper nonhospital medical services, including operating suites and recovery facilities. Washington, D.C., health care consultant Larry Lewin ranked Maryland 20th-highest of 50 states in total health care cost increases over the decade.
So what's going to happen? Regulators and hospital executives concede the Maryland system has run into obstacles. But they liken it to a constitution that needs amending, not abolishment. They have set about modifying the system to give hospitals more freedom to lower prices and respond to the marketplace. Stay tuned.