Hospital rate rules under fire

April 16, 1995|By John Fairhall | John Fairhall,Sun Staff Writer

When ailing Marylanders enter a hospital, a unique regulatory system stands behind them, holding down hospital rates and guaranteeing care for those who can't afford to pay.

It's been this way for more than 20 years, since the state legislature created a hospital rate-setting system, still the only one of its kind in the nation.

But today the system faces unprecedented challenges and growing demands for change from insurers and employers.

The Maryland Chamber of Commerce, under president Champe C. McCulloch, is urging Gov. Parris N. Glendening to form a commission to consider overhauling the system. There is a "crisis in the regulation of health care," the organization says.

Jeff D. Emerson, chief executive of HealthPlus, a Greenbelt-based health maintenance organization, recommends that the system be discarded. "I think it squelches competition" among hospitals, keeping rates higher than they should be, he says.

Even state legislators -- who are proud of the regulatory system's accomplishments -- are raising questions. Rather than approve hospital regulators' proposals to impose new costs on community surgery centers, the General Assembly recently decided to study the issue this summer.

That study could become a springboard for a far-reaching examination of the regulatory system's continuing effectiveness. "I think it's not only time, but long overdue," Mr. Emerson says.

The regulation debate results from changes that are transforming the health-care system.

Cost-conscious insurers are demanding cheaper alternatives to inpatient services, encouraging the development of community outpatient surgery centers and expanded use of nursing homes to treat patients who otherwise would remain hospitalized. Hospitals are responding by breaking down competitive barriers and forming alliances with other hospitals, doctors and other providers of health services.

"In an industry undergoing change as rapidly as the health-care industry," the chamber says in a letter to Governor Glendening, "attempts to regulate become increasingly more difficult."

The critics' concerns extend to the entire state health-care regulatory system.

In 1971 the legislature authorized creation of what eventually became the Health Services Cost Review Commission, which regulates hospital rates. Then in 1982 the Health Resources Planning Commission was established to determine how many health facilities -- from hospitals to nursing homes and surgery centers -- Maryland needs. In 1993, another agency, the Health Care Access and Cost Commission, was set up to make the health-care market work more efficiently.

In addition to the three agencies, the state Department of Health and the Maryland Insurance Administration oversee health services and health insurers.

"The overlap and confusion are obvious," the Maryland Chamber of Commerce says of the regulatory system, "as are the costs and delays involved in such a complex regulatory superstructure."

Spurred on by the chamber and their own questions, legislators have directed regulators to prepare a report on how the agencies coordinate their efforts.

But neither the chamber nor the legislature has reached the point that Mr. Emerson has. The hospital rate-setting system, which is the foundation of state regulation of the health business, continues to enjoy support in Annapolis and in the politically influential hospital industry.

"It unquestionably is the most effective system in America," says Larry Lawrence, executive vice president of the Maryland Hospital Association, noting the record of cost control and providing charity care.

"We haven't seen any indications whatsoever that there is any undermining of support for the system," he says.

The question raised by most people isn't whether the system should be abandoned, but how it should be changed. "Some degree of regulation of this critical part of Maryland's economy is undoubtedly appropriate," the chamber acknowledges. "Defining the right form of involvement by government is the challenge."

Business advocates favor greater reliance on competition as a means of forcing hospitals and other health services to become more efficient. Regulators agree such competition is good, but say it must be guided to prevent the kinds of serious problems that gave rise to the regulatory system in 1971.

Hospital costs then far surpassed the national average, a problem that insurers, employers and consumers shared in the form of higher charges for patient care. Marylanders who didn't have insurance were becoming a costly burden.

The legislature passed a law creating a regulatory system founded on these goals: to contain costs, provide access to hospital care for all Marylanders and increase the fairness of the payment system, which featured different rates for different patients.

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