New babies and old issues 2nd-night-free flap stirs questions about regulatory tensions

February 25, 1996|By M. William Salganik | M. William Salganik,SUN STAFF

Talk about your motherhood issues

Here was St. Agnes Hospital, offering a second day in the hospital free to mothers who had just given birth. The offer came amid alarm over insurers covering only a 24-hour maternity stay.

And, seemingly aligned against motherhood were the state's technocrats who set hospital rates. Robert B. Murray, executive director of the Health Services Cost Review Commission, quickly fired up his fax machine, warning hospitals that "this policy may violate the equity provision of our enabling statute, as well as the provisions against unauthorized discounting."

Who would win, motherhood or technocracy? After a few days of talks, St. Agnes issued a statement last week that it recognized the authority of the commission and would apply for a change in rates.

The flap, though quickly resolved, underscores the tensions within the state's unique regulatory structure, more than 20 years old, and raises questions about how it can keep up with the health marketplace.

Unregulated health care providers are competing for hospital business. Dollar-conscious managed-care companies are looking for good deals -- and channeling patients to places that can offer them. Hospitals have been merging and expanding into unregulated pieces of the health business, such as nursing homes and physician practices.

"We're starting to see relationships a little bit strained," says Harrison J. Rider 3rd, senior vice president and chief financial officer for the five-hospital Helix system. "We used to go to meetings and talk about cooperation. Now less people are coming to those meetings -- they're off in closed-door meetings trying to cut deals to increase their market share."

Helix, said Mr. Rider, had asked the commission for permission to offer a second day free for maternity patients before the St. Agnes incident, and was told it could not. Instead, he said, it got the OK to cut its maternity room rate, from an average of about $500 to $300.

"We would like to see the system continue, but it certainly needs to be applied uniformly," Mr. Rider said. "If hospitals are going to be able to break ranks, we might as well go to a competitive system and have at it."

But after the baby battle, there's still substantial sympathy for the technocrats. Legislators and employer groups are pleased with the commission's success in holding down costs -- Maryland's per-case cost has gone from 25 percent above the national average to 8 percent below it.

And the cost review commission retains the support of the industry it regulates, so much so that earlier this month, when the commission cut inflation adjustments, the Maryland Hospital Association thanked it. One hospital executive, asked if he would like to be freed from regulation, muttered that he could be "thrown out of the association" for criticizing the system.

The rate-setting system allows the hospitals to recover the cost of caring for the uninsured. An allowance for bad debt and charity care is built into each hospital's rates, and everybody -- managed care organizations, Medicare, Medicaid, traditional insurers -- pays those rates. In other states, Medicare and Medicaid don't cover bad debt, and managed-care companies can negotiate discounts that mean they don't, either.

Because Medicare (federal health insurance for the elderly) and Medicaid (federal-state insurance for the poor) pay the same in Maryland as other insurers, the hospitals are insulated from delayed appropriations and sudden reimbursement cuts that bedevil hospitals in other states. And they don't have to worry that contracts with insurers will have to be renegotiated during a year for which they've already budgeted revenue.

"It gives them stability," says Gerard F. Anderson, director of the Center for Hospital Finance and Management at the Johns Hopkins School of Public Health. "This is a period of great uncertainty in health care -- we've seen boom and bust in some areas."

With the exception of three tiny hospitals, every Maryland hospital made money last year, yet profit margins are generally below the national rate.

The stability offered is relative; Maryland's system is still feeling the strains of an increasingly competitive health care market. Regulated Maryland hospitals chafe at trying to keep pace with two sets of unregulated competitors:

* Within the state, there is a growing number of freestanding outpatient surgery centers -- about 175 of them, according to the Maryland Ambulatory Surgical Association.

* Just across the state line, particularly in the District of Columbia, are hospitals that are not subject to Maryland regulation.

Both sets of non-Maryland-regulated competitors are free to cut rates and offer discounts to compete for managed-care contracts.

"Everybody's interested in increasing market share," Dr. Anderson says. "One way to do that is to reduce price, and if you can't reduce price, you may want to get rid of the regulators."

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