Md.'s way to help the needy

The Economy

April 29, 1996|By JAY HANCOCK

IN CALIFORNIA, people without health insurance are funneled into second-rate, "public" hospitals. In New Jersey, hospitals are running out of money to treat the uninsured and threatening to close clinics for the poor.

In Washington state, residents have to pay a 2.9 percent motor-vehicle excise tax to finance charity medical care -- on top of what they contribute through the Medicare and Medicaid programs.

Across the country, the medical safety net for the "working poor" is fraying, tearing and needing new support. HMOs and other "managed care" insurers have clamped down so hard that even many nonprofit hospitals, for decades the last haven of the ill and desperate, just don't have the money to treat uninsured people who can't get Medicaid.

"As long as those of us who are responsible for these institutions believe that we have committed ourselves to caring for the community, and don't close our doors, we are going to be in great difficulty," the boss of an inner-city Boston hospital system told the New York Times this month.

You don't hear comments like that in Maryland.

Here's why. For two decades, state regulators have baffled experts and performed what some consider an economical impossibility: helping the needy and saving money at the same time.

Marylanders without coverage aren't stashed in segregated medical warehouses. They're treated at the same places as rich folk.

Maryland hospitals have enough money to care for the uninsured without crawling hat in hand to the State House. (In Indiana, the legislature raised property taxes to cover charity care.)

Where does the money come from? Private health insurers, employers and their policyholders, whose hospital bills get systematically padded to subsidize the poor. No "free care" is ever free.

But the price seems a relative bargain.

Twenty years ago, Maryland hospital costs were 25 percent above the national average. Today, they're 6.5 percent lower. Maryland hospital costs have increased a third less than the national average since the mid-1970s. That's savings of more than a $1 billion.

How does Maryland do it? Price controls. Capital-spending limits. Central planning.

Regulation. Mr. Gingrich's favorite word.

As a bureaucratic, market-meddling engine, Maryland's rate-control setup "is clearly scary," said Len Nichols, a health-care economist for the Urban Institute in Washington. "It sounds like Canada. It is like Canada. And in America, that's a long way from where folks are used to being."

Medical financing hasn't been neat or fair for a long time. Anywhere.

For years, insurance companies didn't mind when hospitals padded bills and used the cushion to help the poor. The insurers simply raised prices. But when subscribers grew tired of double-digit medical inflation, the setup unraveled.

In most states, insurers now bargain hard on hospital prices. Almost nobody pays hospitals' listed charges. "We're not subsidizing your poor any more," HMOs tell the hospitals, in effect. "Don't like our offer? We'll send patients elsewhere."

The result can be viewed in New Jersey. Unable to afford charity care, hospitals have turned to the legislature. But the legislature is balking, and administrators are getting ready to close hospital wings. Inner-city hospitals, with high charity loads, are the victims.

Maryland's solution, hit upon years before any of this was a problem, is to outlaw the medical bazaar found in most states. Insurers can't dicker on hospital prices here. They pay sticker.

And the sticker is carefully set by regulators to account for all costs -- including $400 million in annual uninsured care. At the same time, state rate czars try for efficiency. They don't rubber-stamp every price boost a hospital requests.

Maryland hospitals like it -- in part, cynics say, because it shields them from the kind of gouging competition that has closed institutions in other states.

"It's probably one of the most successful systems in the nation in terms of addressing uncompensated care," said Nancy Fiedler, spokeswoman for the Maryland Hospital Association.

It is not fashionable to regulate industry these days. The telephone companies, the railroads, even the power companies now know the market's sting.

Many argue for exposing medicine, too, to the economic elements. Maryland coddles hospitals and breeds inefficiency, they contend. Even Bob Murray, the state's top medical-price regulator, sees fat in a system where 40 percent of licensed hospital beds go unused.

"My own feeling is, yes, there is excess capacity here, and it's something that does represent some level of inefficiency," he said.

But medicine isn't like any other business. It is as essential as food, yet available only through a licensed priesthood of expensive care givers. Medicine's customer, the patient, almost never pays directly for the product and generally has no idea what the price is. That's not what Adam Smith had in mind.

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