Hospital cost rein sought Some deregulation of rate-setting system is urged at hearing

March 25, 1997|By M. William Salganik | M. William Salganik,SUN STAFF

Hospitals, insurers and the Chamber of Commerce agreed yesterday that Maryland's hospital rate-setting system could use a dose of deregulation.

They disagreed, however, about how much and how quickly. They testified at a public hearing conducted by the Health Services Cost Review Commission, which has been setting Maryland's hospital rates for more than 20 years.

"We must move boldly and rapidly to anticipate and keep pace with the phenomenal evolution occurring" in health care and insurance, David Daneker, Maryland Hospital Association board chairman, told the commission in supporting limited deregulation.

That represents somewhat of a shift for MHA, long a steadfast supporter of rate regulation. Several hospital administrators joined Daneker in a call for looser regulation.

Insurers, who want to be free to negotiate discounts with hospitals, argued for more and faster deregulation.

"Freer and greater competition, coupled with better-informed consumers, offers the best hope to rein in runaway health costs," said David D. Wolf, executive vice president and chief operating officer of Blue Cross Blue Shield of Maryland.

Rate regulation has resulted in high hospital profits despite low occupancy, said Mark Smolarz, vice president for administration at Prudential HealthCare of the Mid-Atlantic. "Deregulation would probably force some hospital closures," he added, "but not necessarily result in a net loss of jobs as personnel of closed hospitals could be hired at the remaining hospitals."

The cost review commission is considering a major loosening of controls in two areas:

Outpatient services. Currently, the commission sets rates for outpatient services performed at a hospital, but not for those done off campus or at free-standing surgical centers. It is considering how and whether to deregulate hospital-based outpatient services. Outpatient business is increasingly important for hospitals: 26 percent of revenue now, and expected to grow to 40 percent in five years, according to Larry Lawrence, a vice president of MHA.

"Capitation" deals with HMOs. Under such arrangements, an HMO would pay a hospital a flat fee per member per month, and the hospital would be responsible for providing all care for those members. The commission's staff has recommended allowing such deals but requiring hospitals to offer the same rates to any payer. Hospitals and doctor groups are interested in negotiating flat-rate deals so they can benefit from any savings they generate from delivering care more efficiently.

The hospitals supported both changes, saying they needed flexibility to compete with unregulated ambulatory surgical centers and with hospitals in the District of Columbia.

Insurers said a free market in both areas could produce better cost control than regulatory rate-setting.

A note of caution was sounded by John Cook, a health consultant working for the commission. He said deregulating both areas at once could leave the commission without enough revenue under regulation to keep costs under control and to assure that hospitals care for the uninsured.

And representatives of ambulatory surgical centers said the bTC limited deregulation could create an unfair advantage for the hospitals.

"If that were a pinball machine, it would flash, 'Tilt,' " said Dr. Lawrence Pinkner, a plastic surgeon and president of the SurgiCenter of Baltimore in Owings Mills.

He said hospitals that cut outpatient rates could shift costs into their inpatient rates, driving up those charges.

Pub Date: 3/25/97

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