State panel cuts hospital rates by 3% But nearly a quarter of institutions face larger reductions

'Changing the rules'

Cost commission alters new formula to control charges


September 04, 1997|By M. William Salganik | M. William Salganik,SUN STAFF

Attempting to resolve a running controversy over a new formula to control health costs, the state's hospital rate-setters yesterday approved modifications -- leaving most hospitals better off but targeting deeper cuts at a few.

The revised formula will trim nearly 3 percent from the rates at most hospitals, instead of the nearly 4 percent figure generated by the original formula. But about a quarter of the state's hospitals face additional reductions.

The net effect will be to reduce hospital charges statewide by 3.72 percent below what would have been allowed by annual inflation adjustments, rather than the 3.86 percent set by the original formula.

The action drew noncommittal responses from the hospital and HMO trade groups, which have been on opposite sides of the debate over how to regulate rates. The hospitals had argued the commission was being too aggressive in controlling rates. The HMOs had retorted that hospitals were making record profits, and strong action was needed to hold down costs for consumers.

Hospitals now targeted for greater cuts, however, were upset by the modifications.

The impact of the Health Services Cost Review Commission's action will vary from hospital to hospital. Under the compromise outlined yesterday, many will get rate increases anyway, although they will be smaller than they would have been.

According to preliminary estimates by the commission staff, nine hospitals would be hit with corrections larger than 3.72 percent -- Bon Secours, Church, Good Samaritan, Greater Baltimore Medical Center, Liberty, Memorial of Cumberland, Northwest, St. Agnes and St. Joseph.

Those are hospitals that have "banked" revenue, meaning they charged less than commission-approved rates, and which would have been identified as high-cost hospitals by commission formulas if they had charged the full rates allowed. Previously, they could have added the "banked" money back into charges later, but the new formula pressures them to give up their banks or take penalties.

"I left significant money on the table" in an effort to hold down costs, said Lawrence Rychlak, chief financial officer for Bon Secours Baltimore Health System, which includes Bon Secours Hospital and Liberty Medical Center, both in West Baltimore. For example, he said, Liberty raised rates 2.5 percent last year when it could have boosted them 7 percent; it banked the difference.

"If I had known, I would have charged all that I was allowed by law to charge, and that would have been worse for the system as a whole," Rychlak said. "We've been making the right moves, and now the system is changing the rules."

John Ellis, chief financial officer at St. Joseph Medical Center, said his Towson hospital had been planning to take no rate increase this year, using banked revenue to offset the commission's rate-cutting formula. Now, Ellis said, he expects a rate cut of 1.4 percent, costing the hospital about $2 million in revenue.

This might mean further cuts, he said, in addition to $2 million in cost savings implemented in the past few months. The hospital eliminated 44 positions, although with vacancies and transfers, fewer than 20 workers were laid off, he said.

Robert Murray, executive director of the rate-setting commission, said banking "served a more appropriate policy purpose in the past," but meant that banked charges "come back into the system in following years," although the system was already generating "excessive" rate increases.

Also, yesterday, the commission agreed to begin a study of its whole rate-setting system, in hopes of having a less contentious zTC system in place for next year. And, it agreed to give quick reviews to hospitals who feel this year's rate squeeze causes a hardship when combined with state Medicaid reforms. Some urban hospitals, which serve most of the Medicaid patients, have estimated the reforms could cut their revenue by about 6 percent, in addition to the rate squeeze.

The formula trimming 3.86 percent was supposed to have gone into effect in April -- triggered by a commission study showing the cost of an average hospital stay in Maryland increased 4.52 percent last year, about double the national average.

But after objections from the hospitals, the commission delayed the formula, setting the stage for a summer of hearings, task force meetings and position papers leading up to yesterday's modifications.

Pub Date: 9/04/97

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