Last year, hospitals battled insurers over the state's formula for setting hospital rates, through task force meetings, hearings, a moratorium and a lawsuit. Finally, the Health Services Cost Review Commission crafted a compromise.
Yesterday, the cycle started again.
The staff of the commission, which sets Maryland hospital rates, proposed allowing hospitals an average rate increase of 1.7 percent to cover inflation over the next year.
Hospitals said they could agree to that as a compromise, but felt that 2.5 percent is justified. HMOs said the increase was too much, and got agreement from one of the commission members.
The commission is scheduled to vote on the inflation adjustment formula next month.
Robert Murray, executive director of the commission, said the staff's goal in setting the inflation adjustment figure was to keep Maryland's cost per hospital case the same in 1998 as it was in 1997. Because hospitals are increasing efficiency by getting patients out faster, Murray said, that could be accomplished while allowing an average rate increase of 1.7 percent.
The formula recommended by the staff would also include two "look-backs" during the year, so hospitals could get increases as high as 2.5 percent on average if the entire system performs better than expected.
This year, hospitals have been receiving increases averaging between 1 percent and 1.5 percent, Murray said. The actual increases vary from hospital to hospital; larger increases are approved when hospitals show that they have improved efficiency.
Henry J. Franey, vice president for finance of the University of Maryland Medical System -- which recently laid off about 200 employees -- told the commission that a 1.7 percent average increase would be accepted reluctantly since Maryland hospitals "have faced an avalanche of financial pressures in the last six to nine months," including last year's commission efforts to squeeze rates, the shift of the state's Medicaid program to managed care and increasing denials of claims by insurers.
From July through November, Franey said, a quarter of Maryland hospitals had lost money -- a turnaround from record profits in the two previous years. Wage costs and supplies are increasing by about 2.5 percent a year, he said.
On the other hand, Thomas P. Barbera, executive vice president of Mid Atlantic Medical Services, Inc., a Rockville managed care company, said the commission's goal has always been to keep Maryland's hospital cost increases below the national figure. "I think it's a mistake to say you would settle for a 'just-as-good-as' goal," he said.
Barbera, who is also president of the Maryland Association of Health Maintenance Organizations, said the HMO group supported a goal of keeping Maryland increases 2.5 percent below national benchmarks.
Maryland cost increases were lower than national figures every year for nearly two decades, but have been higher for the last four years.
He was supported by commission member C. James Lowthers, who said several years of tinkering with the inflation formula had resulted in actions that were "not aggressive enough" to solve the problem. "We need to fix it, and we need to fix it now," he said.