Hospital rates may be lowered Commission agrees to tighten costs of average Md. stay

3% higher than nation's

October 24, 1998|By M. William Salganik | M. William Salganik,SUN STAFF

After several years of crafting correction factors, recalibrating targets and trying on new caps, the Health Services Cost Review Commission decided yesterday to tighten hospital rates further.

The commission agreed to a goal of lowering the cost of an average hospital stay in Maryland to 3 percent below the comparable national figure over the next three years.

The Maryland cost is about 3 percent higher than the national benchmark. If national costs hold steady, as they have in recent years, the Maryland average would have to come down by 2 percentage points a year.

This is a more stringent goal than is in place. This year, the commission aims to have Maryland match national performance. is allowing hospital rates to increase by an average of 1.7 percent, assuming that continued shortening of hospital stays will result in little change in the cost of an average hospital stay.

During the fiscal year ended June 30, costs at Maryland hospitals increased by more than 3 percent, according to preliminary data, while the national figure was virtually unchanged. From 1976, when the commission began setting rates, Maryland went from 25 percent above the national average to 13 percent below in 1992.

Since then, Maryland costs have grown faster than other states for six straight years, and Maryland's cost advantage has disappeared.

'Take action'

"We have to take action to reverse these trends, for policy reasons and for political reasons," Robert Murray, the commission's executive director, said at a daylong planning retreat yesterday. If Maryland's performance does not improve quickly, he said, legislators are likely to abandon rate regulation.

Don S. Hillier, the commission's chairman, said, "The most important reason it's crucial is that the people who are paying for hospital care in Maryland are paying more than they need to."

While the commission reached consensus yesterday, it has to shape the goals into an official policy and adjust its rate-setting formulas to reach the goal.

Hillier said he hoped to get input from hospitals and insurers and complete the revised formulas by February, so they can go into effect in April.

Hospital complaints

New formulas could mean rate cuts for some hospitals. Others might get rate increases, but at a slower rate than they have been granted in the past.

Formula adjustments during the past few years have generated hospital complaints that the commission was squeezing too hard. A coalition of hospitals threatened a court challenge. HMOs urged the commission to be more aggressive.

"We know what we have to do," said commissioner C. James Lowthers. "The question is: Do we have the will? Or when the industry threatens to sue, will we head for the hills?"

Besides setting goals and discussing adjustments in formulas for the next few years, the commission began discussion of whether broader reforms are needed.

Consultants reviewed possible future alternatives. These ranged from continued "tweaking" of the system to a different regulatory system that attempts to take advantage of market forces to complete deregulation.

Pub Date: 10/24/98

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