8 hospitals in Md. move into the red

Hospital rates still rose in 1998 despite efforts by state to curb costs

$100 million in profits cut

Hospitals complain cost-containment policy doesn't work

April 08, 1999|By M. William Salganik | M. William Salganik,SUN STAFF

With tighter state rate regulation helping to slice nearly $100 million from Maryland hospital profits, eight Maryland hospitals moved into the red last year.

The hospital-by-hospital results were included in an annual report released yesterday by the Health Services Cost Review Commission, which regulates hospital rates in Maryland.

The report also noted:

The cost of an average hospital stay in Maryland increased 3.74 percent for the fiscal year that ended June 30. Nationally, for the same period, the cost declined 0.77 percent. This is the sixth year in a row the increase in the cost of a Maryland hospital stay outpaced the national average.

The cost of an average stay in a Maryland hospital rose 6.11 percent above the national average. As recently as 1992, Maryland costs were 12 percent below national figures.

Although the commission's efforts to hold down costs did not dampen the cost of an average stay, the agency's efforts caused hospital profits to drop. The collective net operating profit of the state's hospitals was $212.0 million -- down 52 percent from $322.7 percent in fiscal 1997.

As a percentage of revenue, the operating profit margin slid to 4.4, down from 6.1 in the previous fiscal year. (The margin is based on operations of commission-regulated services, and does not include other services, such as parking and gift shops, or related businesses, such as hospital-owned physicians' practices.)

Still, the past few years have seen record profits, and the 4.4 percent margin was higher than in most years since 1976, when the commission began tracking profit margins.

"Clearly, prior strategies of cutting hospital rates have not produced the desired results," said Calvin M. Pierson, president of the Maryland Hospital Association. "Costs have continued to rise, and the financial condition of Maryland hospitals has deteriorated.

"The report is just one more indicator of the need to reinvent and fundamentally change the rate-setting system. The system's complex mix of incentives and controls is antiquated an no longer works in today's changed health care environment."

The commission has agreed to try to redesign its regulatory system by July, and has put interim controls in place designed to cut the cost per stay by 1 percent. "Our challenge," said commission Chairman Don S. Hillier, "is to maintain the benefits of the system, such as universal access to hospital care while restoring Maryland to its rightful place as a leader in hospital cost containment."

The hospitals have argued that cutting rates too quickly will shrink hospital margins too much.

While Maryland hospitals are nonprofit, the institutions argue that they need profits to allow them to acquire technology and make capital improvements.

Those margins did shrink for 33 Maryland hospitals, according to the report -- but improved at 21.

Hospitals that became unprofitable last year, according to the commission report, were Church in Baltimore, Garrett County Memorial in Oakland, Memorial at Cumberland, Montgomery General in Olney, Union Memorial in Baltimore and Washington Adventist in Takoma Park.

University of Maryland Hospital was in the black by itself, but had a deficit with the inclusion of its cancer and shock trauma centers, which are listed separately in the commission report.

Four hospitals had operating losses in both fiscal 1997 and fiscal 1998. One, New Children's Hospital in Baltimore, is in the process of closing its hospital operations. The others are Kent and Queen Anne's in Chestertown, Kernan in Baltimore and McCready in Crisfield. Three hospitals moved into profitability last year after losses the year before: Atlantic General in Berlin, Bon Secours in Baltimore and Northwest Hospital Center in Randallstown.

Pub Date: 4/08/99

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