Hospital payment change sought

CareFirst pressing for acceptance of a flat-rate system

June 25, 1999|By M. William Salganik | M. William Salganik,SUN STAFF

CareFirst BlueCross BlueShield, the state's largest health insurer, is pressing hospitals to accept a new payment system in which they would be paid a flat rate for each type of case.

CareFirst says the system will save money for its subscribers and promote efficient care, but the Maryland Hospital Association complains that CareFirst is simply using its muscle to force a rate cut.

The insurer wrote to hospitals last week, briefly explaining the new system, and began meeting with hospitals this week to provide fuller explanation and to propose new rates.

The proposed system would save an estimated $43 million a year when fully operational, or about 8 percent of CareFirst's annual inpatient bill at 33 Central Maryland hospitals, said Dr. Eric R. Baugh, senior vice president for medical affairs. CareFirst uses a similar payment method in the District of Columbia and Northern Virginia, he said, and finds its costs lower there.

"We're looking to leverage our volume," Baugh said. "We do 40 percent of the business that's done in the state."

But Nancy Fiedler, senior vice president of the Maryland Hospital Association, said, "This is a discount Blue Cross is not entitled to. This is an inappropriate use of their market clout." She said hospital profits are already dropping under new cost-control measures taken by the rate-setting commission, and the CareFirst rates could "destabilize" some hospitals.

Of the possibility of hospitals closing, Baugh said, "There is that potential. In any business arrangement, people need to make hard decisions. Some of those hard decisions that should have been made historically, we're at a place they have to be made now."

However, he continued, "some of these things are going to happen anyhow," with inefficient hospitals closing whether CareFirst changes its payments or not.

Currently, most hospital bills are paid according to rates set for each service at each hospital -- for example, so much for one day in a hospital room, so much for a certain radiology procedure. CareFirst wants to switch to paying according to 525 "diagnostic-related groups," covering specific conditions or procedures, such as a birth, a hip replacement or pneumonia treatment.

Baugh said this would free hospitals from detailed CareFirst review of each bill. For example, hospitals have complained about "denied days," when a patient stays for six days, but the insurer says the stay should have been five days and refuses to pay for the sixth.

But David Smith, senior vice president for system development at Suburban Hospital in Bethesda, said he thought the new system would place more of an administrative burden on hospitals, since they would have to do the care management done by HMOs.

Each hospital deal would require approval from the Health Services Cost Review Commission, which sets the unit rates.

Robert Murray, the commission's executive director, said the commission has already approved many case-rate deals for specific conditions, but never one for all inpatient treatment at a hospital. He said case rates are approved "if they structure incentives for hospitals to provide care more efficiently."

However, he said, the commission will not permit hospitals that cut rates for one payer to shift costs to other payers, so it will deny case-rate plans if the savings are not "realistically attainable."

CareFirst has explained the concept to his staff, Murray said, but did not provide any numbers.

Baugh said CareFirst hopes to sign up seven hospitals by September, and wants deals with all 33 hospitals in the Baltimore area and in the Washington suburbs by the second quarter of next year.

If hospitals choose not to participate, said Suburban's Smith, "their implication is that [CareFirst] will end up channeling admissions to those hospitals that do sign agreements."

Baugh said CareFirst wants to make all Maryland hospitals available to its members, "but if a hospital decided not to participate, we would take our best utilization review nurses and put them in that hospital and look at everything they're doing. We're still going to get those efficiencies; it's just going to be a little more painful for the hospitals that don't play."

Suburban Hospital officials, who met with CareFirst on Wednesday, were among the first to hear the presentation. Smith said he needs to study the plan, but at first glance, it would mean a "double-digit" rate cut.

Robb Cohen, a principal with Phoenix HealthCare Consulting, a Baltimore firm working with CareFirst on the system, said the figures for each hospital would "get the state to where it needs to be," slightly below the national average cost of a hospital stay. Maryland costs are about 8 percent above the national figure.

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