Insurer may try to cut rates

Md. panel declines to block CareFirst's hospital negotiations

August 05, 1999|By M. William Salganik | M. William Salganik,SUN STAFF

The state's hospital rate-setting commission yesterday unanimously turned back an effort by the Maryland Hospital Association to stop CareFirst BlueCross BlueShield from negotiating new, lower rates with Maryland hospitals.

However, the Health Services Cost Review Commission said it will examine any new contracts to make sure they adhere to commission rules and state law.

Calvin M. Pierson, president of the hospital association, said the CareFirst contracts would be "an illegal discount" and circumvent the rate-setting process.

David D. Wolf, the executive vice president of medical management and strategic planning for CareFirst, said the new rates would not constitute a discount, but would simply provide incentives for hospitals to provide care more efficiently -- in the process, holding down costs for consumers.

And the commission, in effect, said it cannot tell whether a new CareFirst contract would meet its rules until it sees a contract.

"We wouldn't want to stop the [contract negotiation] process and prevent it from evolving into something that may be approvable," said Don S. Hillier, the commission chairman. If such contracts meet state regulations and hold down hospital costs, he said, blocking them "would do the state a disservice."

The hospital association had asked the commission last month to block any contracts until it could hold a hearing on CareFirst's plans.

"We're absolutely flabbergasted that the commission doesn't see the adverse policy consequences," Pierson said after the commission voted to allow negotiations to proceed.

Wolf said, "We are pleased that, when presented with the truth about this initiative, the commission dismissed the hospital association's allegations."

Currently, the commission sets rates for each unit of service -- a day in a hospital room, a CAT scan -- at each hospital. CareFirst is asking hospitals to agree to be paid on a per-case rate, based on the 525 "diagnostic-related groups" covering specific conditions or procedures, such as a birth, a hip replacement or pneumonia treatment.

CareFirst is attempting to negotiate rates that reflect the most efficient practices for each diagnosis. It expects to save $43 million a year, or 8 percent of its annual inpatient bill at the 33 hospitals in Central Maryland. The cost of an average hospital stay in Maryland is about 8 percent above the national average.

Wolf said the CareFirst plan is consistent with commission rules allowing alternative or package rates. The commission has approved about 300 such arrangements, he said.

However, Hillier said, those agreements generally apply to a single, fairly rare procedure, such as a transplant. Altogether, he said, such rates cover less than 5 percent of hospital volume in the state.

As a result, he said, a CareFirst contract under the new plan would require careful review of how the proposed efficiencies could be achieved before the commission could approve it.

Wolf said CareFirst had begun talking to hospitals in June, but that negotiations had stalled while the hospitals were waiting to see if the commission would block the process. Still, he said, he hopes to have about half a dozen such agreements concluded over the next month or two.

Pierson said the hospital association would consider other ways to challenge the process. He said allowing CareFirst to pay lower rates would encourage other insurers to negotiate similar deals, and could cause the federal Medicare program to withdraw its sanction of Maryland's rate-setting system.

While hospitals do not have to agree to CareFirst's proposed rates, they are afraid of losing CareFirst's patients, who account for about 15 percent of hospital care in the state, the association argues. Pierson said, "This is coercion by BlueCross, pure and simple."

Pub Date: 8/05/99

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