State seeks to revamp rates

CareFirst's effort to negotiate lower hospital costs delayed

August 27, 1999|By M. William Salganik | M. William Salganik,SUN STAFF

A state attempt to "reinvent" the way it sets hospital rates will delay efforts by CareFirst BlueCross Blue- Shield to negotiate lower rates on its own, House Speaker Casper R. Taylor Jr. said yesterday.

The Health Services Cost Review Commission (HSCRC), which decides what the state's hospitals are permitted to charge, began the reinvention effort in March in response to several years in which the cost of an average case in Maryland increased faster than the national average.

CareFirst, the state's largest health insurer, began its effort to drive down rates in June, when it said it wanted to negotiate a new rate system with the hospitals. The Maryland Hospital Association fought CareFirst's initiative, saying it was against the state's rules.

Taylor stepped into the fray this month, when he and Senate President Thomas V. Mike Miller wrote to the HSCRC urging development of possible changes in the system in time for the Legislature to consider a plan when it convenes in January.

To meet that schedule, Taylor said yesterday, it was necessary for regulators, hospitals and insurers to "clear the decks" and focus on reinvention.

After discussions with the parties, he said, "my understanding is there will be a moratorium" on the CareFirst rate deals -- known as alternative rate applications, or ARAs -- "until we get reinvention done."

Each CareFirst rate deal would require HSCRC approval, and Robert Murray, the commission's executive director, had said that reviewing such complex deals could be time-consuming.

More negotiations

Jeffery W. Valentine, director of corporate communications for CareFirst, said the insurer will continue to negotiate with hospitals to try to agree on lower rates.

He added, however, that "we're more interested in the reinvention process. If that means the commission needs to set aside its evaluation of ARAs in the meantime, reinvention will have a greater impact on people."

Murray said the HSCRC thinks it could complete the outlines of a reinvention plan by the end of the year. If it received one of CareFirst's alternative rate deals for review before then, he said, the commission would have to review priorities and determine whether it could get the review done without slowing reinvention.

Larry Lawrence, a vice president of the hospital association, said, "We are fully in agreement with what seems to be the intent of the [legislative] leadership letter: to put Blue Cross aside until reinvention is completed."

The HSCRC has been setting rates for nearly a quarter-century, determining how much each hospital can charge for each service. Additional costs, such as care for the uninsured and the cost of medical training, are built into the rates.

In 1976, when the commission began setting rates, a hospital stay in Maryland cost 25 percent more than the national average. By 1992, costs in Maryland were 12 percent below the national average.

Since then, costs in Maryland have grown faster than national benchmarks. Last year, the cost of an average hospital stay in Maryland was 6 percent higher than the national average.

8% cost cut expected

CareFirst has been seeking contracts with hospitals that would pay by the case rather than by units of service, such as X-rays or days in a hospital room. It said it expected to cut its hospital bills by about 8 percent.

The HSCRC permits such per-case rates but examines each proposed contract to make sure it doesn't result in added charges to other payers.

Taylor said he is confident that "reinvention" can be passed in next year's legislative session as part of a "pretty aggressive legislative package on health care."

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