Hospital-rate panel split over increase

Study: The work group agrees on long-term goals but is at odds over how much to raise costs for this year.

January 29, 2000|By M. William Salganik | M. William Salganik,SUN STAFF

A work group trying to redesign the state's hospital rate-setting mechanism reached broad consensus yesterday on the shape of the system and on long-term goals, but remained split on how much of a rate increase hospitals should get this year.

The work group will meet again next week, after reviewing a new rate proposal from Maryland hospitals. The hospitals have been seeking a rate increase for the year equal to inflation -- 2.5 percent to 3 percent -- and argued that anything less could cause the quality of care to deteriorate. Insurers have been pushing to hold the increase to 1 percent, saying Maryland's costs need to be brought under control to benefit consumers.

The work group plans to present its report to the Health Services Cost Review Commission next week, and that panel, which sets hospital rates in the state, will make the final decision. The commission's staff has recommended a 1.5 percent increase for next year.

There was also some disagreement in the work group over how tightly and how often the commission should monitor whether individual hospitals, and the system as a whole, are meeting cost goals.

"There's been frustration over the years that we think we've fixed the system, and we haven't," said Robert Murray, the commission's executive director, arguing for aggressive monitoring. "We need some mechanism to account for slippage and how it's addressed."

But the knottiest issue was how to set rates for the year beginning in July.

"Both hospitals and payers have low profits, and both are worried about profits in the next 12 months," said Barry Rosen, an attorney who serves on the work group as a representative of Mid Atlantic Medical Services Inc., a large insurer based in Rockville.

Rosen said the hospital rate-increase proposal was "an absolutely irresponsible request," because it would jeopardize the waiver from the federal government that is a key component in Maryland's rate-setting system.

The waiver allows Medicare to pay the state-set rates rather than what it pays elsewhere. This means that Medicare pays a share of the cost for care for the uninsured and graduate medical training in Maryland. In return, the state promises that its cost controls will keep the increase in cost per case in Maryland lower than the national average.

Hospital representatives on the work group agreed it is important to keep Maryland rates low enough to preserve the waiver, but they said hospitals have been struggling under a tight rein on rates for several years.

Without a rate increase that covers inflation, "I think you'll see hospitals not offering certain services, and you'll see people not having jobs," said Stuart Erdman, senior director of finance for Johns Hopkins Hospital.

Kevin Sexton, president and CEO of Holy Cross Hospital in Silver Spring, said hospitals are willing to compromise but were struggling under more pressure on revenue. "It feels like that pile on my back is getting pretty heavy," he said.

Sexton proposed setting a rate halfway between the rate of medical inflation -- expected to be about 3 percent for next year -- and the expected hospital cost increase nationally, expected to be about 2 percent. That's the proposal the work group will consider at its next session.

Those on the work group not representing hospitals or insurers were sympathetic to both parties.

"We can all agree that factor-cost inflation, with adjustments for productivity, is the lowest amount sustainable in the long run," said Dean Farley, a member of the commission. But an increase equal to inflation in the short run, he continued, would risk the "waiver cushion."

The work group agreed that the system needs to be simpler, and that there should be analysis of setting rates on per-case costs, rather than the current system of setting rates for units, such as X-rays or a day in an intensive care unit.

If the system switched to case rates, it would end one of the most contentious issues between hospitals and insurers -- retroactive denial of claims because, for example, the hospital kept the patient longer than the insurer thought necessary. Eventually, the insurer could pay a flat rate based on the type of case, and it would be up to the hospital to decide how much service the patient needed.

The reform effort began because, from 1992 to 1998, Maryland had the third-highest rate of increase in hospital costs in the country. From 1976, when rate setting started, until 1992, Maryland had the lowest cost increase of any state.

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