Hospitals, insurers object to approved rate increase

0.5% above inflation called `unacceptable'

Hopkins granted 1.1%

April 05, 2001|By M. William Salganik | M. William Salganik,SUN STAFF

State hospital rate-setters approved an increase for hospitals yesterday, effective in July, of 0.5 percent above expected inflation -- a rate insurers said was too generous and the hospitals said was "unacceptable" and would cause hospitals to reduce staff and cut programs.

The Health Services Cost Review Commission also approved a temporary 1.1 percent rate increase for Johns Hopkins Hospital, retroactive to last month. The hospital had been asking for 3.5 percent, and will get to come back in a month or two in an attempt to justify the higher figure.

Both Hopkins, in seeking short-term relief, and the hospitals as a group, in asking for 1.5 percent above inflation for the year beginning in July, said they had been suffering under several years of tight controls by the commission. The commission reined in rates after hospital costs in Maryland began rising much faster than the national average.

According to the commission's annual report on the financial condition of hospitals, released at yesterday's meeting, the stringency produced its desired effect as far as holding down costs. Revenue per hospital admission, for the year that ended June 30, was $7,903.96 -- $5 lower than the previous year, the first decline in more than 25 years that the commission has been keeping data.

"This has been a turnaround year," said commission Chairman Don S. Hillier. "It's nice to feel like the regulatory system is working the way it's designed to."

However, the hospitals said, a consequence of cost control has been that they have not been able to keep up with the increases in their costs for labor, medicines and equipment.

"Hospitals simply can't continue to deliver the level of care that patients expect and deserve, and remain financially viable, unless rates fully cover inflation," Calvin Pierson, president of the Maryland Hospital Association, told the commission.

While hospitals received a 2.5 percent across-the-board increase this year, Pierson said, their costs had grown by about 4 percent, so they need 1.5 percent above inflation to make up the difference.

And Ronald R. Peterson, president and chief executive officer of Johns Hopkins Health System, said Hopkins' cost base had increased by about 5 percent, causing the hospital to request an extra boost during the rate year "to stop the erosion in our financial position."

While Hopkins reported a profit of $18 million last year and projects a profit of $13 million this year, Peterson told the commission, the bottom line is inflated by increases in the value of pension investments -- money the hospital cannot touch. Looking strictly at hospital cash flow, he said, Hopkins will lose about $10 million this fiscal year.

If Hopkins presents data justifying a higher permanent increase, that would be retroactive to March 6, the date of its initial increase for the temporary boost, said Robert Murray, executive director of the commission.

Peterson said after the meeting that if Hopkins cannot get a higher rate, "We will have to engage in additional significant cost reductions, some of which could be in the form of layoffs." He said each percentage-point increase in rates meant more than $7 million to the hospital. Pierson said the decision on the across-the-board increase for next year "will make another round of cuts by hospitals inevitable. This will compromise hospitals' ability to deliver health care."

In general, Murray said, while hospital profits have dropped under tight rate controls, they have dropped from historic highs in the mid-1990s, and are still above levels maintained for most of the past 25 years.

He recommended the increase of 0.5 percent above expected inflation -- for a total of 2.9 percent -- and the commission agreed unanimously.

Insurers asked the commission to limit the increase to inflation. By asking for more, the hospital association "shows a genuine lack of commitment to achieving efficiencies," David Wolf, vice president of CareFirst BlueCross BlueShield, told the panel.

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