Panel to review hospital's rate plea

Upper Chesapeake gaining patients but losing money

April 26, 2001|By M. William Salganik | M. William Salganik,SUN STAFF

At the end of October, Upper Chesapeake Health closed the antiquated Fallston General Hospital and opened the Upper Chesapeake Medical Center in Bel Air.

The new facility, in a convenient and rapidly growing part of Harford County, immediately attracted more patients than the old Fallston facility, as hospital management had expected - about 25 percent more admissions in the new hospital's first four months.

What they hadn't expected was that Upper Chesapeake would start losing money and that the more patients came, the more it would lose.

As a result, Upper Chesapeake this month filed a request for a 11.5 percent rate increase with state regulators.

Regulators, meanwhile, had noticed that Upper Chesapeake's charge per patient had gone up and was now 8.2 percent above its target. About the same time that Upper Chesapeake filed for higher rates, the regulators ordered a rate cut so the hospital would meet its cost targets.

The issue is likely to be decided at next week's meeting of the Health Services Cost Review Commission. The commission's decision could set a precedent for other hospitals, which generally promise not to raise rates - a compact known in the hospital industry as "The Pledge" - in exchange for state approval of capital projects.

"If you look at all the projections we made in 1995 and 1996," when Upper Chesapeake was getting approval for the new hospital and promising to keep rates down, "the world has changed exponentially - labor costs, use rate, demand for emergency services, health inflation," said Lyle Sheldon, president and chief executive of Upper Chesapeake Health.

Upper Chesapeake Health, which also runs Harford Memorial Hospital in Havre de Grace and had been nicely profitable in recent years, lost $2.8 million in the first four months the new hospital was open, according to the hospital's rate-increase filing.

And, at the lower rates ordered by the regulators, the system projects a loss of $16.3 million for all of this year.

Part of Upper Chesapeake's difficulties stem from trends facing all Maryland hospitals. While the commission has kept a tight rein on rates the past few years, some costs - particularly for nurses, who are in short supply - have risen rapidly. Sheldon said his system spent nothing on temporary agency nurses in 1999, $1.5 million in 2000, and is projecting $4 million this year.

But part of the problem is related to the new building: added services (such as full-time doctor coverage for obstetrics and pediatrics) and debt service on $110 million in bond financing.

"It's difficult to sort out" how much Upper Chesapeake should get special consideration for the new facility and how much it should be treated like the other hospitals, said Robert Murray, executive director of the cost review commission. His staff is now reviewing financial data from the hospital to make a judgment.

Murray said, "a significant part of the discussion" at the meeting will be whether to continue to enforce The Pledge - "whether to hold them to their representations or whether circumstances have changed enough" to warrant a rate increase.

Watching with more than casual interest is Anne Arundel Medical Center, which will open a new hospital on the outskirts of Annapolis in the fall to replace its downtown facility.

"We're looking at next year and seeing a very diminished margin," said Lisa Hillman, the center's vice president for development and community affairs.

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