Hospitals ask panel for rate rise to pay for new facilities

Md. commission's staff suggests a 4.6% increase

Hopkins seeks immediate boost

April 15, 2004|By M. William Salganik | M. William Salganik,SUN STAFF

Maryland hospitals in general - and Johns Hopkins Hospital in particular - need higher rates and higher profit margins, to finance building and modernization projects, representatives of the hospitals told the state's rate regulators yesterday.

"The system has penalized us over the years and undercapitalized the organization," Ronald J. Werthman, chief financial officer at Hopkins, told the Health Services Cost Review Commission yesterday. "We've had [building] projects on the books for many, many years. We have no choice. We have to move forward."

Paul Sokolowski, vice president of the Maryland Hospital Association, told the commission, "The end game is modernization of facilities. We don't try to achieve profitability for profitability's sake."

The commission will have to decide how much to adjust hospital rates next year to cover increasing costs and whether Hopkins needs an increase beyond the statewide increase.

Representatives of the state's two largest health insurers, who would pay a hefty share of those increases, agreed that the hospitals have capital needs but suggested that smaller increases would be enough for the hospitals to meet their needs.

The commission had granted a large increase for inflation in the current year - 5.3 percent, compared with an increase in hospital costs of less than 3 percent - to improve profitability after several years of tight rate controls.

"It's not time to put your foot on the brake, but it's time to take your foot off the accelerator," said Barry Rosen, a lawyer representing Mid Atlantic Medical Services Inc., a Rockville-based insurer.

The commission's staff recommended yesterday an increase of 4.6 percent in inpatient rates for the fiscal year beginning in July. That would be the average for the 47 hospitals in Maryland. High-cost hospitals would get smaller increases, and low-cost hospitals would get larger boosts.

In addition to the statewide adjustment, hospitals can seek individual rate changes based on their financial data.

Hopkins is asking for an immediate 1 percent boost, based on the way it calculates expenses relative to peer hospitals, plus 4.3 percent phased in over four years to help cover the cost of its expansion projects.

The commission staff's initial recommendation was for an immediate 1.5 percent cut, based on the peer comparison, plus 3.9 percent in increases to be phased in for the expansion.

The main issue causing the differing numbers is how to measure the extent to which Hopkins patients are sicker than those in other hospitals, thus justifying higher rates for care. The commission staff says it should use the same "case mix" measure for Hopkins as for all the other hospitals to be fair to all. Hopkins says the regular formula doesn't adequately measure the cost of its highly specialized services.

If the commission staff and the hospital don't come to agreement over the next month, the highly technical debate could move to a public hearing before a vote by the commission.

Hopkins' modernization program, discussed in its master plan for several years, would center on two new, adjacent clinical towers, one for intensive care and one for children's and maternity services. Over a seven-year period, Hopkins would be replacing 515 of its 971 beds and building 30 operating rooms.

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