Panel looks at hospitals' costs

Draft aims to quantify community benefits Md. nonprofit facilities offer

June 02, 2005|By M. William Salganik | M. William Salganik,SUN STAFF

In a first effort to quantify how much Maryland's nonprofit hospitals are providing in community benefits, the Health Services Cost Review Commission released yesterday a draft report that put the total at more than half a billion dollars.

Commission Chairman Irvin Kues described it as an initial effort that "will be refined over time." The report does not, for example, subtract the amount hospitals receive through the state's rate-setting system for caring for the uninsured or for training doctors.

Also, the commission approved a change in rate-setting formulas that eventually will result in smaller increases in payments for high-tech services at academic medical centers (Johns Hopkins and University of Maryland) and pay more for routine care at community hospitals.

The behavior of nonprofit hospitals and health insurers is under scrutiny in Washington. The House Ways and Means Committee and the Senate Finance Committee began inquiries last week into whether hospitals were doing enough to justify their tax-exempt status.

Yesterday's report stems from legislation in Maryland in 2001. It didn't set any standard for community benefit activity but required that the commission collect the data. It took several years for the commission to develop definitions and guidelines - it chose to base them on forms developed by two national organizations of nonprofit hospitals - and for hospitals to start compiling the information.

The hospitals reported $580 million during fiscal 2004 in "net community benefit," such as operation of inner-city clinics and paying doctors to provide emergency services to the uninsured.

Kues conceded that it is difficult to distinguish whether a particular activity - say, an exercise class to improve health - is undertaken for charitable purposes or to help the hospital attract patients. Hospitals are not supposed to report activities designed to build market share.

Also, Maryland's hospital rate-setting system builds in reimbursement for expenses related to the two largest components of the $580 million: $253 million for training of doctors and nurses (including direct training costs and grants and scholarships) and $150 million for charity care.

Nancy Fiedler, senior vice president of the Maryland Hospital Association, said it is reasonable not to count such reimbursement against a hospital's charitable efforts because hospitals in other states, though not reimbursed directly, include enough in their mark-up on services to support community benefit programs.

Fiedler also described the reporting as "a work in progress," adding, "The numbers won't be really meaningful for five or six years." But the report was valuable, she said, because "the issue of giving back and being accountable to the community is important."

The change in the rate-setting formula was prompted by concerns that the current system might result in payments that were too high to Hopkins and University of Maryland, which do the bulk of the complex cases, and too low to other hospitals. Two consultants suggested a correction.

"What's broken is that the weights for the high-intensity cases are too high," one of the consultants, Graham Atkinson, told the panel yesterday. That creates a skewed incentive, he said, for hospitals to offer and market complex services such as heart surgery and orthopedics. "You don't see anyone building specialty hospitals for pneumonia cases," he said, "because pneumonia cases tend to be undercompensated."

Stuart A. Erdman, senior director of finance for Hopkins, opposed the change, which he said would cost Hopkins, over time, about one-half of 1 percent of its inpatient revenue, or about $5 million a year. He said the system works well without the adjustment, with fairness reflected in similar profitability levels for large academic centers and community hospitals.

Officials at several community hospitals support the change.

The commission voted unanimously to make the adjustment and to monitor payments as the system is phased in.

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