Under a compromise approved yesterday by state rate-setters, Maryland hospital charges will rise by more than 5 percent a year for the next three years - about four-tenths of 1 percent a year below the expected national rate increase.
The Health Services Cost Review Commission set a target for the average Maryland hospital bill to be 3.1 percent below the national average by July 2009. Currently, Maryland costs are 2 percent below the national average. Under yesterday's action, the average charge per case in Maryland would increase from $9,710 now to about $11,350 in three years.
The commission's staff, backed by insurers and the state health secretary, had recommended a target of 3.5 percent below the national average, arguing it was important to moderate cost increases for consumers. The Maryland Hospital Association wanted Maryland to keep pace with national increases in the future, arguing that any further rate moderation would make it difficult for hospitals to modernize and to remain healthy financially.
While Maryland's unique system of hospital rate regulation is technocratic and arcane, the dollar numbers involved are large. The state's collective hospital bill is more than $7 billion a year, so each percentage point increase means more than $70 million. To the hospitals, that's $70 million that can be spent on staff and buildings; to consumers, it could mean $70 million more in health premiums.
Irvin W. Kues, the commission's chairman, said the three-year plan was a "reasonable and rational decision" that attempted to "balance the needs of patients, payers and hospitals."
The compromise left both sides expressing dissatisfaction.
"I thought it was too generous," said Harold Cohen, an economist who represents CareFirst BlueCross BlueShield and Kaiser Permanente in commission rate cases. "The nation has been going up at an uncontrolled pace," he said, so setting a target to push Maryland further below the national average was "quite reasonable."
Barry F. Rosen, a lawyer representing UnitedHealthcare, a large insurer, said it was hard to know the impact of the compromise without more analysis, but "my sense is that it's modest."
Calvin Pierson, president of the Maryland Hospital Association, said that because Maryland hospitals pay more than those in many other states for goods and services, "3.1 percent below the national average will prove to be unrealistic." However, he said he was glad to see the commission grant higher rate increases than the staff recommended. "They did hear us," he said.
Laurence M. Merlis, chief executive officer of Greater Baltimore Medical Center, a Towson hospital, said, "This decision doesn't allow us to meet the needs of the residents of the state over time." He said it didn't provide enough money for the hospitals to provide "world-class care," to improve their financial conditions and to replace aging buildings.
The target is expected to translate into rate increases of between 5 percent and 5.5 percent in July for each of the next three years. The exact rate will be set each year, as new national data becomes available.
The commission regulates rates by setting a charge-per-case figure for each hospital. Once set, the figures are adjusted to account for inflation and other factors.
The difference between what the staff was recommending and what the hospitals were asking was about $250 million over three years, according to staff estimates. Yesterday's compromise would give the hospitals about $65 million more over the three-year period than the staff recommendation would have.
Bills for inpatient care and for outpatient services delivered at hospitals account for a third of health spending in Maryland, according to data collected by the Maryland Health Care Commission.