Hospital limits proposed

State regulators want to hold rate increase to 5.21% this year

September 14, 2006|By M. William Salganik | M. William Salganik,Sun reporter

The state's hospitals are due to receive a rate increase of 7.04 percent this year, but regulators recommended yesterday limiting the rise to 5.21 percent.

The difference would reduce the state's collective hospital bill, now about $7 billion a year, by about $250 million, according to estimates by the Maryland Hospital Association.

"We need to be cognizant of the impact this would have on the public," Robert G. Murray, executive director of the Health Services Cost Review Commission, told the panel at its monthly meeting yesterday. He said that hospitals had been enjoying "very robust financial performance," and that, even with the lower increase, hospital balance sheets "will continue to improve."

Murray said the withheld portion of the increase could be built into rates in future years or set aside in the future to create a fund for patient safety, information technology or quality improvements.

Hospitals, however, said the full 7.04 percent would help them pay for $5 billion to $6 billion of construction over the next few years to replace aging buildings. "Yes, we do need the money," Stuart Erdman, senior director of finance for the Johns Hopkins Health System, told the commission.

As for the financial health of the hospitals, Erdman said, "I would describe it as improved but weak."

The seven-member commission is expected to act on the staff recommendation at its meeting next month. Whatever figure it chooses would be retroactive to July 1.

Yesterday's proposal by Murray reopens a question that seemed settled in April, when the commission voted to set a target to have the cost of Maryland's average hospital stay, then 2 percent below the national average, reach 3.1 percent below over three years.

That target projected to an increase of 5.21 percent this year, and similar figures in the next two.

It was a compromise between lower rates recommended by Murray and higher ones sought by the hospital association. Hospitals received increases of 7.28 percent in 2003, 5.58 percent in 2004 and 5.67 percent in 2005.

But as more figures became available, Murray told the commission yesterday, formulas measuring such factors as uncompensated care and changes in the complexity of hospital cases would automatically push the rate increase above 7 percent for the current fiscal year.

That would nearly double the average hospital operating profit margin, which was 2.78 percent last year, to 5.23 percent in the current fiscal year, Murray said.

Hospital representatives said any change in the scheduled increase would be contrary to commission policy. "We didn't sign on to a rate regulatory system that unilaterally defers revenue," said Paul A. Sokolowski, senior vice president of the hospital association.

Representatives of insurers, who pay the state-set rates, applauded the recommendation to hold down the increase. "Health care is too expensive in the U.S. It's too expensive in Maryland," said Barry Rosen, an attorney representing UnitedHealthcare, a large insurer. "You're trying to make it more affordable."

bill.salganik@baltsun.com

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