Hospital rate rise reduced by Md.

Care for uninsured spurs cut to 5.25%

October 11, 2007|By M. William Salganik | M. William Salganik,SUN REPORTER

Concerned that rising hospital charges could jeopardize the state's system of providing care for the uninsured, state regulators trimmed yesterday a hospital rate increase that had been approved for the current fiscal year.

The Health Services Cost Review Commission voted to allow hospitals a 5.25 percent rate increase for the fiscal year that began July 1, down from the 6.25 percent approved in April.

The midyear adjustment - the first ever by the commission - will reduce the state's collective hospital bill, which totals more than $11 billion for the year including outpatient care, by about $65 million.

The commission took the unusual step to ensure preservation of the state's unique system of paying for hospital care for the uninsured. Under that system, hospital bills in effect are padded by about 8 percent, and all insurers pay the same rates.

What makes the system work is that Medicare, the federal program for the elderly and disabled, also pays the extra amount - Maryland is the only state where it has agreed to do so - but only as long as Maryland's average rise in hospital rates is less than that of the nation as a whole.

Insurers and hospitals both like that system compared with the charity hospitals and tax-financed funds that pay for care for the uninsured elsewhere.

"We've solved the access problem better than any other state," Barry F. Rosen, an attorney for UnitedHealthcare, told the commission.

But the margin between the state's rate of increase and the nation's, the so-called cushion, has been shrinking as hospitals pushed for more revenue to update facilities built in the 1950s and 1960s. Hospitals now have more than $3 billion worth of construction projects in the pipeline.

Data developed by the commission staff in July showed that the cushion, which was nearly 16 percent at the end of 2003, had shrunk to 9.65 percent by the middle of last year. The commission's staff estimated it at 7.27 percent currently and projected that it would drop to 6.33 percent by the end of June 2009.

The commission put hospitals on notice in July that the increase for the current year could be as little as 4.50 percent and convened a task force to recommend options on adjusting rates.

That task force, composed of representatives of hospitals and insurers, essentially reached consensus on the 5.25 percent figure. Calvin Pierson, president of the Maryland Hospital Association, said the hospitals were pleased to avoid a cutback to 4.50 percent.

The commission's staff estimates that yesterday's action will beef up the cushion to 7.65 percent by the end of 2009, compared with 6.33 percent if no action had been taken.

Although the rate is retroactive to July, hospitals won't have to give refunds to patients or insurers for the bills collected since July.

Having been warned that the rate was being adjusted, the hospitals didn't apply the full approved increase in July, said Robert Murray, executive director of the commission. They just need to set rates for the rest of the year so that by the end of the fiscal year, their average charge per case will have grown 5.25 percent.

Pierson said he hopes insurers will use the savings to reduce premiums rather than for "windfall profits."

Jeffery W. Valentine, a spokesman for CareFirst, the state's largest insurer, said CareFirst's self-insured customers will see the benefit immediately and that the change will be reflected in CareFirst's quarterly rate filings for smaller employers.

He added, however, that because hospital costs account for about 35 percent of health claims (the rest being doctors' fees, prescriptions and other costs), the net savings for Marylanders will be less than two-tenths of 1 percent.

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