Rocky road ahead for Maryland's system of care?

A unique method that has helped curb the rise in medical spending could be derailed by the U.S. overhaul

  • Nurse practitioner Emilie Stafford, left, and Dr. Yann-Yann Lin check on a 1-day old baby at Anne Arundel Medical Center.
Nurse practitioner Emilie Stafford, left, and Dr. Yann-Yann… (Amy Davis, Baltimore Sun )
April 11, 2010|By Jamie Smith Hopkins and Kelly Brewington

Maryland's one-of-a-kind method of setting hospital rates - a system that has provided nearly $1 billion in additional federal money per year to local hospitals and consumers - is threatened by pressures to reduce costs under the U.S. health care overhaul measure.

The system, which dates to the 1970s, has been hailed for spreading the expense of patient care, slowing the growth of patient premiums and keeping Maryland hospitals afloat. But it has not controlled costs as well in recent years. And with the new health care overhaul law prompting changes in federal payments, Maryland will have to work hard to preserve its advantage.

"We are going to go through a messy decade," said Chet Burrell, chief executive of CareFirst BlueCross BlueShield, the state's largest health insurer. "The path forward isn't clear, and it's very complex."

Alone in the nation, Maryland has been getting a special deal. As long as its Medicare spending per hospital admission does not rise faster than the national average, the state is allowed to dictate the rates at which Medicare and Medicaid reimburse hospitals.

That bargain is worth an estimated $900 million to $1 billion in additional federal funding per year. The extra federal money is the lubricant in a system that covers charity care, so hospitals don't turn away the uninsured, go bankrupt treating them or pass the costs on to everyone else.

Advocates say it makes for a fairer system. Within a hospital, patients are billed roughly the same amount for the same service.

"Maryland, for many, many years, has had one element of this very, very complicated issue solved," said Robert Neall, chief executive of Priority Partners, which manages Medicaid coverage for about 170,000 low-income patients in the state.

But to help cover the expense of insuring millions more Americans under the Obama administration's health care overhaul, the U.S. government plans to reduce growth in Medicare payment rates for hospitals, which have agreed to $155 billion in federal cuts over 10 years. That will lower the national average that Maryland must beat.

Carmela Coyle, presidentof the Maryland Hospital Association, said federal health care changes are bound to strain Maryland's rate-setting method. "We really are looking at continuous pressure on hospital rates. It will take the hospitals from a financially fragile state to worse."

The recession has forced tough decisions about hospital rates. The state contributes to Medicaid spending and has been balancing its budget by pulling back. That has sparked tensions between rate-setters and hospitals, which are among the state's largest employers and say they are already feeling the pinch. Now the pressure is really on to keep costs down or lose the multimillion-dollar federal sweetener.

"It's vitally important," said Robert Murray, executive director of the Maryland Health Services Cost Review Commission, the rate-setting body.

Without the additional federal money, current and former rate-setters say, Maryland's system probably would unravel. Hospitals could substantially increase charges to private insurers and the uninsured, something many institutions outside Maryland have done for years.

"The health systems are poised for this, because the health systems are very large and very influential," said Jack Cook, who worked for Maryland's rate-setting commission in the 1970s and now is a health care finance consultant. "In a contracting faceoff with most insurers, I think they would have their way."

Maryland's Medicare and Medicaid deal, known as "the waiver" because it waives the usual way the federal insurance programs for the elderly and the poor set their reimbursement rates, dates to 1977. Sen. Barbara A. Mikulski, a Maryland Democrat, sponsored the measure that was written into federal law in 1980. A handful of other states once had waivers, but all lost them or voluntarily gave them up when they abandoned rate-setting.

The test Maryland has to meet is cumulative rather than annual - its average Medicare increases since 1981. Murray figures the state has at least five years before it would be in danger of losing the money, because of the cushion it built up earlier. But Maryland's performance in any year affects its running average, so it can't afford any thumb-twiddling.

"Everybody needs to keep their nose to the grindstone on this," said Joseph Antos, a commissioner with the cost-review body. "The waiver cushion is not that [large]."

Skyrocketing health costs are a major problem nationwide, eating away at Americans' wages and contributing to the federal deficit. Everyone agrees that health spending must be reined in. The problem is how.

As experts grapple with new ways to deliver care, some are taking a look at Maryland's example. Massachusetts is debating whether to review health care rates and reject any deemed excessive, a move in the rate-setting direction.

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