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Maryland Hospital Rates May Rise Less Than the National Average

Posted on: Wednesday, 11 January 2006, 21:00 CST

By M. William Salganik, The Baltimore Sun

Jan. 12--Reversing a three-year trend, Maryland hospital rate increases would rise less than the national average for the next three years, under a proposal made yesterday by the staff of the Health Services Cost Review Commission.

The staff recommendation would mean the cost of an average hospital stay in Maryland would rise at slightly more than 5 percent a year for the next three years -- about half a percentage point a year below the projected national trend.

Robert Murray, executive director of the commission, said increases below the national rate would improve affordability and "demonstrate to the state and to the U.S. that there are benefits to rate-setting."

Hospitals, however, said yesterday they needed rate increases at about the national average to maintain services and update facilities and equipment. Three years of lower increases than that "would have a dramatic deleterious effect on the financial conditions of hospitals," Laurence M. Merlis, chief executive officer of Greater Baltimore Medical Center, told the commission.

But representatives of insurers and the state's Medicaid program argued that the commission needs to hold down rates. "We should be outperforming the nation on what patients really pay," said Barry F. Rosen, a lawyer representing UnitedHealthcare, a large insurer.

Even with tighter rates, Rosen said, hospitals could generate adequate margins because they're treating more patients. "Volumes are flying," he said. "There's plenty of profit to make."

Each percentage point increase in rates means about $80 million added to hospital bills -- and, ultimately, to insurance premiums.

The commission is expected to vote on the recommendations at its March meeting.

If it goes along with the staff recommendation, it would bring the cost of a Maryland hospital stay, over the three-year period, to 3.5 percent below the national average. Currently, Maryland is about 2 percent below other states.

That would reverse the pattern of the last three years, when Maryland hospitals got above-national-trend rate increases, in part designed to offset tight rates from 2001 through 2003. Concerned over the financial condition of the hospitals, the commission approved rate adjustments of 8.2 percent in 2004, 6.4 percent in 2005 and 7.0 percent this year -- compared to national figures between 5 and 6 percent in each of those years.

The result was an improvement in hospital profit margins. That allowed hospitals to sell bonds to finance new construction and renovation. The Maryland Hospital Association estimates its 47 members will spend $6 billion on capital projects between now and 2010.

Murray said that with the hospitals returned to financial health, it was time to focus on affordability. The hospitals, however, argued they've just reached adequate margins, and shouldn't have their profits squeezed again.

Maryland is the only state with a hospital rate-setting system. Under a 30-year-old agreement with the federal government, Medicare pays the same state-set rate that other insurers do, rather than the lower rates it pays in other states. But to keep that deal in effect, Maryland's overall rate of increase must stay below the national average.

The average Maryland charge per case was $9,872 in October, the most recent month for which the commission has data. The national-Maryland comparison uses a slightly different statistic, operating revenue per admission, which includes not just patient charges but other hospital revenue, ranging from investment income to parking charges.

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Source: The Baltimore Sun, Maryland

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