Maryland hospitals would get some help dealing with federal cuts under a proposed plan that would increase the rates they can charge by 1.65 percent.
The staff of the Health Services Cost Review Commission, the agency responsible for setting hospital rates, will recommend the increase at a meeting next week. The rate increase would take effect July 1 and run through the end of the year.
The Maryland Hospital Association doesn't think the proposed increase is enough and is suggesting a rate hike of 2.43 percent.
The proposed increase comes as Maryland hospitals have complained that the state hasn't done enough to help the facilities increase revenue to help make up a 2 percent cut in Medicare payments required by federal sequestration, which began in April.
The hospital association says its suggested hike is below inflation but would grant some relief from federal budget cuts when margins are already slim.
As a group, the hospitals' operating margin was 0.8 percent for the first eight months of the 2013 fiscal year, their second-lowest return in 14 years, a recent report by the hospital association found. Twenty-five of Maryland's 60 hospitals — 42 percent — had negative operating margins, according to the report.
"It is quite a serious situation for Maryland hospitals," said Carmela Coyle, president and CEO of the Maryland Hospital Association. "We need to make sure we can pull Maryland hospitals out of their skid."
Steve Ports, interim executive director of the rate-setting commission, declined to speak about the staff recommendation before next week's meeting.
The recommendation, posted on the rate-setting commission website, promises to "provide some financial relief to hospitals."
The hospitals had also sought a rate increase for the remainder of fiscal year 2013 — April, May and June. But the commission voted at a May meeting to keep rates unchanged, leaving the hospitals to absorb the federal cuts. The facilities are collectively expected to lose $7 million to $8 million a month during that period.
At the time, commissioners said they would account for federal cuts when considering rates for fiscal year 2014.
But hospitals said in the meantime they would have to resort to job cuts and reductions in patient services.
"There are significant cuts literally on the near-term horizon," Robert A. Chrencik, CEO of the University of Maryland Medical System told commissioners at the May hearing.
Commissioners have said they understand hospital cost constraints. But they have worried how raising rates would affect the state's Medicare waiver, an agreement with the federal government unique to Maryland that allows the state to set hospital rates. Insurers, including CareFirst BlueCross BlueShield and UnitedHealthcare, also favored keeping rates flat because of the waiver.
The state must pass a test to maintain the waiver. Maryland keeps the waiver if its average cost per hospital admission rises no faster than in other states. The state, which is now negotiating a new waiver test with the federal government, has worried that rate increases might disrupt those talks.
The Medicare cuts are part of the $85 billion in across-the-board federal spending reductions known as sequestration. The U.S. Department of Health and Human Services plans to cut $15.5 billion under the plan, with much of it coming from Medicare.
Medicare patients will not face reductions in benefits under sequestration. Instead, the federal government specifies that cuts should be made to payments to hospitals and doctors and to monthly payments made to private plans that administer parts of Medicare.
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