Without the waiver, hospitals would have higher costs for uncompensated care. Under Maryland's rate-setting system, those costs are spread across all hospitals. Mullen says hospitals would have to raise prices considerably to cover uncompensated care if the waiver were removed.

"To have free care, you have to pay for it," Mullen said. "It's not like money comes out of the sky."

The rate-setting commission has begun preliminary discussions with the Centers for Medicaid and Medicare Services, but it is far from hammering out what a final waiver test would look like.

The commission, hospitals and insurers envision a test that would take into account the total cost of caring for a patient that looks beyond a hospital stay.

"We need to move it from an inpatient test and look at hospital costs more broadly," Coyle said.

The timing for such a change is not ideal. The state is seeking a new waiver test even as the Medicare system faces cuts amid federal budget constraints. But the state has political clout on its side, including the support of Sen. Barbara A. Mikulski, the Maryland Democrat who submitted the original legislation that created the federal waiver.

The Obama administration would likely be supportive of Maryland's system, which under health care reform promotes many of the same initiatives the state has established to encourage preventive care.

Still, commission members and hospital executives aren't betting on a new waiver.

A challenge to federal health care reform in the Supreme Court has created uncertainty in the whole system. If Republican Mitt Romney were to win the November election, that would change the political environment and perhaps add another obstacle.

"A change like this is not going to be easy," Colmers said. "It's going to require difficult decisions. But I think by and large, people understand the risk if we don't do it."

andrea.walker@baltsun.com

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