Carmela Coyle, president of the Maryland Hospital Association.
Carmela Coyle, president of the Maryland Hospital Association. (Lloyd Fox, Baltimore Sun)

Patients and their insurers won't see much of a difference in hospital bills in the next year, as the state rate-setting panel decided to adopt a plan favored by the hospitals that holds payments "to a near-freeze level."

In a close vote, the Maryland Health Services Cost Review Commission agreed to lower the rates for inpatients by 1 percent but raise the rates for those receiving outpatient services by 2.59 percent, giving the hospitals an overall increase of 0.3 percent. The rates are for the year starting July 1.

"This is not a pop-champagne-corks-and-confetti kind of moment," said Carmela Coyle, president and CEO of the Maryland Hospital Association. "We are talking about a very difficult time for Maryland hospitals, even given this."

The panel had planned a slightly smaller increase for outpatients, giving the hospitals no bump, but they complained that their bottom lines were already suffering from the economy and several years of increases below the rate of inflation.

"We thought we were doing something balanced," said Patrick Redmon, the executive director of the commission. "But the proposals were not super far apart."

The hospital industry was pleased its proposal won the day but said it still doesn't fix the problems with healthcare costs and the state's unique rate-setting system.

Maryland's system, launched in the 1970s, aims to hold down costs by spreading the expense of patient care. All insurers, including private companies, the state, through Medicaid, and the federal government, via Medicare, pay the same rates. Maryland is the only state in the country with such a rate-setting program.

The system has been praised for holding down costs and spreading them equitably, but it also poses problems. Hospitals, insurance companies and the commission agree that it has become antiquated and needs to be updated.

Coyle said the system threatens to leave hospitals financially strapped. "We have cut all of the fat there is," she said. "We are now cutting muscle."

The system also means Medicare pays higher rates in Maryland than elsewhere. Medicare officials imposed a test to maintain a waiver for the program. The state needs to ensure the increase in patient care costs doesn't exceed the increase for Medicare patients nationally.

It worked for years, but rising costs have put the waiver in unprecedented danger, Redmon said.

Others across the industry agreed, including John M. Colmers, commission chairman and vice president of health care transformation and strategic planning for Johns Hopkins Medicine.

"The single most important thing to me is the waiver," he said after the 4-3 vote.

Maryland's hospital costs seem higher, Redmon said, because of several programs aimed at cutting costs.

One sought to reduce readmissions by giving hospitals financial incentives. Another offers hospitals fixed revenue, no matter their actual costs. And a third aims to keep less-sick patients from being admitted for short stays.

But those skew the average cost to care for inpatients much higher — perhaps too high to keep the waiver, Redmon and others fear.

The commission's next priority is negotiating a new waiver test with federal officials.

In the meantime, cutting the inpatient hospital rate was seen as the only answer.

Not everyone agreed. CareFirst BlueCross BlueShield, the state's largest insurer, said there should not be different rate changes for inpatient and outpatient services. It argued in a statement to the rate panel that moving more patients to outpatient care has not been shown to benefit patients or reduce insurer payments, so the effort should be scrapped. That would help preserve Maryland's rate-setting system, the insurer said in its letter.

But the hospital association's proposal drew broad support from hospitals across the state, including St. Agnes Hospital, MedStar Franklin Square Medical Center and Mercy Health Services in Baltimore.

"There needs to be a balanced approach to assure that Maryland hospitals have adequate financial resources to maintain and improve the high quality of patient care the residents of Maryland deserve," Ronald R. Peterson, president of the Johns Hopkins Health System, said in a statement to the panel.

Thomas R. Mullen, a commission member and president and CEO of Mercy, voted for the hospital association increase because he said hospitals like his couldn't afford anything less.

"We could come out of this with the hospital industry with little or no margins," Mullen said.

Robert Chrencik, president and CEO of the University of Maryland Medical System, said that there were no plans for layoffs if the lower rate was passed, but they system would have to look at ways to make up for the lost revenue.

"There is a lot of pressure on hospitals to come up with ways to reduce costs," he said.