The Maryland Hospital Association has sent a letter to state health officials saying it will not support a proposal that would link medical spending to the state's economic growth.

The state presented the proposal to the Centers for Medicare and Medicaid Services in March as part of an application to update its Medicare waiver, an agreement with the federal government unique to Maryland that allows the state to set uniform hospital rates.


The hospital association has said in the past the proposal raises concerns, but the April 25 letter is the first time the group publicly said it would not support it. The letter is addressed to Health Secretary Joshua M. Sharfstein and John M. Colmers, chairman of the Health Services Cost Review Commission, the agency that sets hospital rates in Maryland.

Carmela Coyle, CEO and president of the hospital association, said in a phone interview that the hospitals still support the Medicare waiver but want to see changes to the proposal. Spending caps that limit medical spending to the growth of the economy are too aggressive, she said. The group favors targets that could be adjusted for inflation and other unknown variables.

"Hospitals' financial condition is simply too fragile to accept the amount of significant risk and uncertainly outlined in the application," Coyle wrote in the letter.

The letter from the hospital association came as it battled with the state over federal cuts to Medicare. Last week, it failed to persuade the state to raise rates to help hospitals offset a 2 percent cut to Medicare reimbursement required by federal sequestration budget cuts.

Sharfstein said the state always anticipated the proposal would change and the initial application was more of a guide. He said that hospitals will have several weeks to express their concerns and suggest changes. The state has set up a "hospital executive input group" to get feedback from the industry, he said.

Two hospital executives will chair the group: Kevin J. Sexton, CEO of Holy Cross Hospital in Silver Spring; and Thomas R. Mullen , CEO of Mercy Medical Center in Baltimore. The CEO of the University of Maryland Medical System and the president of the Johns Hopkins Hospital and Health System also sit on the committee.

"We feel there are some critical principles embodied in this draft that people need to read and understand so they can provide input," Sharfstein said. "We know this is a process and we are taking it one step at a time."

The Centers for Medicare and Medicaid Services said it is reviewing the state's proposal and would have no further comment.

It is in the state's best interest to get the support of the hospitals, said Joseph Antos, a fellow with the conservative American Enterprise Institute who served on the state's Health Services Cost Review Commission for eight years. He said federal regulators will want to know that everyone involved in the rate-setting process has come to some kind of consensus.

"It really matters if the hospitals get behind this or not," Antos said.

State officials are trying to adopt a more modernized waiver as the way health care is delivered changes. The current test is based on an old health care model that focuses on inpatient hospital stays. Health care is moving toward a model of keeping patients out of the hospital by providing sufficient preventive and outpatient care.

Under the state proposal, a new test would take into account both inpatient and outpatient care, and do so per Maryland resident rather than per case. The new test, state officials said, would remove the incentive for hospitals to increase patient volumes.