Maryland patients will pay hundreds of dollars more for hospital stays under price hikes made final Wednesday by the state agency that sets rates for the medical institutions.
The price for health care that hospitals pass on to insurers and patients will soar 4.4 percent this year — adding $596 million to the total tab — under several rate increases approved by the Maryland Health Services Cost Review Commission.
As a result, the average inpatient hospital bill will rise $386, to $12,141. The rate increases also are likely to turn into higher premiums because insurance companies typically pass on higher costs to customers.
The higher rates are needed to cover the cost of treating more uninsured patients turning to hospitals for care, most likely because of people losing their jobs in this weak economy, according to the commission. The increases also help to cover $123 million in Medicaid expenses that the cash-strapped state eliminated from its budget.
The price hikes will hit consumers who have seen health care costs skyrocket in recent years. While the increases are on the lower end of rate hikes passed by the commission in the past decade, the average hospital bill is expected to rise at a higher rate than it did last year.
Hospitals and insurers, however, argued that the increases weren't enough and put their financial health at risk. The Maryland Hospital Association and the state's two largest insurers, which in an unusual move brokered their own consensus deal, had recommended a higher rate for hospital charges.
Carmela Coyle, president and CEO of the association, said some hospitals might now have to look to cost-cutting measures such as employee layoffs.
"Maryland hospitals are very disappointed with the vote [Wednesday] to both reject the joint consensus rate update proposal and to vote instead for a well-below-inflation increase in hospital charges for the coming year," Coyle said. "Unfortunately, that is going to result in hospitals being paid less than the cost of the care the hospitals provide at a time when they are already financially struggling."
Also as part of the higher rates, hospitals will receive more money for working to reduce the number of cases where patients stay overnight in the hospital. The commission is trying to encourage unnecessary overnight stays to cut down costs.
The increases will be retroactive to July 1, the start of the fiscal year.
Maryland has a unique system for setting hospital rates. The system, begun in the 1970s, has been credited with spreading the expense of patient care and slowing the growth of insurance premiums while helping to keep Maryland hospitals afloat.
The commission approved higher rate hikes in the past decade to help hospitals boost their balance sheets to take advantage of low-interest loans to replace equipment and make other capital investments. For instance, the overall increase was 10.7 percent in 2004.
This year, the focus has been paying for the uninsured and making up for shortfalls as the state pares back what it contributes to Medicaid, the health insurance program for the poor. In April, the commission voted to make the paying public responsible for 70 percent of the Medicaid shortfall in the state's budget.
The hospital association and CareFirst BlueCross BlueShield and UnitedHealthcare had recommended a 2.4 percent increase in hospital charges. But the commission, which spent most of a Wednesday session debating that particular rate hike, approved a 2 percent increase instead on a 4-to-2 vote.
Hospitals and insurers argued for a higher rate in part to bring readmission rates down. They would have dedicated about one-fifth of their proposed increase to that purpose. Maryland has the highest rate of readmissions in the country, and some experts believe that is partly what is driving up costs.
CareFirst officials said that 5 percent of patients make up 50 percent of the insurer's total costs. These patients usually have many chronic conditions, such as diabetes or obesity, which are preventable. Many end up back in the hospital because they don't follow up with their doctor or take their medication, said Chester "Chet" Burrell, CareFirst's chief executive.
BlueCross and United Healthcare had agreed to a higher rate for hospital charges than they originally proposed to address readmissions. One idea would be to implement programs that would encourage patients to regularly visit primary care physicians. The insurers maintain that using preventive care to better manage the number of patients who use hospitals will help drive down costs in the long run.
The commission agreed Wednesday to address the issue of possibly providing the hospitals with more funds to address readmissions in the fall.
Gary Simmons, regional vice president of Network for UnitedHealthcare of the Mid-Atlantic, said in a statement that the joint proposal with hospitals "was a very reasonable solution." He added: "We are willing to be a constructive partner with the hospitals and to consider additional funding to address avoidable readmissions."
Reducing readmissions could help moderate premiums, which have been going up 10 percent to 15 percent a year, Burrell said. Controlling premium costs would be more difficult under the plan passed by the commission, he added.
"We're looking for all kinds of ways to bend the cost curve by reducing hospital use that could be avoidable," Burrell said.
Some commissioners said that hospitals would make enough profit with the 2 percent increase to improve readmissions rates. Commissioner C. James Lowthers said he worried consumers wouldn't be able to take a bigger rate hike.
Robert Murray, executive director of the commission, expressed concern that the proposal from hospitals and insurers wouldn't have guaranteed that they would spend any additional money on readmissions.
But Vice Chairman Kevin Sexton sided with the hospitals and insurers. He said he had no reason to believe they wouldn't follow through. "I am willing to bet with them on this," he said.
The union that represents local hospital workers said after the vote that they also supported the commission's decision.
"Would we have liked to see the rate higher so that hospitals can get more money? Sure," said Patricia Lippold, political director of SEIU Local 1199. "But on the other hand, we are committed to making sure there are cost controls. We think this is a reasonable decision."