Patients and health insurance companies would save $132 million over the next 18 months under a proposal to shrink annual increases in Maryland hospital rates.
The state agency that sets hospital rates in the state, the Health Services Cost Review Commission, is expected to approve the proposal today with the support of the Maryland Hospital Association.
Annual rate increases, intended to cover rising costs of hospital care, would be reduced nearly 1 percent in the current fiscal year, which ends next June, and 2 percent in the next year. With those changes factored in, commission officials say that hospital rate increases will average 5 percent to 6 percent in 1995.
The proposal would save patients and their insurers $32 million in the current fiscal year, which began July 1, and at least $100 million in the next fiscal year. But savings will continue in the future because the proposal would permanently affect rates, said Robert Murray, executive director of the commission.
Hospital executives say they'll have to cut costs to compensate.
"Is it going to put Maryland hospitals out of business? No," said Robert A. Chrencik, senior vice president of the 747-bed University of Maryland Medical System. "But it's clearly going to require Maryland hospitals to tighten their budgets and reduce costs, or suffer reduced profit margins, which are already tight."
The proposal would cost the medical system, which has a budget now of about $400 million, roughly $4 million next year, Mr. Chrencik estimated.
Mr. Murray said the agency is acting partly because of a "poor performance" in 1993, when the cost-per-admission at Maryland hospitals rose an average of 9.6 percent, compared to 7.3 percent nationally. That was the first time in more than a dozen years that hospital costs in the state increased faster than the national average.
The commission also wants rates to reflect the impact of competition in the hospital field and the comparatively low medical inflation rate today.
Many hospitals, competing for the business of insurance companies that direct patients to lower-price facilities, have been charging less than the commission allows. Although final figures aren't in, it appears that per-admission costs increased about 4 percent in 1994, Mr. Murray said, noting that bills actually paid by patients and their insurance companies increased even less, about 3 percent.
Even so, Mr. Murray said "we can't just rely on hospitals to keep their spending down. We want to make sure we provide a revenue constraint that does make them focus on their underlying costs and keep spending to a minimum."
Fifty-one hospitals, which had revenues of $4.9 billion in the last fiscal year, are affected, though the effects will vary by hospital.
Asked if hospitals would have to be more efficient, Nancy Fiedler, senior vice president of the Maryland Hospital Association, said, "a lot of the efficiency and ratcheting down of costs is well under way in a majority of hospitals, based on the need to remain competitive in today's operating environment."
One of the benefits of the commission's proposed action, she said, is to preserve the integrity of the state's rate-setting system, which is designed not only to hold down costs but to pay for charity care. The system requires federal approval, which would be withdrawn if hospital costs consistently shot above the national average.