Helped by a surprising dip in spending on charity care, Maryland hospitals rang up record operating profits of $167 million in 1994 and kept their average cost increases below 3 percent, state officials reported yesterday.
Although the report of low cost increases is welcome news for employers and consumers seeking relief from rising medical bills, some employers said Maryland hospitals could be even more efficient.
The average cost of a stay at one of Maryland's 51 acute-care hospitals rose to $5,601, a 2.8 percent increase that was the smallest since the state began tracking this information in 1978.
Johns Hopkins Hospital's average cost per patient admission went up 3.9 percent, while at University of Maryland Medical Center costs rose 3.3 percent.
Profits, which have been rising in recent years, reached a record level in 1994 mostly because of the 10 percent drop in charity care.
Charity care, which state law requires hospitals to provide to people who can't afford to pay, dropped from $439 million in 1993 to $396 million. State and hospital officials said one reason for the decrease might be stronger efforts by hospitals to get poor people covered by Medicaid, the health insurance program paid for by the state and federal governments.
Officials of the state agency that sets hospital rates, the Health Services Cost Review Commission, said the 1994 hospital financial results demonstrate that the rate-setting system works well.
The officials point out that last year Maryland hospital rate increases were lower than the national average of 3 percent per hospital admission and improved significantly over 1993, when state hospital costs jumped 9.6 percent, compared with 7.3 percent for the nation. For 18 of the last 19 years, Maryland "has out-performed the nation in containing hospital costs," a commission statement said.
Maryland's hospital rate-setting system is unique among the states, almost all of which let the marketplace determine hospital prices. The legislature launched the system in 1974 as a means of controlling costs, ensuring hospitals' solvency and paying for charity care -- the costs of which are built into hospital rates and in that way paid for by the general public.
Although the system is supported by the hospital industry and most political leaders, it has come under increasing fire from insurers and some employers who believe regulation discourages price competition.
Many insurers and employers that self-insure would like to negotiate rates with each hospital and cut favorable deals, which the rate system prohibits. And even though the commission believes yesterday's report demonstrates the effectiveness of rate setting, these insurers and employers say the numbers are deceiving.
"As in most other state agencies trying to justify their existence and the work they do, they're playing fast and loose with statistics," said Ray Brusca, vice president for benefits at Black & Decker Corp. in Towson. "What you really have to look at is the cost per day, the raw dollars" for each patient's hospital stay.
The Maryland Hospital Association says that, contrary to Mr. Brusca's assertion, comparisons of Maryland with other states show that the rate-setting system is keeping costs down. On average, a hospital stay in Maryland is $500 cheaper, or about 8 percent less, than the national average, the state association says.
But Robert H. Davis, head of a Maryland employers' group, and (( Geni Dunnells, executive director of the Maryland Association of Health Maintenance Organizations, say it's time to examine the effectiveness of the rate-setting system.
"I guess there's a lot in the system that's worth preserving," said Mr. Davis, executive director of the Maryland Health Care Coalition. "But I think you also need to look at whether the competitive market might even keep costs down more."