The U.S. Supreme Court paved the way yesterday for Maryland to revamp its hospital regulatory system in a way that would benefit uninsured patients and city hospitals but raise the rates of suburban hospitals.
Hospital officials and state regulators agreed that the court's decision will help Maryland preserve its long-standing but costly commitment -- more than $400 million last year -- to care for its 700,000 uninsured residents.
But the decision also could result in a significant and controversial change in competition among Maryland hospitals.
Inner-city hospitals that treat a lot of charity cases, such as Johns Hopkins and the University of Maryland, would see their rates drop if state regulators adopt a proposed system of paying for such care. The proposal has been on the drawing boards since 1992 but was not acted on because of legal issues raised by a lawsuit finally decided yesterday by the Supreme Court.
Rates of suburban hospitals generally would increase, decreasing the price advantage these hospitals now enjoy for many procedures.
This could increase medical costs for HMOs and their customers, including employers seeking to hold down those expenses.
The executive director of a state association of health maintenance organizations, which have been directing more of their subscribers to the less expensive suburban hospitals, termed the court's decision "unfortunate."
Geni Dunnells, the head of the association, said most HMO executives believe the charity care system ought to be re-examined. Although more and more Marylanders are obtaining health care outside of hospitals, the charity care system is based on hospital care and the money insurers pay to hospitals, she noted.
"In Maryland you are paying [for charity care] only if you go into the hospital," she said. "The question that I would pose for Maryland and every other state is, what responsibility do the healthy have to cover the costs of uncompensated care?"
But the Maryland Hospital Association said the court decision was good news because it ensures that the state will be able to keep and refine a regulatory system that has held down hospital rate increases and provided charity care for more than 20 years.
Johns Hopkins Hospital President and Chief Executive James A. Block said he was pleased and hopes the state "will move immediately" to take advantage of the decision.
The court ruled in an insurance industry lawsuit contesting New York state's method of assessing insurers for the cost of hospital charity care. Maryland officials were concerned about the impact on their hospital regulatory system because the case revolved around the issue of whether federal law -- the Employee Retirement Income Security Act -- pre-empted such state regulation.
The Supreme Court, in a unanimous vote, overturned a decision in 1993 by U.S. District Judge Louis J. Freeh -- now director of the FBI -- that said the New York hospital system violated the federal law.
Maryland regulators stopped short of predicting their next step TC but said the decision enables them to renew consideration of the proposal, favored by Hopkins, that would revamp the way the state pays for charity care.
"We have the legislative authority to look at an alternative mechanism," said Robert B. Murray, executive director of the Health Services Cost Review Commission, which regulates hospital rates. "We'll be looking at it very closely in the next several months."
Mr. Murray said the proposal, the result of work by a task force formed by the commission, would divide Maryland into three regions. The cost of providing charity hospital care would be calculated for each region and apportioned among its hospitals, which would be reimbursed by charging paying patients and their insurers higher rates.
The current system of paying for charity care is based on each hospital's charity-care costs. Mr. Murray's agency approves rates for hospitals that allow them to recoup these costs from paying patients and their insurers.
Although this system has been widely viewed as a success, increasingly serious problems have been cropping up, raising fears about the future ability of hospitals to care for the poor and underinsured.
One problem is that the costs of charity care have risen sharply in that time, especially in urban areas where the greatest number of uninsured and underinsured people live.
Because the uninsured are concentrated in cities, hospitals such as Hopkins, the University of Maryland and Liberty Medical Center treat more such cases than do suburban hospitals. As a result, the city hospitals' rates are considerably higher -- making it harder for them to compete for HMO patients.
About 15 percent of an insured patient's bill for hospital care at Liberty and the University of Maryland goes for charity care. At Hopkins, the figure is 11 percent.
The system devised by the task force would spread the charity care costs around in a way that would require the suburban hospitals to pay more and the city hospitals to pay less, thereby shrinking the rate differences between them.
Despite some concerns on the part of suburban hospitals, the Maryland Hospital Association endorsed the proposal.
Another problem is that HMOs are directing more of their patients to independent surgery centers that aren't part of hospitals, further undermining the hospital-based system for providing charity care.
State legislators recently voted to study this summer whether to require surgery centers to pay for charity care, either by providing the care themselves or contributing to hospitals that do.