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Hospital costs in Md. rise just 1.63% But average charges climb 3%, so profit soared 93% in 1995


Maryland hospitals last year posted their smallest cost increase on record -- and their largest profits -- according to a report yesterday by the state's hospital rate-setting board.

The cost of an average hospital stay in Maryland -- the amount the hospital spent to treat the patient -- was $5,693, up just 1.63 percent from 1994. But charges -- the amount paid by the patient or insurance company -- increased 3.0 percent, so hospital profits jumped 93 percent, said the annual report of the Health Services Cost Review Commission.

Given the record profits, the commission moved yesterday to alter its formula for inflation adjustments in hospital rates. The change cuts 2.1 percentage points off the inflation adjustment -- taking $170 million off the rates, said Robert Murray, commission executive director.

"While the increase in profits can be attributed, in no small way, to the improved efficiency of Maryland hospitals, the commission is concerned that the rewards provided in the system for such improvement may simply be too generous," Charles O. Fisher Sr., commission chairman, said.

The 1.63 percent increase in costs last year comes after decades in which hospital costs ran well ahead of general inflation, with double-digit increases not uncommon. As recently 1993, costs rose 9.59 percent, but in 1994 the figure dipped to 2.78 percent.

"In general, it's a success story," said Donald M. Steinwachs, chairman of health policy and management at the Johns Hopkins School of Public Health. "The cost review commission gets the credit in the long term, but it's more market forces in the short term."

Insurers have been directing patients to lower-cost hospitals, and managed-care plans have been working to shorten hospital stays and reduce costly procedures.

Other highlights of the commission's report include:

* Unpaid hospital care -- the cost of treating the uninsured -- was virtually unchanged. Rapid growth in uncompensated care -- from less than $50 million in 1977 to more than $400 million in 1993 -- had been a source of concern for hospitals. The 1995 figure was $404 million.

* Maryland continued to beat the national rate of hospital cost inflation, which the commission said was 1.75 percent. Maryland needs to keep its inflation below the national rate to retain a waiver that allows the federal Medicaid and Medicare programs to pay a share of hospital bad debt.

* An average hospital stay in Maryland now costs 6.48 percent below the average stay nationally. When the commission began setting rates 20 years ago, Maryland costs were more than 25 percent above the national average.

* Much of the cost control is coming from shorter hospital stays, under pressure from dollar-conscious insurance companies. The average cost for a day in a Maryland hospital increased 8.93 percent, but the average hospital stay did not increase nearly as much because patients are being sent home quicker.

* Only three of the state's 53 acute-care hospitals -- Atlantic in Berlin, Children's in Baltimore and McCready in Crisfield -- failed to post a profit in 1995. All three are tiny; with 76 licensed beds, Children's is the largest.

* Several hospitals that showed substantial losses in 1994 registered sizable profits in 1995. Examples of big turnarounds include Doctors Hospital in Lanham (from a $6.7 million loss to a $5.2 million profit), Johns Hopkins Bayview in Baltimore ($6.9 million loss to $6.4 million profit), Howard County General in Columbia ($4.8 million loss to $3.5 million profit) and Suburban in Bethesda ($4.5 million loss to $8.4 million profit).

Victor Broccolino, president of Howard County General, said much of the difference was attributable to a large paper loss in 1994 associated with accounting for refinancing long-term debt -- a move that actually saved the hospital $1.2 million. Refinancing had a similar effect on profit statements at a number of other Maryland hospitals, he said.

In addition, Mr. Broccolino said, the hospital is more profitable because it is operating more efficiently -- giving as much service in a typical 3 1/2 -day stay now as it did five years ago when five-day stays were typical.

The Maryland Hospital Association, anxious to retain the federal Medicaid waiver, gave its support to the commission's cost-squeezing adjustments to the formula.

Overall, the profit margin for Maryland hospitals in 1995 was 5.5 percent, up from 3 percent in 1994 and 2.9 percent in 1993. HCIA Inc., the Baltimore-based health data firm, says hospital profits nationally were 4.5 percent in 1994, the most recent figure available, and 4.3 percent in 1993.

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