Low-cost rivals force GBMC to cut rates Unregulated centers spur hospital unit to slash fees 21%


Greater Baltimore Medical Center has seen an increase in radiation oncology business since it cut its rates by 21 percent two months ago.

The price reduction illustrates the tensions when Maryland hospitals -- with rates set by a state commission -- compete for managed-care business against unregulated competitors.

GBMC already had the lowest state-approved rate of any hospital in the metropolitan area for cancer radiation treatments.

But it was losing business to radiation therapy centers located near hospitals but not actually in the hospitals. Such centers are not regulated by the state, and can offer volume discounts and other pricing options to HMOs and other managed care insurers.

"We have to treat everybody the same," said Gary Terrinoni, GBMC's controller. And, "we have to get alternate pricing approved."

As recently as five years ago, GBMC's radiation oncology department treated 150 patients a day. But as unregulated competitors opened, that dropped to 62 a day, according to Russ Frank, vice president of business development and corporate strategy.

"In a competitive health care market, it's of interest to us to be able to negotiate lower prices as long as the quality is equal," said Dr. Bernard J. Mansheim, chief medical officer for United HealthCare of the Mid-Atlantic.

"Over the last several years, we've seen a slow attrition in patients that we've been able to treat, because their insurance plans are allowing doctors here to treat them, but they could not get radiation here because of the rates," said Dr. Robert Brookland, chief of radiation oncology at the Towson hospital.

In cutting its rates, Terrinoni said, "the thinking here is volume" -- that GBMC can bring in as much income by treating more patients at a lower unit charge, using the same equipment and staff.

On the other hand, if volumes don't increase, GBMC stands to lose a million dollars a year in revenue, said Frank. In the first few weeks, volumes in radiation oncology were up about 10 percent, to about 68 patients a day, although it is too early to tell whether the trend will hold up, he said. The hospital needs to sustain a rate of 74 patients a day to break even on the rate cut, he said.

The new rates also led to four new contracts with insurers -- no surprise, since GBMC set its rates to meet what insurers are willing to pay.

The edge that unregulated centers have is not so much lower prices as it is that "in general, we have more flexibility in how to charge," said David Spearman, president of Radamerica, Inc., which operates three unregulated centers. It also has contracts to run regulated radiation oncology centers in Mercy and Good Samaritan hospitals.

The rate approved by the state's Health Services Cost Review Commission is based on a measure called "relative value units."

Charges for treatments and for other services, such as planning and constructing customized metal blocks to protect a patient receiving radiation, are based on estimates of how many "relative value units" (RVU) each is worth.

GBMC lowered its rate from $12.10 per RVU to $9.57. Approved rates at other hospitals range as high as $27.70. The hospital asked the cost review commission for approval for the lower rate, but the action on the request has been on hold as the commission reviews its overall method of calculating inflation adjustments to hospital rates.

Robert Murray, executive director of the commission, said GBMC cannot be penalized for charging less than the approved rate, but it cannot adjust its rates later to recover lost revenue. Terrinoni said the hospital expects to maintain the lower rate: "Once you've established a market price, you don't want to go back to the payers."

Gerard J. Schmith, deputy director of the commission, said GBMC is the only hospital to seek such a large decrease in its radiation oncology rate. However, he said, there has been a competitive scramble among hospitals to make their rates competitive in other areas where they have unregulated competition.

"It's not just a radiation oncology thing," said Frank. "What I think you're going to see, at least among the community hospitals. I don't want to say a price war, but they will look at other hospitals, at their charges and their filed rates."

"Any time you don't need a person to stay overnight, the insurance companies are trying to keep patients outside of hospitals," said David Levy, a professor of economics at University of Baltimore who has studied the Maryland rate regulation system. Hospitals, he said, have higher overhead costs, covering such areas as care for the uninsured, capital expenses and the costs of maintaining teaching programs.

Along with allocating the cost of taking care of the uninsured, unregulated competition is "one of the two biggest problems" facing Maryland's rate-setting system, Levy said.

"Even in a regulated environment, said Mansheim of United HealthCare, "things are beginning to loosen up."

Many hospitals, for example, with the state commission's approval, are offering "case rates," fixed-price packages for specific diagnoses that include hospital stays and doctor services.

The rate-setting commission held a hearing in March, in which a number of hospitals -- generally supporters of rate regulation -- called for some deregulation of outpatient rates.

The unregulated centers, however, say it would not be fair to deregulate outpatients rates, while allowing hospitals higher regulated rates on inpatient services.

"If you deregulate one end of the table, the table's going to tilt," said Dr. Lawrence Pinkner, a plastic surgeon and president of the SurgiCenter of Baltimore in Owings Mills.

Pub Date: 7/05/97

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