Union Memorial asks to exceed rate limits Hospital reduced costs but also lost revenue; Md. panel defers action; Regulation


Union Memorial Hospital in Baltimore says it did its best over the past few years to cut the cost of a hospital stay, discharging patients more quickly and doing more surgery on an outpatient basis. In the process, it has lost revenue -- and is showing a loss this year.

Yesterday, the hospital asked for a rate increase that exceeds state guidelines.

And the state commission that sets hospital rates found itself trying to balance two goals. Should it reward Union Memorial for cutting costs, or should it hold the line on rates to keep hospital costs in Maryland as low as possible?

After listening to arguments on both sides, the Health Services Cost Review Commission deferred action. It will likely rule on Union Memorial's request at its meeting next month.

The decision is the first test of the commission's newest version of its formula for controlling hospital costs.

In April the commission, concerned that costs in Maryland were rising faster than in other states, decided rates could rise an average of 1.7 percent. Further, the commission ruled, no hospital could get more than a 2.7 percent increase for inflation without specific approval from the commission.

Union Memorial is the first to seek an increase above 2.7 percent under the new guidelines. The commission's formulas, accounting for such factors as inflation and improvement in a hospital's efficiency, would have qualified Union Memorial for a 4.9 percent boost, Paul A. Sokolowski, its vice president and chief financial officer, told the commission.

Sokolowski said Union Memorial did not want the full increase, which would make its rates in obstetrics "not market appropriate," but asked for 3.9 percent.

For the 12 months through the end of February, he told the commission, the cost of an average stay at Union Memorial dropped 2.6 percent compared with the previous 12 months -- while statewide, the cost of an average stay increased 3.2 percent. Comparing the same two 12-month periods, the number of admissions to Union Memorial slid 5.8 percent.

With fewer patients, and lower charges per patient, revenue dropped 8.2 percent. Sokolowski said Union Memorial lost $7.7 million over the first nine months of the fiscal year that began in July, including about $4.5 million in one-time charges related to malpractice settlements.

In the previous fiscal year, it reported an operating profit of $6.6 million.

To deny Union Memorial's rate increase, said commission member Philip B. Down, would show hospitals that "here's somebody that's moved aggressively to do all the right things," yet "there would be a disincentive to go any further" with cost-cutting.

But Don S. Hillier, commission chairman, speaking not just about Union Memorial but about modifications to the commission's formula for next year, said, "I'm concerned about the tendency of everybody [who is below average in costs] to come to the average, and the idea that hospitals that have done well in the past don't have to do as well in the future."

Pub Date: 6/04/98

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