Another quality of life issue of concern: hospital costs


IMAGINE the public hue and cry that would greet efforts to reduce education spending in Maryland to levels below the national average. Educating Maryland's children is a vital element of our state's quality of life. Usually measures that threaten our quality of life come under fire.

Interestingly, some regulators, managed-care companies and politicians are backing a plan that endangers another key element of our quality of life -- hospitals. The state body that sets hospital rates has proposed requiring Maryland hospitals to reduce costs for a hospital stay to 3 percent below the national average over the next two years.

This action has been advanced as necessary to make hospitals more efficient. However, the proponents of such action have failed to ask and answer a critical question: If the goal is to provide all Marylanders with access to some of the finest hospital care in the nation, is it reasonable to expect that hospitals can deliver superior care at costs that are below the national average? For an answer, it is important to examine the factors affecting hospital costs over the past two decades, and the sea change that has affected them in the past few years.

Cost-cutting move

In 1976, Maryland hospital costs were 25-percent higher than the national average. Maryland, acting with much foresight and with the support of hospitals and their trustees, created a hospital rate-setting commission to cut costs. As a result of that move and the fact that costs rose unchecked in other states, Maryland's hospital costs were judiciously reduced to 13-percent below the national average by 1992.

Since then, the health-care marketplace has radically changed nationwide. The growth of managed care has forced hospitals and health-care providers to drastically reduce costs. Medicare and Medicaid payments to health-care providers have been slashed.

As hospitals in other states ratcheted down costs and became more efficient, they have begun to match Maryland hospitals' performance. As a result, hospital costs here are just above the national average.

So, where do we go from here? Driving Maryland's costs below the national average will clearly diminish the types and quality of services that Maryland hospitals are able to provide to their patients and communities.

Comparable states

Regulators, insurers and hospital need to develop new, more appropriate measures of comparison for hospital costs. For example, Paul Ginsberg, president of the Center for Studying Health System Change, a Washington-based think tank, has proposed that Maryland evaluate its performance in relation to comparable states, selected using four criteria: average annual pay per employee (Maryland ranks 10th highest in the nation); proportion of people living in metropolitan areas (83 percent compared with 80 percent nationally); physicians per capita (Maryland is 4th highest); and severity of illness among hospital patients (Maryland is 8th highest).

Using these criteria, Maryland would appropriately be compared with Washington, D.C., Massachusetts, New York, Connecticut, Rhode Island, New Jersey, Pennsylvania, Illinois, California and Colorado.

Doing the math

Is this the only potential way to compare hospital costs? Of course not. However, it makes infinitely more sense than to compare our costs with Mississippi, Arkansas, West Virginia and other states that differ wildly from Maryland in terms of demographics, cost of living, severity of illness and other factors that influence the cost of hospital care.

The number of hospitals that lost money in Maryland increased from 10 in 1997 to 17 last year. It is an alarming trend that threatens to undermine the stability and tradition of excellence in health care at Maryland hospitals.

The kind of drastic cuts that would be necessary to reach the target of 3 percent below the national average cost for a hospital stay will dramatically accelerate this alarming trend. We must find more rational, realistic benchmarks by which costs at Maryland hospitals are judged.

Calvin M. Pierson is president of the Maryland Hospital Association.

Pub Date: 1/11/99

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