The state's hospital rate-setters approved a compromise rate plan yesterday that will cut charges at most hospitals in the state by about 1 percent.

The Health Services Cost Review Commission, concerned that Maryland costs were outstripping those in other states, initially proposed a 2 percent rate rollback.

Hospitals warned that could lead to program cuts and the loss of 3,000 jobs, and proposed a rate freeze. The commission, in effect, split the difference.

"They met us part way," said Calvin M. Pierson, president of the Maryland Hospital Association. He said the hospitals could live with the 1 percent cutback, although it would still mean a "real cut of staff and services" as hospitals receive about $50 million less in revenue next year than this.

Pierson also said the hospitals were pleased that the commission had agreed to work to "reinvent" the rate-setting system by next year.

While hospitals have been predicting dire consequences from cutbacks, insurers have been pushing the rate-setting panel to cut faster.

"We believe more stringent measures are needed," David D. Wolf, executive vice president of CareFirst BlueCross BlueShield, said yesterday. He called for cuts of 3 percent a year for three years. "We've been lax in allowing our system to get to this point," he said.

From 1976, when the commission began setting rates, Maryland costs dropped from 25 percent above the national average cost to 13 percent below in 1992. Since then, Maryland costs have grown faster than the national rate for six straight years, and the cost of an average hospital stay in Maryland now is above the national average.

But a number of hospital executives, trustees, public health officers, doctors and patients told the commission that cutting at even 2 percent a year was too much.

Given continued inflation, Pierson said, a 2 percent cut would wipe out all hospital profits in Maryland and have "a devastating impact on the quality and scope of services."

Stuart Erdman, senior director of finance for the Johns Hopkins Health System, said hospitals can finance new technology and other improvements only through their profits or by borrowing, and Hopkins has reached a point where it has been warned that its credit rating could be cut if it borrows more.

The commission approved a complex system in which hospitals will have a choice of two rate-setting methods. One is a modified version of the existing inflation adjustment system, designed to produce a 2 percent cut.

Most hospitals are likely to choose the other system, yielding an average 1 percent cut from the cost of each hospital's average stay for the year that ended Sept. 30. The reductions would be "scaled" to benefit hospitals that have been keeping rates low.

In other action yesterday, the commission imposed what is believed to be its largest fine ever, $52,750, against Bon Secours Baltimore Health System. Bon Secours had entered into 10 flat-rate contracts with insurers without seeking required commission approval, but reported the error itself.

The commission's staff said regulations called for a fine of $250 a day for each contract -- a total of about half a million dollars -- but the commission decided to suspend all but $52,750 if Bon Secours continues to meet all reporting requirements.

Pub Date: 3/04/99