Health care won't be cheaper

Double-digit inflation is returning in health care - one national study published last month predicted an 11 percent average increase in health premiums for this year - but health care providers say they are caught in a money crunch.

Doctors are worried that insurers are not paying them adequate rates. This year, "the big question is whether we start to see physicians telling bottom-dwelling HMOs to take a hike," said T. Michael Preston, executive director of the state medical society.


Hospitals don't have to negotiate rates with HMOs - their rates are set by a state commission - but they have a different set of worries.

With profit margins shrinking (and approaching zero), hospitals sought an across-the-board 2.5 percent rate increase, only to be turned down last month by state regulators concerned about rising costs.


"The margins are continuing to be unacceptably low, but for the moment, hospitals are going to have to continue to live with what they have," said Calvin Pierson, president of the Maryland Hospital Association.

Contributing significantly to the money pressures on hospitals is a tight labor market. The hospital association said the 2.5 percent rate increase was needed to attract and retain nurses.

But the labor shortage goes beyond nurses, Pierson said - "pharmacists, radiation techs, labor workers, you name it. These are big-time problems."

The financial situation is even tougher for the state's psychiatric hospitals. For example, an emergency 19 percent increase was recently granted to Taylor Manor, a private mental health institution.

The psychiatric hospitals are working to persuade the state's Medicaid program, which pays for about 40 percent of their patients, to match or at least approach the higher level paid by private insurers.

Medicaid also is considering how best to deal with substance abuse. Under the managed-care system adopted by Medicaid in 1997, the number of people receiving treatment has slipped.

Thinking this may be a result of manage-care barriers, the state health department is looking for a different way to finance substance abuse treatment.

And, the health department is planning a comprehensive review this year of how the Medicaid program is working, not just for substance abuse but in delivering all types of care.


Nursing homes, too, are in deep financial difficulty. Integrated Health Services Inc., based in Sparks, is in bankruptcy reorganization and facing Medicare fraud charges in a whistle-blower suit. Also reorganizing under bankruptcy protection is Genesis Health Ventures, which has its headquarters in Pennsylvania but about 50 nursing homes in Maryland.

Insurers as well as providers are feeling a pinch. CareFirst BlueCross BlueShield, the state's largest, has also seen its margins decline. In response, it shut down its Medicare and Medicaid HMOs.

Another dominant insurer in the region - and the largest nationally - Aetna U.S. Healthcare, last month said it would cut 5,000 jobs, raise rates and drop about 2 million customers.

An exception is the second-largest Maryland insurer, Mid Atlantic Medical Services Inc., which has seen steadily improving earnings since a management shake-up two years ago.

Health insurance - and how to extend it to more uninsured people - is likely to be a key issue in the Maryland legislature this year.

The Children's Health Insurance Program (CHIPS) has already used federal and state money to cover about 75,000 children in Maryland, with another 19,000 expected to enroll this year when the income ceiling increases to 300 percent of the poverty level.


Now, the legislature is expected to consider extending coverage to the parents of many of those children.

Adding coverage bit by bit could blunt the drive of the Maryland Citizens' Health Initiative, a group seeking to influence elections in 2002 to bring about universal health insurance for the state.

"The more people you cover through incremental steps, the less momentum there is for dramatic reform," said state Sen. Christopher Van Hollen Jr., the Montgomery County Democrat who is vice chairman of the Budget and Taxation Committee.

Legislators also are interested in a prescription benefit for seniors. Many seniors lost pharmacy coverage when Medicare HMOs pulled out at the end of last year.

But a small prescription program launched this year and aimed at rural seniors (who lost their Medicare HMOs in 1999) has attracted few takers. And with the federal government talking of extending prescription coverage as a Medicare benefit, the state may be reluctant to try to solve the issue itself.

"We do not want to jump into any long-term program that's going to cost us a lot of money until we see what the federal government is going to do," said Del. Michael E. Busch, the Anne Arundel Democrat who chairs the House Economic Matters Committee.


Another issue likely to come before the legislature is a review of the health planning process that requires hospitals and other providers to get regulatory approval before launching certain services. At issue particularly is open-heart surgery. Hospitals that have it want to limit expansion.

Away from legislative and regulatory issues, people in the industry think the money crunch has cooled the merger fever of past years. Tight budgets, Pierson said, "focus your attention away from long-term strategic issues and back to short-term operational issues."