Work groups should have draft recommendations by next month on some technical issues in revising the state's hospital rate-setting formulas, but the "big ticket items" will take an additional two to three months to work out, according to Robert Murray, executive director of the Health Services Cost Review Commission.

The unsettled issues represent a big ticket, indeed. Hospitals collect $7.6 billion a year in revenue regulated by the commission, so a small change in the formula can add or subtract millions of dollars from the state's collective hospital bill.

That, in turn, has a major impact on health insurance premiums and on the financial health of the hospitals.

The commission last set out to revise its formulas about four years ago, after a series of abrupt ups and downs in the 1990s.

The product of that "reinvention" was a three-year deal - endorsed by the hospitals and the insurers after long debate - that basically tied Maryland rate increases to estimates of national cost inflation. The three years end in June, and the commission wants to have a revised system ready.

Murray said the big questions for the revision are simple: "How much revenue is there in the system, and how does the pie get divided up?"

From 1976, when the commission was created to regulate hospital rates, until 1992, the cost of an average stay in a Maryland hospital dropped from 25 percent above the national average to 13 percent below.

The commission then began granting more generous rate increases. Hospitals posted record profits, but Maryland costs rose, with the state's average topping the national mark by 1997. That produced some years of tight controls, followed by the reinvention.

The reinvention set a target of getting Maryland's costs 3 percent to 6 percent below the national average. Murray estimates that the gap is now about 3 percent.

"While the debate will be in terms of relatively arcane formulas, that's the main question - what's the target?" said Harold Cohen, a former commission director who now represents two insurers, CareFirst BlueCross BlueShield and Kaiser Permanente, in the rate debate. The insurers say if Maryland keeps its costs as low as possible, they will be able to hold down premiums.

Though the reinvention has slowed Maryland's cost increases, "there's great frustration among the hospitals in the state" because the rates are not allowing them sufficient margin, said Calvin Pierson, president of the Maryland Hospital Association.

The reinvention set a target for a 2.75 percent operating margin for hospitals, but it has reached only 1.9 percent, Pierson said.

Though his association has not made a specific recommendation, Pierson said, it will be seeking a more generous formula over the next few years, plus an extra first-year rate boost to "jumpstart" the hospitals to keep up with capital needs and with growing staffing costs.