Maryland's Success in Controlling Hospital Costs
Having an independent agency, the Maryland Health Services Cost Review Commission, set reimbursement rates for acute-care hospitals has controlled costs.
By Maggie Mahar
Health Beat
While health care reformers argue about what it would take to “break the curve” of health care inflation, the state of Maryland has done it, at least when it comes to hospital spending.
In 1977, Maryland decided that, rather than leaving prices to the vagaries of a marketplace where insurers and hospitals negotiate behind closed doors, it would delegate the task of setting reimbursement rates for acute-care hospitals to an independent agency, the Maryland Health Services Cost Review Commission.
When setting rates, the Commission takes into account differences in labor markets and how much a hospital pays in wages; the amount of charity care the hospital does; and whether it treats a large number of severely ill patients. For example, the Commission sets the price of an overnight stay at St. Joseph Medical Center in suburban Towson at $984, while letting Johns Hopkins, in Baltimore Maryland, charge $1,555. For a basic chest X-ray, St. Joseph's asks $81 and Hopkins' is allowd to charge $155. The differences reflect Hopkins's higher costs as a teaching hospital and the fact that it cares for generally sicker patients.
Such adjustments are never perfect, but in this case, it appears that the Commission is treating hospitals equitably..Since the program started, the Wall Street Journal reports that Maryland hospitals have enjoyed a steady profit margin, unlike hospitals in other states that often make more money during boom years and less during a recession. Statewide hospital profit margins average 2.5% to 3%.—just enough of a surplus to give hospitals maneuvering room when setting budgets. Before the commission was established, Maryland hospitals were losing money covering the uninsured.
What is most remarkable is how state regulation of prices has contained costs. When the program began in 1977, the state’s hospital costs were 25% higher than the national average. Today, Maryland’s hospital costs are 2% lower than the national average. Meanwhile, over the same span, Maryland boasts the nation's second-slowest increase in hospital costs .
One reason the Maryland solution works is that Medicare and Medicaid have agreed to accept the prices that the Commission sets—as long as Maryland's hospital costs grow slower than Medicare payments nationwide.
The deal makes sense for the government because for Medicare, the elephant in the middle of the room is health care inflation. If Medicare spending continues to grow faster than the economy, Medicare is in trouble. ( Yesterday, the Centers for Medicare and Medicaid announced that in 2009 U.S. health spending reached $2.5 trillion, and that health care's share of the economy grew 1.1 percentage points to 17.3 percent—the largest one-year increase since the federal government began keeping track in 1960 )
Source: Health Beat
Subscribe to News and Reports
Recent comments