Proposed rate increase still too low, say Md. hospitals

State regulators are expected to vote this week on the annual rate adjustment for Maryland’s hospitals, but the latest proposed increase remains less than what hospitals say they need.

The staff of Maryland’s Health Services Cost Review Commission — which sets both the rates for hospitals and, since 2014, their budgets — is recommending that hospitals be allowed to increase their revenues by 1.63 percent per state resident for the coming fiscal year.

“From our perspective, that is simply too low of an update,” said Carmela Coyle, president and CEO of the Maryland Hospital Association.

MHA is now asking commissioners to approve a rate increase of 2.75 percent. The association argues the staff proposal is overly cautious and will leave hospitals unable to provide necessary pay increases and make new investments to support the health of their communities.

Under the five-year, global-budgeting experiment that began in 2014, hospital revenues are capped each year, giving them an incentive to reduce costs, focus on preventive care and reduce unnecessary hospitalizations.

Over the course of the experiment, sometimes called the waiver, the state must limit hospital’s annual revenue growth to 3.58 percent per capita and generate $330 million in Medicare savings

While the state has already achieved $250 million of those savings in the experiment’s first two years, commission staff believe a smaller rate increase for the coming year will help make sure those savings aren’t offset by excessive growth in Medicare spending on care delivered outside of hospitals, according to the final staff recommendations posted on the commission’s website.

Two consecutive years of such growth could require the state to take corrective action, and staffers wanted to ensure the progress made in the first two years of the waiver experiment isn’t threatened, said Steve Ports, the commission’s director of engagement and alignment.

As a result, commission staff initially proposed a 1.49 percent revenue increase for fiscal 2017 – to be achieved through rate increases for the services hospitals provide – last month.

But Coyle says it’s premature for the commission to make this kind of correction since it’s based on projections; the actual figures regarding the total cost of care in Maryland – which includes non-hospital Medicare spending —won’t be known for months.

The hospital association feels that data for 2016 thus far shows that Medicare savings are higher than expected.

“We’re not in trouble,” Coyle said. “Now is not the time to tap the brakes.”

The association also argues that that since much of the staff’s proposed increase was set aside for special uses or as grants that would be awarded to hospitals that apply, only a few hospitals would reap the full benefit.

The University of Maryland Medical System projected its revenues would increase only about 1 percent based on the staff recommendation.

“This number is woefully inadequate, creating cost pressures to manage unfunded inflation,” wrote UMMS President and CEO Robert Chrencik in a May 25 letter to Sabatini. “Additionally, under the new Waiver hospitals must find ways to fund clinical innovation, new information technology, population health strategies and capital replacement.”

MedStar Montgomery Medical Center President Thomas J. Senker also wrote to Sabatini, arguing that the staff proposal would lead to the elimination of 27 positions at the hospital, including some related to population health efforts.

Commission staff’s final recommendations, released in advance of Wednesday’s meeting, slightly revised the proposed revenue increase to the 1.63 percent final recommendation.