Maximizing Revenues
in a Rate-Restricted Environment

As Congress mulls over universal healthcare, some are looking to Maryland’s all-payer system as the model for cost containment. In one Maryland hospital, Crothall’s partnership has added stability, confidence, and most importantly, revenues.

What Does an All-Payer System Look Like? Maryland’s healthcare policy is unlike that of any other state in the union. Since 1971, Maryland’s Health Services Cost Review Commission (“HSCRC”) has had sole authority to set the rates hospitals can charge for services. In 1977, the HSCRC negotiated with Medicare and Medicaid to reimburse hospitals based solely on what the commission decides.

This system, aimed at controlling costs, has recently been used by proponents of government healthcare reform to show that tightly controlling reimbursement rates can effectively slow the growth of healthcare costs. Many are eyeing such a system for the U.S. as a whole.

A major target of the system is the cost of uncompensated care. In other states, when patients without insurance are unable to pay for their care, the hospital shifts the burden to patients who pay by increasing the rates charged to insurance companies. This “cost shifting” is one of the main causes of rising medical costs in the nation. In Maryland, cost shifting is not permitted, and all patients, regardless of insurance status, are charged the same rates. The rate for each service covers costs, adds a slight markup, and also includes a subsidy to account for “charity care.” In this way, the burden of uncompensated care is shared among all Maryland hospitals. The markup on health procedures in Maryland is only 20%, the lowest of any state, and much lower than the average markup of 182% in the rest of the country.

Is Rate Restriction Effective? By all measures, Maryland’s efforts to control costs have been successful. In 1976, the state’s hospital admission costs were 26% above the national average. In 2007, Maryland’s costs were 2% below the national average. Over this time, the state had the second-lowest rate of increase in cost per admission.

According to an article in the journal Health Affairs, if rates in Maryland had increased in line with the rest of the country, hospital spending in the state would have been $40 billion more since 1977. Conversely, if rates throughout the U.S. had grown according to the Maryland model, the nation’s health savings would have been in excess of $1.8 trillion.

Maryland’s system has been challenging for hospitals who have no control over their prices. Profits have been muted as a result, in a low but stable range of 2-3%, while other states have experienced larger fluctuations with changes in the economy. Unfortunately, rate decisions only affect hospital procedures and do not take into account non-hospital physician costs, so the benefit to overall healthcare costs in Maryland is limited. Hospitals have had to closely manage their costs and compete for patient volume to be successful under the HSCRC.

Optimizing Resources At Frederick Memorial Hospital, Maryland’s rate setting makes it necessary to maximize productivity in certain areas. Because rates for different services can change every year, the hospital must ensure there are sufficient resources behind the more lucrative services to offset the losses they may incur in others. For example, between 2007 and 2008, the reimbursement rate for radiation therapy dropped while MRI reimbursement rates increased. This made it critical that the imaging department be as productive as possible in scheduling MRI procedures.

Before Crothall Services Group began providing patient transportation to Frederick Memorial, the service was centralized under nursing. Imaging did not always receive the attention it needed to move patients in a timely manner. Often, radiology techs had to retrieve delayed patients themselves. “We not only needed additional FTEs, we also needed more focus on our department,” says Director of Imaging Services Brent Purscelley.

Satisfaction was an issue for both patients and doctors. Physicians’ reputations in the community depend partially on where they refer patients for procedures. Frederick Memorial needed to have a solid program to attract referrals, especially in a competitive market for outsourced radiology services.

Crothall added the necessary resources to improve throughput and stabilize inpatient scheduling. According to Purscelley, Crothall’s strength lies in its “patient
throughput expertise, supported by a network of resources and a solid software infrastructure.” Crothall was able to measure its success through timely reporting on transportation metrics. The data also proved the need for additional FTEs and provided management better oversight and control. This gave the department confidence and capacity to schedule a greater number of outpatient MRI procedures, bringing more revenue into the hospital.

Maximizing Revenues In 2008, the imaging department’s activity increased by almost 900 outpatient MRI procedures over the previous year, representing a 56% increase or $1.2 million dollars
in incremental revenue. This drastic improvement was made possible in part by Maryland’s rate setting, which reimburses Frederick Memorial $1,364 per MRI procedure, compared to the national Medicare average of about $340-$535. The hospital’s ability to maximize MRI scheduling was the key to success.

Rate setting in Maryland constrains the growth of healthcare costs for consumers. It also adds challenges for hospital providers. For Frederick Memorial Hospital, dedicated resources delivering optimal service produced measurable success. Crothall’s partnership not only served the well-being of the patients, it contributed to the financial well-being of the hospital.

Sources:

• Murray, Robert. (2009). Setting hospital rates to control costs and boost quality: the Maryland experience. Health Affairs. 28(5), 1395-1405.

• Zhang, Jane. (2009, September 14). Maryland reigns in hospital costs by setting rates. Wall Street Journal. p. A4.

• Zieger, Anne. (2009). Maryland’s hospital price-setting may influence national cost-control models. Retrieved September 24, 2009, from http://www.fiercehealthfinance.com/story/ marylands-hospital-price-setting-may-influence-national-cost-control-models/2009-09-16-0