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Maryland's 2001 Hospital Rate Increase

Last year, the Maryland Health Services Cost Review Commission (HSCRC) revised its methodology for setting hospital charges in Maryland. Basically, each hospital was given an average charge per case target and told to keep its charges at or below such target.

On July 1, 2001, each hospital's target will increase for the next 12 months. The question, however, is what will that increase be. The answer to that question is quite complicated.

Generally, based on present recommendations, each July 1, hospital rates will increase by (1) a prediction of inflation for the next 12 months, plus (2) 50% of the difference between a prediction of the percentage growth of hospital revenue nationally less a prediction of inflation, if revenue growth is exceeding inflation, minus (3) 100% of the difference between the prediction of the growth in hospital revenue nationally less the prediction of inflation, if inflation is outpacing revenue growth for two consecutive years, plus or minus (4) adjustments to prior item (1), (2) or (3) predictions based on reality, with either a one, two or three year delay due to the lag in the availability of accurate data.

The theory behind items (2) and (3) is that, if hospital revenues nationally are increasing faster than inflation, then Maryland hospitals should receive rate increases greater than inflation, but if hospitals nationally are surviving with less than inflation, then so should Maryland hospitals.

With respect to item (3), if hospital revenue nationally is going up slower than inflation, then, although it requires two successive years of such events to result in a reduction in Maryland hospital rates, such negative results, nevertheless, will be used as deductions from future item (2) bonuses, whether such negative results are in consecutive years or not.

With respect to item (4), there really are two types of adjustments. If reality is different than the predictions, then the rate base itself will be permanently adjusted when accurate information is available. In addition, temporary one year adjustments in rates would also be made to make up for the differences between reality and prediction with respect to those years when rates were based on erroneous predictions.

Also, among other things, hospital rates will be impacted by: (5) whether the State or individual hospitals meet annual charge targets; (6) full rate reviews of individual hospitals, initiated either by the hospital or the HSCRC; (7) whether Medicare's agreement to pay Maryland hospitals at the rates set by the HSCRC is in jeopardy; and (8) a requirement that Maryland hospitals in the aggregate receive at least a minimum increase in rates each year.


March 21, 2001




Rosen, Barry F.


Health Care