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December 21, 2008

The Health Services Cost Review Commission (HSCRC) was established in 1971 to improve access and insure equality for Maryland patients and to control rapidly rising health care costs in the state by setting the rates all Maryland hospitals can charge for inpatient and outpatient services. These costs, which were outpacing similar costs throughout the rest of the nation, were seen as an economic threat not only to the citizens of the state, but to everyone involved in health care, from insurers to hospitals. Known as an “all-payer” system because government payers, private insurance companies and individual uninsured patients all pay the same rate at each hospital for care they receive, the system needed a waiver — which was obtained — from the U.S. government since Medicare and Medicaid reimburses Maryland hospitals at the rates set by the HSCRC under the plan.

The adoption of a rate-setting structure was not just about controlling costs, however. The HSCRC wanted to create financial incentives for hospitals to provide equal access to care for all patients and not to deny care based on ability to pay. Hospitals, on the other hand, were satisfied to trade some profitability for long-term financial stability.

It was one of those rare initiatives that was hailed as a “win-win” situation for all parties and thus had the full backing of a large coalition of interests, including state citizens, the health care industry, businesses, health care insurance companies, and state government officials and agencies.

When the system was activated in 1971, hospital admission costs in Maryland were 26 percent above the national average. The most recent data (2006) indicate that Maryland hospital costs are 2 percent below the rest of the nation, while hospital markups — the difference between what it actually costs a hospital to provide a service and what is charged — is roughly 21 percent for Maryland hospitals vs. 174 percent for the national average. Also, there’s no cost shifting or price gouging under the HSCRC system as a means of subsidizing patients who can’t or don’t pay their bills. There is no patient “dumping,” a practice by means of which hospitals “dump” uninsured patients on other hospitals. Maryland’s system offers fair, equitable rates to everyone.

The primary advantage for patients is that hospitals generally have no financial incentive to deny admission or care, and through the certificate of need (CON) process there is assurance that the health care system is “right sized” to avoid excessive overbuilding of capacity. The primary advantage to hospitals is financial stability and the ability to plan for appropriate rate increases over time, as well as incentives to improve quality rather than spend precious resources in competing with other institutions. The HSCRC’s rate-setting system was also designed from the outset to hold hospitals accountable for their performance. Peer group comparisons by the agency of hospitals’costs and utilization data encourages hospitals to be efficient. Hospitals not operating efficiently face the possibility of a smaller than desired rate increase or no rate increase at all.

It’s important to keep in mind that there are no “charity hospitals” in Maryland where patients can go to receive free care and potentially lower-quality care at taxpayers’ expense. Each Maryland hospital has a moral and legal responsibility to treat all patients, regardless of their ability to pay.

Clearly, however, no system is perfect. For example, because the uncompensated care (UCC) factor in hospital rates is adjusted retroactively using data that are approximately two years old, hospitals must absorb current actual uncompensated care costs before they receive any relief.

Most importantly, however, uncompensated care costs are built into the rates all payers share. This means that if hospitals fail to make appropriate, ethical efforts — as expected by HSCRC — to collect unpaid bills from those able to pay, the unrecovered UCC costs would spread like butter across all hospitals and increase costs for every paying patient.

Under rules of the HSCRC, the “uncompensated care” costs include not only patients who are uninsured or underinsured, but all people who don’t pay. This is especially the case with individuals who have insurance but fail to pay their co-pays.

For FY 2007, the state-wide uncompensated care average was 8.1 percent. For The Johns Hopkins Hospital, that rate was 6.6 percent.

Hopkins administrators at The Johns Hopkins Hospital, Johns Hopkins Bayview Medical Center and Howard County General Hospital (HCGH) recognize that for some patients, the means to pay for their health care just does not exist in whole or in part, and its policies are to work with all its patients in advance and up front whenever possible to help them fulfill their financial responsibilities.

For example, dedicated and specially trained patient services staff at The Johns Hopkins Hospital, Bayview Medical Center and Howard County General Hospital, along with cost-efficient financial services companies, work with patients and families to not only identify federal and state insurance or charitable programs for which patients may be eligible, but also assist with paperwork to secure the help. These same programs offer help to patients whose claims have been denied by their insurance carriers, and help arrange payment terms that accommodate patients’ special circumstances.

In some cases, patients may qualify for Hopkins’ private charity care program, which is the same for all three hospitals. Our program is based on family size, income and assets. We offer a sliding fee scale that is based on 150 percent to 270 percent of the federal poverty guidelines. Preliminary eligibility determinations are rendered within two business days. In all cases, every effort is made to work with individual patients to assist them in meeting their obligations.

Only when all other cooperative means to assure payment have been exhausted, and when it is clear that there is reasonable certainty that patients or their families are unwilling to pay, will The Johns Hopkins Hospital, Bayview Medical Center and Howard County General Hospital, like all other Maryland hospitals, attempt to collect those debts through the use of external collection agencies and other collection practices such as the issuance of liens. To do otherwise is, as noted earlier, financially irresponsible and not fair to the patients who do pay.

Unpaid hospital bills referred to external collections agencies for FY 2008 amounted to approximately 5% of total revenue for all three Johns Hopkins Health System (JHHS) hospitals. About 20% of these cases were for emergency medical care. These actions are taken only after in-house collection attempts fail. Initial collection attempts are always performed by JHHS staff. If JHHS staff are unable to collect the debts within 180 days, they are referred to outside collection organizations. Only one-third of one percent (.333%) of these bad debts are pursued with legal action. However, most of these legal actions are passive in nature, that is, liens against property may be levied, but are only acted upon when the affected property is sold. Debt referred to external collection organizations are not reported to credit reporting agencies unless legal judgment is obtained.

It should be emphasized that trained JHHS staff work closely with patients to help them meet their financial obligations. For example, eligible patients can set up no interest installment payment terms of up to 24 months. Currently, more than 1,500 patients treated at all three of the JHHS hospitals are satisfying their financial obligations under this program. Onsite medical assistance eligibility services are also provided at each hospital. In FY 2007 alone, JHHS spent $2.5 million to assist about 5,000 patients with getting Medicaid coverage of over $80 million for needed health care services.

Despite the best efforts of the JHHS hospitals to assist patients in meeting their financial obligations, JHHS hospitals still incurred the following  levels of bad debts for FY 08: The Johns Hopkins Hospital, $71 million; Johns Hopkins Bayview Medical Center, $28.8 million; Howard County General Hospital, $10.5 million.