Recent articles in The Sun have reported on a disagreement between the Maryland Health Services Cost Review Commission (HSCRC) and the Maryland Hospital Association about hospital rates.

The following quotes are from The Sun (1), (2):

“Regulators have been using outmoded statistics to justify their reduced rates.”

“Assumption that the state was 6.1% above U.S. average is called erroneous.”

“Seventeen of Maryland’s 50 hospitals posted losses in last quarter of fiscal 1999.

“By the end of the next fiscal year, the entire industry could be in the red.”

“Regulators need to reassess their data-gathering methods.”

The Sun. The commission (HSCRC) had compared Maryland’s hospital rates with national averages for1998. Using national figures that the hospitals allege are outdated, HSCRC predicted that Maryland’s rates would turn out to have been 6.1 percent higher than the national average for that year. Hospital rates for 1999 were reduced accordingly. This has led to severe cutbacks in staffing and services in hospitals throughout the state, adding to cutbacks from previous years.

The Association of Maryland Hospitals and Health Systems hired Professor Stuart Altman of Brandeis University to evaluate the data used by the commission. Using updated national hospital statistics, Altman found that Maryland rates were actually about the same as the national average in 1998. “Considering local inflation and the severity of patient illness,” said Professor Altman, “Maryland hospitals would have been about 4 percent cheaper than the national average.”(1) If Altman's figures are correct, the federal waiver shouldn’t be threatened.

In a January 16th, 2000 letter to The Sun, Don Hiller, chairman of HSCRC, found fault with the hospital association’s position and with previous articles.

A work group, which included representatives from the hospitals and from the insurance industry, met several times from September to January in an effort to resolve the dispute (3), (4). Citing harm to life-saving services, from excessive cuts based on faulty HSCRC data, hospitals pleaded for a rate increase of 2.5-3% for the next fiscal year to keep up with inflation. Noting their need for greater profits, insurers argued for a rate increase of no more than 1%. HSCRC split the difference between opposing sides, granting an increase of 2% for inpatient care for the coming fiscal year. They agreed not to use the faulty statistics for future calculations.

The Maryland Health Care Commission, which includes HSCRC and HCACC, is the commission that regulates health care in Maryland—the only state that has such a regulatory agency. For the past three years, The Maryland Psychiatrist has run a series of articles documenting misleading inaccuracies in HCACC data.

Does this have relevance for psychiatry? You bet it does, and in a direct way. Psychiatric beds in general hospitals have been affected by these rate cuts. In recent years, there has been increased emphasis on short-term hospitalization for even the most serious psychiatric disorders. As long-term beds have been eliminated, psychiatric beds in general hospitals have shouldered much of the burden. Diminishing reimbursements have hurt their ability to perform this function. In addition, the resulting budgetary restraints and personnel cuts harm outpatient services. This is another way in which we are losing the fight against mental illness.

The current dispute exposes the need for ongoing evaluation of data systems used by regulatory agencies. Under pressure of time and other contingencies, such agencies are subject to errors of various types. It is poor public policy to place so much power in a health regulatory agency without active external oversight.

As this story was in preparation, the latest report on expenditures from the other health regulatory commission, the Maryland Health Care Commission (MHCC) was published (5). This agency deals with payments to practitioners and has an avowed aim of cost containment. According to MHCC, hospital care accounts for 34.1% of total health care expenditures, and physician services are not far behind at 24.9%. Moreover, they say that the physicians’ share is rising while the hospitals’ share is falling. This report makes the following statement:

“Expenditures for physician services, including capitation payments, increased by 7.7 percent in 1998.”(3)

Don’t be surprised when this announcement is followed by further cuts in physician payments. Previous cuts are making it difficult for physicians to meet office expenses. Everyone agrees that affordable medical care is a top priority. The disagreements are over how best to achieve this without sacrificing quality of care. A Big Brother system may not be the best way to do it. If there must be such a system, let’s make them work with valid numbers.

References are available on request.