Maryland's hospital price-setting may influence national cost-control models

Maryland's experience with healthcare cost controls is fairly unique. There, an independent state agency has been setting rates since 1977 for all patients who visit the state's acute-care hospitals, including Medicare-insured patients. The result has been a state where hospital costs fall well below the national average.

Attracted by this model, the White House and some congressional Dems have pushed to turn MedPAC into an independent agency setting Medicare rates. However, Maryland's experience suggests that these cost controls come with significant administrative burdens for hospitals. Maryland hospitals must turn over a raft of data to regulators, including patient diagnoses, demographic information and how much patients are billed. All of this data is made public, which must impose some stresses on providers, as well. 

On the other hand, Maryland hospitals seem to have enjoyed a more predictable profit margin than hospitals in other states--at around 2.5 percent to 3 percent--while margins have wavered dramatically in other states. That's true despite the fact that Maryland hospitals charged patients 20 percent above treatment costs in 2007, while hospitals nationwide average a 182 percent markup, the AHA says.

The system also stabilizes things between private and public payers. Hospitals enjoy higher Medicare and Medicaid rates than elsewhere in the U.S., which certainly does no harm, but in turn, they aren't allowed to cost shift losses from government payers to private health plans.

All of this seems to lend credibility to the notion of an independent rate-setting body for Medicare. On the other hand, if Medicare rates are controlled, but none of the other controls Maryland has imposed are in place, it's hard to imagine the U.S. as a whole, will see similar results.

To learn more about this issue:
- read this Wall Street Journal piece