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Washington County Hospital reports $7.5 million in profits

July 24, 2005|by DANIEL J. SERNOVITZ

daniels@herald-mail.com

Washington County Hospital reported $7.5 million in net profits for its 2004 fiscal year, up from a deficit of nearly $6.2 million in 2003.

The increase was due in part to higher charges the hospital was permitted to pass on to patients by the state Health Services Cost Review Commission, according to data the commission released earlier this month.

Washington County Health System President and CEO Jim Hamill said while other factors including the economy and losses from its investments influenced the hospital's deficits in 2003 - conditions that improved in 2004 - the hospital's profits last year were aided by the increased charges.

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Like Washington County Hospital, hospitals across the state reported increased profits last year. The higher profitability statewide was driven by a 9 percent increase in average hospital charges that outpaced the national average of 5.9 percent, according to the HSCRC's annual Disclosure of Hospital Financial and Statistical Data report released July 6. The commission let hospitals increase their rates in an effort to help hospitals bolster their revenues following several tight budgetary years, said Robert B. Murray, executive director of the commission.

"It was by design to allow hospitals to generate more profit," Murray said. "Normally, what we try to do is grow more slowly than the U.S."

Murray cautioned other factors, including the number of patients admitted to the state's hospitals, and the intensity of their health problems, influenced hospitals' profits and prevents the report from providing a true comparison of hospitals.

According to the HSCRC's report, the average cost-per-patient for regulated services in Maryland's acute care hospitals increased from $7,707.16 in 2003 to $8,403.12, a 9.03 percent jump. Washington County Hospital's rates climbed 9.97 percent, from $5,646.44 to $6,209. Frederick Memorial Hospital's rates grew 6.09 percent, from $5,775.98 to $6,127.85.

The commission began regulating hospital rates in 1974 at a time when Maryland's hospital charges were among the highest in the nation. The commission regulates the amount hospitals can charge, and each hospital is assigned a different rate based upon several factors specific to the communities they serve, Murray said.

"That affords the state and the agency some degree of flexibility in determining how much hospital costs go up every year," Murray sad. "Hospital profits had been pretty depressed and they had not been in a position to recapitalize itself."

The state's hospitals operated under tight margins from 1998 to 2001, Murray said, prompting the commission to let hospitals incrementally increase their costs starting two years ago.

Ken Coffey, vice president and chief development officer for Frederick Memorial, said he believes the commission's program works well and helps hospitals to ensure their patients are getting the most value for the services they receive.

"Of course, the system ... is a rate-regulated setup in Maryland and it actually has worked very well," he said. "Our charge to patients is among the lowest of any of the surrounding hospitals."

Coffey said even as nonprofit organizations, hospitals need to generate enough profit to replace equipment and make upgrades to their facilities. He noted Frederick Memorial raised $27 million in charitable donations and borrowed $56 million in order to finance a $103 million expansion project.

"One of the things that we try to do, even though we're a not-for-profit hospital, it's important that we make a profit every year," he said. "That's been critically important to our hospital because we're in the midst of this major expansion project."

Hamill said he believes the state's rate structure helps to keep costs at Maryland hospitals down while ensuring the facilities continue to provide quality service to their patients. Hamill said with the cost structure in place he believes patients at Washington County Hospital benefit.

"We provide the same quality of care in a cost effective environment," Hamill said. "We're very proud of it. I think our people do just a terrific job."

Murray said the commission was pleased with the statewide results and noted the actual rates Maryland's hospitals charge are still lower than the nationwide average. He said he expects the commission could start to rein in increases as early as the 2007 fiscal year, once the state's hospitals have generated enough profits to fund improvements to their facilities.

"My sense is that, moving into fiscal year 2007 we will, moving into that year, start to bring it back again," he said.

The mark-up for Maryland hospitals, reflecting the difference between their costs and charges, was the lowest in the nation at 20 percent, the data stated. The national average is 152 percent.

Murray said as part of the rate structure, the commission has not looked into issues such as whether hospitals are artificially shortening the length of time their patients are in the hospital in order to meet their targeted averages, nor does it seek to micro-manage hospitals through the program.

Moving forward, he added, the commission is developing a set of standards it will be able to use to give incentives to hospitals that meet certain criteria such as administering aspirin to patients admitted for heart attacks. In exchange for following those procedures, Murray said, the hospitals would be entitled to higher rate increases.

"It's not an explicit thing that we focus on, but if they're shortening the length of stay, that will have quality implications," Murray said. "We don't get into sort of micro-analyzing hospitals to determine whether they should do X, Y or Z to be more efficient."

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