WASHINGTON COUNTY — Maryland is known across the country for its efforts to control health care costs through the state Health Services Cost Review Commission and through the Maryland Health Insurance Plan.

The commission was created in the 1970s, when hospitals, including some in Baltimore City “on the verge of bankruptcy,” were struggling to pay the cost of treating those who didn’t have insurance, said commission Executive Director Robert Murray.

The state hospital association backed the idea of letting the state set the rates charged to patients while overseeing a way to jointly pay for treating the uninsured.

“Maryland, really, was kind of a trailblazer in that regard,” Murray said.

In 1971, hospitals and private insurance companies agreed to the plan. And in 1977, Maryland won the right to set the rates hospitals charge Medicare and Medicaid.

It still is the only state in the nation that does this, Murray said.

“In other states, the rates (that Medicare and Medicaid pay) are set by Congress: ‘We’ll pay this amount for open-heart surgery, etc.,’ but for us, they said, ‘We waive that methodology and we’ll pay whatever you say is the right cost.’”

To earn that trust — and to retain it — Murray said his commission must prove its worth in controlling costs.

And, he said, it has.

“The average cost of a hospital stay here is about 2 to 3 percent lower than the average cost of a hospital stay nationally,” he said. “We were 25 percent above the U.S. (average cost) in 1976 and we’re now 2 to 3 percent below.”

The commission examines costs at every hospital and sets the rates each of them can charge, Murray said.

“We’ll set a rate for a day in the hospital, for time in the operating room, for diagnostic testing. ... The various functional areas in the hospital, we’ll set a rate for,” he said.

The commission doesn’t price each bandage; rather, it sets a flat charge for all supplies, he said.

And then, there’s the add-on cost of each hospital’s dealings with the uninsured, also called its “uncompensated rate” when compared to its other expenses.

If, “for example, a given service is $100 but the uncompensated rate at a hospital is 10 percent, we’ll set a rate of $110,” Murray said. “That’s the way the subsidy works.”

At hospitals throughout Maryland, the uncompensated rate ranges from 2 percent to 3 percent, usually in suburban areas, to 15 percent to 16 percent in metro areas, where generally there are more cases involving the uninsured, he said.

At Washington County Hospital, uncompensated care equaled 8.5 percent of the $243 million in gross revenues it had in fiscal 2009, Murray said. The unpaid costs totaled $20.7 million — $6.1 million inpatient, $3.3 million outpatient, $7.4 million bad debt inpatient, and $3.9 million bad debt outpatient, he said.

The state allows the hospital to add on 6.78 percent to help make up for the uncompensated care bills, according to Ray Grahe, vice president for finance at Washington County Hospital.

Murray said the add-on doesn’t cover all of the uncompensated costs because the state wants to spur hospitals to try to collect from patients who can pay, he said.

During the recession, the uncompensated care cost here has risen markedly, Grahe said.

Compared to the 8.5 percent Murray cited, it “was running a little over 6 (percent) a year ago,” Grahe said. “So this has gone up during the unemployment increase.”

With the state monitoring such changes, the overall effect is good for people needing hospital care in Maryland, Grahe said.

“Generally, rates and charges in Maryland are less than they are outside Maryland because they are regulated,” he said.

In Pennsylvania and West Virginia, by contrast, each insurer negotiates what it will pay.

Murray said that as effective as his commission is in dealing with the expense of caring for the uninsured, it would be better to have a system where everyone in the nation is insured.

“First best solution is to insure everybody — what they’re trying to do nationally,” he said. “But this is the second-best solution and it’s worked fairly well.”

If national health care reform is approved and all are required to become insured, there would still be thousands in Maryland who will be uninsured or underinsured, and “will fall between the cracks, just as they do now with car insurance,” Murray said.

Nonetheless, the cost of uncompensated care will drop and hospital rates would decline, he said.

Wouldn’t we all pay more in taxes if insurance was provided for all?

“Maybe,” Murray said. “I think there’s enough waste and inefficiency in the health care system in this country that it wouldn’t necessarily bring higher taxes.”

High-risk insurance

Compared to other states, Maryland is aggressive about trying to increase the public’s use of its high-risk insurance pool — another way it is reducing health care costs, officials said.

“We’ve been growing at 20 to 30 percent (in members) a year since 2005. Current enrollment is 16,800 members. In 2005, we were like 5,000 members,” said Richard Popper, executive director of the Maryland Health Insurance Plan (MHIP).

The pool, begun in 2002, is for Maryland residents who want to have health insurance and have the money for it, but who can’t get individual health insurance coverage.

“In some cases, you may have been denied coverage because of pre-existing medical conditions that have put you at high-risk. In others, private coverage is available, but the benefits are excluded because of your health condition,” according to MHIP’s Web site.

The pool, which is funded by hospitals and pool members, is designed to reduce the costs of uncompensated care at hospitals by insuring people, Popper said.

“If not for our plan, many of these people would be going to the emergency room all the time for services,” he said.

“It’s less expensive for hospitals to subsidize a health plan for people with chronic health problems so they can get prescription drugs, (and) they can get specialty care, primary care, durable medical equipment,” he said.

Maryland hospitals paid $107.3 million into the pool in the 2008-09 fiscal year that ended in June. The payment is funded by a 1 percent charge added to all hospital fees, Popper said.

Members’ premiums for MHIP insurance brought an additional $50 million to $54 million into the fund during the same time, he said.

Roughly $155 million was paid out.

“We’re in business to lose money because for every dollar we get in premiums, we incur $2 to $3 in cost,” Popper said.

So why not charge members the full price?

Popper lists three reasons.

“We could charge premiums of $2,000 a month, but then no one would enroll in it,” he said. “Second response, by getting people insurance, then people are not going to the emergency room without insurance, driving up hospital rates, which are then passed on to other people.

“Third reason is, look at New Jersey that has guaranteed issue, where everyone who wants insurance has to be given it, and it has no hospital subsidy. Premiums are like $800 a month because they have to take everyone,” he said. “That then makes it too expensive for people who are healthy and they won’t buy it.

“So, by having us here, we’re then keeping premiums down for healthy people.”

As a result, MHIP doesn’t just rely on applicants to come to it.

By law now, insurers who deny health insurance “have to give us names and addresses of people who have been denied,” so MHIP can write and tell them about its fund, Popper said.

“And we also have done a lot of outreach to hospitals to let them know they should refer (patients) to us to try to get as many” in the pool as possible, he said.