An analysis of profit ratios of Maryland hospitals : 1970-1988

In recent years the financing of health care has changed drastically. The American health care industry spends at least 50 percent more than other developed countries. Thus, health planning has become of paramount importance as expectations and costs continue to soar. Higher levels of indigent care, Icwa Medicare rates, and higher nursing salaries contribute to the increased costs. Exploration of reimbursement incentives suid competition is occurring as institutions attempt to initiate cost containment behaviors.

Prospective payment systems (PPS) were developed to provide a means of addressing the exorbitant increases in health care spending. Rates are set in advance and may not be adjusted the provider to cover actual costs. There are several types of PPSs; each provides efficiency but by different means.

The Maryland rate-setting system is an all-payer system which was one of the first mandatory state-level hospital review programs in the nation. The Maryland PPS uses a quasi-utility approach to regulate hospital costs. Its rate-setting and planning functions are located in independent commissions. Rates are adjusted for inflation, volume changes, and pass through costs. The purpose of the study was to determine whether the Maryland rate-setting system resulted in a gain or loss of hospital profitability.

Five profitability ratios were e}q)lored using repeated measures. Three two-year periods were selected to examine the impact of the cost based reimbursement system as well as the early and late effects of the Maryland PPS. A sample of 40 hospitals was selected. Stibgrotps were constructed using geographic location and number of beds. The study showed profitability ratios were lower than industry standards under cost-based reimbursement and rate-setting. Prolonged low profitability ratios indicates poor financial viability.