Connecticut has abruptly ended 22 years of state hospital rate control-or at least partially ended it.
The action by the state Legislature comes in response to a federal court ruling that essentially invalidated the state's hospital rate-setting system (March 14, p. 25). The suit was brought by District 1199 of the New England Health Care Employees Union, which contended that the state's uncompensated-care pool violated the Employee Retirement Income Security Act. ERISA governs benefits plans such as those administered by unions and self-insured employers.
The Connecticut Hospital Association pressed for deregulation to avoid future ERISA violations. A similar ruling in New Jersey last year (May 24, 1993, p. 6) also led to the deregulation of hospital rates. Several similar challenges are pending in New York and other states.
The new Connecticut law allows every hospital to set its own prices, at least for the next nine months. In January 1995, a net revenue cap linked to inflation will go into effect.
"It's sort of partial deregulation in the sense that we're going to let all payers negotiate discounts and let prices be set by the market but retain an overall or global limit on each hospital," said Donald F. Pogue, a member of the Commission on Hospitals and Health Care, the panel that sets hospital rates and performs certificate-of-need reviews. The cap will be enforced by requiring hospitals that exceed the limit to pay into the state's general fund, he said.
Lawmakers delayed implementation of the revenue cap so hospitals would have time to test whether the new law complies with the federal court's ERISA ruling. The CHA said it doesn't believe the caps will stand up under the ruling.
"What we were dealing with was a Legislature that was very worried about hospital prices going up," said Dennis May, the CHA's president.
The resulting law provides "a lunch break from deregulation," said Bart Price, senior vice president of finance at Yale-New Haven Hospital. "It's the worst of both cases," he said.
The law also replaces current funding for uncompensated care with two new taxes: a 6% sales tax on all non-governmental gross revenues and an 11% tax on hospitals' gross revenues. The taxes will raise $300 million, Mr. May said.
The immediate impact of the law on the bottom lines of the state's 35 acute-care hospitals isn't expected to be dramatic. It may result in a slight decrease in revenues as hospitals respond to insurers' demands for discounts, Mr. May said. For the fiscal year ended Sept. 30, 1993, Connecticut hospitals generated $3.6 billion in net revenues. He said most hospital boards plan to "hold the line" on prices.
For example, to be more competitive with other hospitals, 224-bed Middlesex Hospital in Middletown, Conn., plans to lower charges for maternity care and certain outpatient diagnostic and therapeutic services. Under the old rate-setting system, hospitals couldn't raise prices on individual services, making it difficult to offset losses on prices it wanted to cut. Middlesex hopes to increase market share through lower prices.
