SENATE BILL REPORT

SB 5887

BYSenators Wojahn, Kiskaddon, Moore, Patterson and Barr

Providing for a moratorium on rate regulation by the hospital commission.

Senate Committee on Human Services & Corrections

Senate Hearing Date(s):February 24, 1987; March 3, 1987

Majority Report:  That Substitute Senate Bill No. 5887 be substituted therefor, and the substitute bill do pass.

      Signed by Senators Wojahn, Chairman; Stratton, Vice Chairman; Anderson, Deccio, Kreidler, Tanner.

Senate Staff:Scott Plack (786-7409)

                  March 9, 1987

AS REPORTED BY COMMITTEE ON HUMAN SERVICES & CORRECTIONS, MARCH 3, 1987

BACKGROUND:

The Washington State Hospital Commission was established in 1973 to regulate hospital costs by assuring a reasonable relationship between hospital charges and costs.  The Commission reviews and prospectively approves requests for hospital budget and rate changes as well as any amendments to budget requests.  It also conducts a year-end review of each hospital's financial performance to determine conformance to the Commission's approved rates.

The Hospital Commission was reauthorized in 1984 after a sunset review.  Statutory changes were made to promote constructive competition in the hospital industry as a cost containment strategy.  This was accomplished by permitting hospitals to negotiate contracts containing price discounts with purchasers.  At the same time regulatory policies were strengthened to control hospital cost increases.

Because of changes in health care financing, many payers, providers and large employers are now advocating for more competition and less regulation to control hospital cost increases. 

SUMMARY:

A moratorium on rate regulation is established by the Hospital Commission for hospitals which hold cost increases to an amount less than two times the consumer price index (CPI).  The Hospital Commission is given rule-making authority to assure that individual rate increases do not exceed two times the CPI.  The Legislative Budget Committee is directed to study the impact of the moratorium as part of its sunset review of the Commission in 1988.

EFFECT OF PROPOSED SUBSTITUTE:

Hospitals are exempted from rate regulation by the State Hospital Commission if a hospital's rates are at or below the regionally adjusted HCFA Hospital Market Basket Index.  Each hospital wanting an exemption from rate approval must undergo a performance evaluation.  A hospital whose actual budget substantially exceeds its proposed budget will be subject to rate approval in the subsequent year and a budget adjustment.  Rate increases resulting from changes in deductions in revenues are excluded for comparison to the HCFA Hospital Market Basket Index.

The Legislative Budget Committee shall evaluate the impact of exemption from hospital rate regulation as part of its sunset review of the State Hospital Commission.

Fiscal Note:      requested

Senate Committee - Testified: David Ford, Blue Cross; Joan Gaumer, Blue Cross; Dave Broderick, Washington State Hospital Association; Dave Smith, Washington State Hospital Association