R00Q00 - Aid to University of Maryland Medical System

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					                                                           RQ.00
                       Aid to University of Maryland Medical System


Operating Budget Data
                                                  ($ in Thousands)

                                     FY 00         FY 01             FY 02                 % Change
                                     Actual       Working          Allowance    Change     Prior Year

    General Fund                         $2,133           $2,301       $2,748       $447        19.4%
    Special Fund                          3,108            6,701        6,765         64         1.0%
    Total Funds                          $5,241           $9,002       $9,513       $511         5.7%

!        State funding for the Montebello Rehabilitation programs at Kernan Hospital increase the general
         fund allowance by $447,109.

!        The fiscal 2002 special fund allowance provides a 2% inflationary adjustment to the annual operating
         subsidy for the R Adams Cowley Shock Trauma Center.




    Note: Numbers may not sum to total due to rounding.
    For further information contact: Matthew D. Klein                                      Phone: (410) 946-5530
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                        RQ.00 - Aid to University of Maryland Medical System

Analysis in Brief
Issues
Revenues in MEMSOF Are Insufficient to Support the Allowance for Equipment, Technology, and
Facility Replacement at the R Adams Cowley Shock Trauma Center: Based upon fiscal 2002 allowance
figures, insufficient revenues are available in the Maryland Emergency Medical System Operation Fund
(MEMSOF) to support State expenditures for equipment, technology, and infrastructure improvements
at Shock Trauma. The Department of Legislative Services (DLS) recommends deleting $3.5 million
in special funds.


Economic Conditions of the Health Care Environment Affect Profitability: The negative operating
environment affecting Maryland hospitals has impacted the profitability of the University of Maryland
Medical System' (UMMS) operation of Shock Trauma. DLS recommends that a representative of
UMMS comment on the impact of recent hospital rate increases and a change in the rate setting
methodologies imposed by the Health Services Cost Review Commission.


Funding for UMMS' Urban Primary Care Program Should Be Reviewed: The fiscal 2002 allowance
continues to provide $3.25 million in general funds budgeted in the Department of Health and Mental
Hygiene Community and Public Health Administration budget to provide an operating subsidy to UMMS
for its operation of a network of urban primary care centers in West Baltimore. DLS recommends that
a representative of UMMS comment on how long UMMS expects this funding to continue.


Recommended Actions

                                                                                  Funds      Positions
 1.    Adopt committee narrative directing the University of Maryland
       Medical System to submit an accounting of equipment, technology,
       and infrastructure expenditures.
 2.    Add budget language making $3.5 million in special funds
       contingent upon the enactment of legislation.
 3.    Delete funds for equipment and technology upgrades.                     $ 3,500,000
 4.    Add budget language authorizing the increase of funds by budget
       amendment.
 5.    Add budget language transferring funds from the Department of
       Health and Mental Hygiene to the University of Maryland Medical
       System.


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                        RQ.00 - Aid to University of Maryland Medical System

6.   Add budget language expressing the intent of the budget committees
     that funds in the fiscal 2002 budget represent the third and final year
     of State funding for the University of Maryland Medical System’s
     operation of urban primary care centers in West Baltimore.
     Total Reductions                                                          $ 3,500,000




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RQ.00 - Aid to University of Maryland Medical System




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                                                  RQ.00
                  Aid to University of Maryland Medical System

Operating Budget Analysis
Program Description

    The University of Maryland Medical System (UMMS), a private nonprofit corporation, was created
by legislation in 1984 to provide governance and management over the operation of the formerly State-run
University of Maryland Hospital. The mission of the medical system is to provide tertiary care to the State
and surrounding areas, provide comprehensive care to the local community, and serve as the primary site
for health care education and research for the University System of Maryland. The system now includes
the James Lawrence Kernan Hospital, the Marlene and Stewart Greenebaum Cancer Center, University
Hospital, R Adams Cowley Shock Trauma Center, and Deaton Hospital.

    The R Adams Cowley Shock Trauma Center is the core element of the State's Emergency Medical
Services (EMS) System and serves as the State's Primary Adult Resource Center (PARC) for the
treatment of trauma. Specifically, the law mandates the R Adams Cowley Shock Trauma Center to serve
as: (a) the State's primary adult trauma center; (b) the statewide referral center for the treatment of head,
spinal, and multiple trauma injuries; (c) the regional trauma center for Region III and the southwest
quadrant of Baltimore City; and (d) the statewide referral center for patients in need of hyper baric medical
treatment. Eight other trauma centers are located throughout the State:

!   one in Cumberland serving Western Maryland;

!   three serving the Washington metropolitan area, with one each in Montgomery, Prince George’s, and
    Washington counties;

!   one in Salisbury serving the Peninsula region; and

!   three others located in Baltimore City.

    Each of the trauma centers serves a designated region. However, The Johns Hopkins Hospital also
has statewide responsibility for severely injured pediatric patients.


Governor’s Proposed Budget

    As shown in Exhibit 1, the fiscal 2002 allowance for State Aid to the UMMS is $9,513,329, an
increase of $511,127 or 5.7% over the fiscal 2001 working appropriation. The allowance for general
funds is $2,748,406, an increase of $447,109 or 19.4% over the fiscal 2001 working appropriation.
General funds consist entirely of a State subsidy provided to offset the cost of uncompensated care and
capital costs at the Montebello Rehabilitation Center at Kernan Hospital.



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                                 RQ.00 - Aid to University of Maryland Medical System

                                                                Exhibit 1


                                                 Governor's Proposed Budget
                            Aid to University of Maryland Medical System
                                                           ($ in Thousands)
                                                       General                    Special
 How Much It Grows:                                     Fund                       Fund                   Total
 2001 Working Appropriation                            $2,301                     $6,701                  $9,002

 2002 Governor's Allowance                               2,748                     6,765                    9,513
      Amount Change                                       $447                        $64                    $511

      Percent Change                                   19.4%                        1.0%                     5.7%

 Where It Goes:
          General Fund subsidy for Kernan Hospital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  $447

          Inflationary adjustment to the special fund subsidy for the R Adams Cowley Shock
          Trauma Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    64

      Total                                                                                                                       $511

 Note: Numbers may not sum to total due to rounding.



    The fiscal 2002 special fund allowance is $6,764,923, an increase of $64,018 or 1.0% over the
fiscal 2001 working appropriation. Special funds, made available from MEMSOF, are appropriated to
UMMS for two distinct purposes: (1) provide an operating subsidy for UMMS' operation of the R Adams
Cowley Shock Trauma Center -- the fiscal 2002 allowance for this subsidy is $3,264,923, which represents
a 2% increase over the fiscal 2001 working appropriation; and (2) assist UMMS with its efforts to replace
and modernize aging medical equipment, technologies, and infrastructure at shock trauma -- the fiscal
2002 allowance for this assistance is $3,500,000 which is the same amount appropriated for fiscal 2001.
Further discussion and the Department of Legislative Services (DLS) observations regarding the
components comprising the fiscal 2002 allowance follows.


   Montebello Rehabilitation Center at Kernan Hospital

    The Montebello Rehabilitation Center at Kernan Hospital provides intensive rehabilitation services to
patients with head and spinal cord injury and other acute trauma, stroke, and rehabilitable disabilities.
Pursuant to Section 13-405(d)(6) of the Education Article, the State agreed during the 1992 session to
provide a general fund operating subsidy to compensate UMMS for excess uncompensated care costs
incurred at the Montebello Rehabilitation Center and to assist with the capital financial needs of the
rehabilitation center. State funding support of Montebello ceased in 1996 when UMMS merged the
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                          RQ.00 - Aid to University of Maryland Medical System

Montebello Rehabilitation Center with the William Donald Schaefer Rehabilitation Center at Kernan
Hospital. The UMMS sought and received a temporary rate increase from the Health Services Cost
Review Commission (HSCRC) to compensate the hospital for its excess uncompensated care costs
incurred at the Montebello at Kernan Hospital. The temporary rate increase provided by the HSCRC
ended on January 1, 1999. Consequently, UMMS and the HSCRC asked the Office of the Attorney
General (OAG) to review whether the consolidation of the Montebello Rehabilitation Center into the
Kernan Hospital relieved the State of its responsibility to provide operating support to Montebello as set
forth in Section 13-405(d)(6) of the Education Article. The opinion provided by the OAG (Opinion
Number 98-015, June 2, 1998) found that neither the transfer of Montebello to a new facility at Kernan
Hospital, or the subsequent rate regulation of Montebello's rates by the HSCRC, served to relieve the
State of its statutory obligation to fund a negotiated amount for uncompensated care and capital costs.
During the 1999 legislative session, UMMS sought and received renewal of the State operating support
for Montebello rehabilitation programs at Kernan Hospital. Since renewal of this subsidy, State support
has increased from $2,133,223 in fiscal 2000 to $2,748,406 for the fiscal 2002 allowance.

    Concerned that there be a mechanism for determining the appropriate level of State support for the
Montebello Rehabilitation programs at Kernan Hospital, the budget committees adopted committee
narrative in the 1999 Joint Chairman's Report, directing the Department of Budget and Management
(DBM) in consultation with the Department of Health and Mental Hygiene (DHMH) and UMMS to reach
an agreement on how to calculate the annual State subsidy. The agreement reached incorporates bad debt
regression calculations prepared by the HSCRC, and compares what the HSCRC would have provided
Kernan Hospital in rates for uncompensated care for its operation of the Montebello rehabilitation
programs versus what the HSCRC provides in rate relief to Kernan Hospital. Exhibit 2 illustrates the
application of the subsidy calculation for fiscal 2001 and 2002.

     DLS recommends that a representative of UMMS be prepared to discuss why the adjusted
fitted uncompensated care rate for fiscal 2002 is increased over fiscal 2001 figures, and what impact
the recent HSCRC rate increase may play in lowering this uncompensated care rate figure. DLS
also recommends that UMMS provide annual admission rate statistics for patients participating
in the Montebello rehabilitation programs at Kernan Hospital.


   Operating Subsidy for the R Adams Cowley Shock Trauma Center

     State funding for the R Adams Cowley Shock Trauma Center has been provided since 1982 to help
offset uncompensated care, excessive standby, and research and development costs resulting from the
center's EMS activities which cannot be recovered through the current rate structure imposed by the
HSCRC. Although the General Assembly maintained the shock trauma subsidy at $2.9 million for several
years, beginning in fiscal 1999 and continuing through fiscal 2001 the State included an annual 3%
inflationary adjustment to the State subsidy. The fiscal 2002 allowance of $3,264,923 provides a 2%
inflationary adjustment. Although all trauma facilities in the echelon of care system admit patients
regardless of ability to pay and must meet standards for medical and nursing staffing, only the R Adams
Cowley Shock Trauma Center receives an operating subsidy from the State.



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                                                 Exhibit 2


              Calculation of Uncompensated Care Request for Kernan Hospital

                                                          Fiscal 2001      Fiscal 2002          Difference
 Adjusted fitted uncompensated care rate                       5.44%              6.71%             1.27%
 Base uncompensated care rate                                  1.37%              1.42%             0.05%
    Difference                                                4.07%               5.29%             1.22%


 Gross regulated revenue                                 $ 38,115,396     $ 37,777,047         $ (338,349)
                                                               4.07%              5.29%             1.22%
 Uncompensated care request                               $ 1,551,297      $ 1,998,406          $ 447,109
 Capital cost request                                        750,000          750,000                       0
    Total Request                                         $ 2,301,297      $ 2,748,406          $ 447,109

 Source: University of Maryland Medical System



    Exhibit 3 shows actual and estimated unrecoverable costs for Shock Trauma from fiscal 1996 through
2002. UMMS projects its unrecoverable costs will be $7,313,000 for fiscal 2002. The requested
$3,264,923 subsidy will offset 44.65% of the unrecoverable costs, leaving $4,048,077 to be absorbed by
UMMS. Trends and observations for each of the individual unrecoverable cost components are discussed
below.

!   Excess Uncompensated Care: UMMS projects its uncompensated care will be $27.8 million, or
    30.9% of Shock Trauma’s gross patient revenue in fiscal 2002. UMMS anticipates that the current
    patient rate structure established by the HSCRC will only enable it to recoup approximately
    $22.7 million of these costs during fiscal 2002. The remaining $5.2 million will not be recovered.
    UMMS advises that this level of uncompensated care far exceeds that of any other Maryland hospital
    largely because of the unique emergency care mission of the R Adams Cowley Shock Trauma Center.
    As shown in Exhibit 4, the amount of excess uncompensated care not recovered through patient rates
    increased dramatically in fiscal 1999 over previous year figures. Excess uncompensated care as a
    percentage of gross patient revenues averaged 3.42% from fiscal 1995 through 1998. However, in
    fiscal 1999 this percentage increased to 5.74%, and UMMS projects this will remain at approximately
    5.74% through fiscal 2002.

    UMMS advises that the center's high level of uncompensated care results primarily from the following:
    (1) the center treats a high percentage of patients who either have no health insurance or are under
    insured; (2) health care cost containment measures such as higher coinsurance and deductibles, and
    increasing use of health management organizations has resulted in unpaid patient liabilities and
    increased denial of hospital reimbursement requests; and (3) the emergent

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                                                                      Exhibit 3
                              Shock Trauma Center Costs Not Recoverable through Patient Rates
                                                         Fiscal 1996 through 2001
                                              1996        1997          1998         1999         2000          2001         2002
                                             Actual      Actual        Actual       Actual       Actual       Projection    Estimate




                                                                                                                                          RQ.00 - Aid to University of Maryland Medical System
    Excess Uncompensated Care               $2,223,000   $2,304,000    $2,605,000   $4,922,000   $4,907,000    $5,062,000   $5,163,000
    Standby Costs                            1,866,000    1,577,000     1,624,000    1,673,000    1,847,000     1,865,000    1,884,000
    Research and Physician Education           350,000     361,000       372,000      383,000      250,000        258,000      266,000
    Unrecoverable Costs                     $4,439,000   $4,242,000    $4,601,000   $6,978,000   $7,004,000    $7,185,000   $7,313,000
    EMS Operations Fund Subsidy              2,900,000    2,900,000     2,900,000    3,017,160    3,107,675     3,200,905    3,264,923
9




    Unrecoverable Costs Absorbed
    by UMMS                               ($1,539,000) ($1,342,000) ($1,701,000) ($3,960,840) ($3,896,325)    ($3,984,095) ($4,048,077)
    Percent of Unrecoverable Costs
    Supported by Subsidy                        65.33%      68.36%        63.03%       43.24%       44.37%        44.55%        44.65%
    Source: University of Maryland Medical System
                          RQ.00 - Aid to University of Maryland Medical System

                                                Exhibit 4


                    Shock Trauma Center Analysis of Uncompensated Care
                                        Fiscal 1995 through 2002

                                                          Excess              Excess Uncompensated Care
                              Gross Patient           Uncompensated            as a Percentage of Gross
Fiscal Year                     Revenue                    Care                    Patient Revenues


1995 Actual                    $67,897,000                $2,329,000                       3.43%
1996 Actual                     67,723,000                 2,223,000                       3.28%
1997 Actual                     66,168,000                 2,304,000                       3.48%
1998 Actual                     74,422,000                 2,605,000                       3.50%
1999 Actual                     85,790,000                 4,922,000                       5.74%
2000 Actual                     85,496,000                 4,907,000                       5.74%
2001 Est.                       88,241,000                 5,062,000                       5.74%
2002 Est.                       90,006,000                 5,163,000                       5.74%

Source: University of Maryland Medical System


    nature of shock trauma admissions makes it impossible to screen patients for ability to pay prior to
    rendering service. In recent years this situation has been exacerbated by hospital patient rate freezes
    imposed by the HSCRC.

!   Standby Costs: Standby costs are associated with maintaining around-the-clock coverage in the
    trauma resuscitation area, operating, and recovery rooms. Shock Trauma also maintains 24-hour
    attending physician coverage for trauma surgery, anesthesia, orthopedic surgery, and neurosurgery.
    The center's unique size and statewide PARC designation requires it to maintain a level of standby
    capacity that exceeds that of any other regional hospital or trauma center in Maryland. Consequently,
    designation as the statewide PARC results in significant expenditures, as the center must maintain a
    state of readiness at the highest level of care for treating the most severely injured adults in Maryland.
    As shown in Exhibit 3, standby costs not recovered in patient rates are projected to be $1,884,000 in
    fiscal 2002. Exhibit 3 also shows that these unrecoverable costs decreased substantially in fiscal 1997
    and have remained below fiscal 1996 actuals through fiscal 2001 estimated figures. UMMS advises
    that this trend corresponds to changes in internal patient flow policies put into place to respond to the
    negative operating environment Maryland hospitals have endured since the late 1990s. Inflationary
    pressure have caused these cost to escalate back to pre-fiscal 1997 figures.

!   Research and Education: As the core clinical resource for Maryland’s EMS system, Shock Trauma
    has an active research program. With data collected on each patient treated, Shock Trauma can
    predict patient outcomes by specific types of injuries. The research extends to pre-hospital and
                                                     
                          RQ.00 - Aid to University of Maryland Medical System

   rehabilitation services. In addition, Shock Trauma serves as an educational resource for physicians,
   medical students, nurses, nursing students, other health care professionals, and pre-hospital providers.
   Research and education costs increased moderately through fiscal 1999. However, in fiscal 2000
   UMMS trimmed back on these expenditures in response to financial pressures; HSCRC rates do not
   allow for these costs to be recovered in rates. Fiscal 2001 and 2002 estimates indicate a continuation
   of the new base level of expenditures established in fiscal 2000.


   Equipment and Facility Renewal

    The fiscal 2002 allowance for aid to UMMS includes $3.5 million in special funds from MEMSOF to
assist UMMS with its efforts to replace and modernize its aging equipment and technology at shock
trauma. Funding for this initiative first appeared in the fiscal 2001 budget when $3.5 million in special
funds from MEMSOF were provided. Although it was anticipated that the receipt of these funds would
be contingent upon the enactment of legislation to increase the motor vehicle registration surcharge fee,
the Governor's budget does not include such language.


   Additional State Funds to UMMS

    The Governor's fiscal 2002 allowance to the UMMS also includes $3.25 million in general funds
budgeted in DHMH to reimburse UMMS for losses incurred in their urban primary care system. State
assistance began with a $3.25 million fiscal 2001 appropriation and $3.25 million deficiency appropriation
for fiscal 2000. Further analysis concerning this funding is also provided in the issues section of this
analysis.

    UMMS also received funding from the Cigarette Restitution Fund (CRF) for cancer- and tobacco-
related disease research activities in the approximate amount of $20.0 million for the fiscal 2002
allowance. A complete analysis of the CRF will be provided in DLS's Tobacco Settlement Overview.


Performance Analysis

    Exhibit 5 provides selected performance data for Shock Trauma. General use of Shock Trauma can
be measured from the facilities admission rate. Annual admissions increased at a moderate annual rate of
4.1% from fiscal 1998 to 2000. Originally designed to serve a maximum of 3,500 patients, Shock trauma
admitted 6,684 patients in fiscal 2000. Shock Trauma has dealt with an admission rate far in excess of
what the facility was designed to handle through the implementation of technological advances in acute
trauma care and internal restructuring of patient flow management policies. The impact of these
technological advances and managerial practices is most apparent in the decline in the patient average
length of stay. From fiscal 1998 to 2000 the average length of stay declined at an annual rate of 5.0%.
The trends in patient admissions and average length of stay drive two other patient-volume indicators:
average daily census and patient days. The number of total patient days and the average daily census of
Shock Trauma decreased in fiscal 2000 in correlation with reduced average length of stay. UMMS


                                                   
                           RQ.00 - Aid to University of Maryland Medical System

                                                  Exhibit 5


                                 Program Measurement Data
                            University of Maryland Medical System
                                                 Fiscal Years

                                                                                             Ann.     Ann.
                            Actual    Actual      Est.        Actual   Est.       Est.       Chg.     Chg.
                             1998      1999       2000         2000    2001       2002       98-00    00-02

 Admissions                   6,173      6,249     6,500       6,684    6,717      6,850      4.1%      1.2%

 Average length of stay        5.01       5.14         4.38     4.52     4.50       4.48      -5.0%     -0.4%

 Average daily census          84.7       87.9         77.9     82.5     82.8       84.1      -1.3%     1.0%

 Patient days               30,910     32,096     28,500      30,191   30,277     30,688      -1.2%     0.8%

 Patient diversions              67        22           n/a        1          0          0   -87.8%   -100.0%


 Note: Numbers may not sum to total due to rounding.

 Source: University of Maryland Medical System



reported only one patient diversion during fiscal 2000. This underscores UMMS' attention to patient flow
management policies which have allowed Shock Trauma to continue operations even during periods of
acute numbers of highly injured patients.




                                                         
                           RQ.00 - Aid to University of Maryland Medical System

Issues
1. Revenues in MEMSOF Are Insufficient to Support the Allowance for Equipment,
   Technology, and Facility Replacement at the R Adams Cowley Shock Trauma
   Center

     The fiscal 2002 allowance includes $3.5 million in special funds from MEMSOF to assist UMMS with
its efforts to replace and modernize aging equipment and technology at Shock Trauma. An analysis of
the financial viability of MEMSOF indicates that insufficient revenues currently exist in MEMSOF to
support this $3.5 expenditure. In addition, clarification is needed concerning the amount and duration of
this State funding assistance and the financial contribution made by UMMS for this endeavor.


   Contribution from UMMS Is Uncertain

    Initial funding for equipment, technology, and infrastructure improvements at Shock Trauma was first
considered by the budget committees during the 2000 session. During fiscal 2001 budget hearing
deliberations, UMMS presented the budget committees with a five-year cost schedule which identified
approximately $41.6 million of medical equipment, technology, and facility improvement needs at Shock
Trauma. Exhibit 6 shows the five-year cost schedule.

                                                  Exhibit 6


            Shock Trauma Summary of Equipment and Technology Funding Needs
                                           Fiscal 2001 through 2005
                                               ($ in Thousands)

                                  Fiscal         Fiscal        Fiscal   Fiscal      Fiscal
                                   2001           2002          2003     2004        2005         Total
 Facility Improvements           $2,850          $1,500        $3,850   $2,000      $2,000     $12,200
 Infrastructure
 Improvements                     1,350           2,500         1,050    1,000       1,000        6,900
 Medical Equipment and
 New Technology                   4,500           4,500         4,500    4,500       4,500       22,500
    Total                        $8,700          $8,500        $9,400   $7,500      $7,500     $41,600

 Source: University of Maryland Medical System



     UMMS testified that due in large part to an annual admission rate which is far in excess of what the
facility was designed to handle, Shock Trauma needs to begin replacing aging equipment and improving
its use of advanced medical technologies in order for the center to continue providing emergency care for
                                                          
                         RQ.00 - Aid to University of Maryland Medical System

the most severely injured patients. UMMS further testified that it intended for the State grant to
supplement and not supplant UMMS' financial contributions towards the upgrade project. Based upon
a five-year program and base level State funding at $3.5 million annually, as depicted in DBM's pro-forma
operating statement of MEMSOF provided in the Governor's Fiscal 2002 Budget Books, it could be
construed that total State support for the equipment, technology, and infrastructure upgrade will total
$18.5 million through fiscal 2005 However, DBM's MEMSOF accounting indicates that the State grant
will continue in fiscal 2006. Thus, the MEMSOF funding projection shows that State funding is expected
to continue beyond the time frame proposed by UMMS.

    DLS recommends that a representative of UMMS be prepared to discuss and clarify the
following: (1) UMMS' assumptions regarding what it considers to be the duration and State
contribution for equipment, technology, and infrastructure improvements for Shock Trauma; (2)
what UMMS' annual financial contribution will be for the upgrade initiative; and (3) how UMMS'
assumptions concerning the amount and duration of State grant funds, and its perceived annual
contribution towards this initiative, might change if its financial condition makes contributing to
the upgrade initiative less certain.

   DLS also recommends the adoption of the following committee narrative directing UMMS to
provide an annual accounting which separately itemizes UMMS' utilization of the State grant funds
and UMMS' financial contribution toward the equipment, technology, and infrastructure
improvements.

Annual Summary of Expenditures for Equipment, Technology, and Infrastructure Improvements
at the R Adams Cowley Shock Trauma Center: The committees would like to ensure that State grant
funds to the University of Maryland Medical System (UMMS) for equipment, technology, and
infrastructure improvements are used to supplement and not supplant financial contributions by UMMS.
The committees request that UMMS submit an annual report by December 1, 2001, which separately
itemizes the utilization of the State grant funds and the financial contributions from UMMS towards the
five-year equipment, technology, and infrastructure improvement initiative at Shock Trauma.

 Information Request                 Author                                      Date Due
 Annual report indicating the        University of Maryland Medical System        December 1, 2001
 utilization of State grant funds
 and financial contributions by
 UMMS for equipment,
 technology, and infrastructure
 improvements at Shock Trauma


   Insufficient Revenues

    Appendix 3, which shows the current status of MEMSOF through fiscal 2006, indicates that there
are insufficient revenues currently in MEMSOF to meet the Governor's fiscal 2002 allowances for the
entities receiving funds from MEMSOF. Based upon fiscal 2002 allowances, DLS estimates that a

                                                   
                          RQ.00 - Aid to University of Maryland Medical System

$7.2 million deficit will occur in MEMSOF by the end of fiscal 2002 if action is not taken to either increase
revenues or decrease expenditures. As a result of the impending deficit in MEMSOF, the Governor's fiscal
2002 budget makes two of the special fund allowances from the fund contingent upon the passage of
legislation to increase the motor vehicle registration surcharge fee. These contingencies include
$1,000,000 under budget code DE01.10 and $2,800,000 under budget code WA02.02. Appendix H in
Volume III of the Governor’s Fiscal 2002 Budget Books, which lists the contingent and restrictive budget
language included in the Governor’s budget, includes reference to contingent language on $3,500,000 in
special funds to the UMMS under budget code RQ00.01. However, this piece of language was not
included in the Governor’s budget bill. Without budget bill language restricting at least $7.3 million of
fiscal 2002 special fund appropriations from MEMSOF contingent upon the enactment of legislation
increasing revenues to the fund, there will be insufficient revenues in the fund to support the anticipated
expenditures for fiscal 2002 as provided in the Governor’s budget. Accordingly, DLS recommends
contingent budget bill language to correct this omission in the Governor's budget as follows:

   , provided that $3,500,000 of this appropriation shall be contingent upon the enactment of
   legislation to increase the surcharge on the registration fee on motor vehicles.

    DLS anticipates that legislation to increase the surcharge on motor vehicle registrations will be
introduced during the 2001 session. Similar legislation introduced during the 2000 session, SB 154,
Chapter 240, Acts of 2000 was substantially changed, and the portion of the bill implementing the fee
increase was amended out. Furthermore, despite the addition of contingent budget language in the
Governor’s fiscal 2001 budget bill making $3.5 million of fiscal 2001 appropriations to UMMS contingent
upon the enactment of legislation increasing revenues to MEMSOF, the fiscal 2001 budget included a $3.5
million appropriation to UMMS for its equipment upgrade project.

    An alternative approach to adopting the contingent budget language referenced above is to delete the
$3.5 million from the budget and add budget language authorizing the restoration of the funds through
an approved budget amendment.

    Due to the uncertainty concerning the availability of adequate funds in MEMSOF to support
a $3.5 million expenditure for equipment, technology, and infrastructure upgrades at the R Adams
Cowley Shock Trauma Center, and uncertainty as to whether legislation increasing the motor
vehicle registration fee surcharge will be enacted during the 2001 session, DLS recommends
deleting the $3,500,000 provided for the upgrade initiative. If legislation is enacted during the 2001
session to increase the availability of revenues MEMSOF, a budget amendment could be
authorized.

    Should the budget committees choose to delete the $3.5 million from the budget, yet desire to restore
the reduction should legislation be enacted during the 2001 session providing sufficient revenues to
support the $3.5 million expenditure, budget language could be added to the budget bill authorizing the
restoration of the funds. The following language would effectuate this policy decision.

   , provided that authorization is hereby granted to increase this appropriation by up to
   $3,500,000 by approved budget amendment contingent upon the enactment of legislation
   providing sufficient revenues to support the increase.

                                                     
                           RQ.00 - Aid to University of Maryland Medical System

2. Economic Conditions of the Health Care Environment Affect Profitability

    The most significant factor impacting UMMS's financial performance during the last several years is
the dramatic change in the Maryland hospital rate setting system. Due to threats that the State was in
jeopardy of losing its Medicare waiver, the HSCRC began to severely restrict hospital rate increases in
1998 in order to keep Maryland hospital costs below the national average required of the Medicare waiver.
The Medicare waiver allows Maryland hospitals to receive Medicare reimbursement at the rate set by the
HSCRC rather than on a prospective payment system that reimburses hospitals based on a diagnosis-based
method. This creates an all-payor system in Maryland which encourages Maryland hospitals to reduce
their actual costs rather than shift costs to other payors and discourages patient "dumping" of uninsured
patients to other facilities.

    Rate reductions impacted the bottom line for all Maryland hospitals, including UMMS. Exhibit 7
provides a profitability summary for Shock Trauma. This shows that while gross patient revenues have
increased in recent years, and are projected to increase through fiscal 2002, the growth in revenues has
not kept pace with the growth in gross patient expenditures. The result is that Shock Trauma has ended
the year with a positive net income after accounting for the State operating subsidy only once in the last
three fiscal years for which actual revenue and expenditure date is available. UMMS projects continued
negative operations through fiscal 2002. Exhibit 8 graphically depicts the increased disparity between
gross patient revenues and expenditures.

    While hospital rates were essentially frozen from 1998 through 2000, the HSCRC reviewed its rate-
setting system, which then focused on individual services and did not effectively encourage hospitals to
keep their costs down. The commission changed its rate-setting system to a formula designed to allow
hospital charges to grow in future years at a rate equal to health cost inflation. In addition, a 2.5% average
rate increase was put into effect on July 1, 2000.

    DLS recommends that a representative of UMMS be prepared to discuss how the recent change
in hospital rate setting methodologies and recent rate increase might address UMMS' ability to
profitably operate Shock Trauma, and possibly reduce reliance on State operating funding support.
Particular attention should be given to the recent State funding assistance for equipment,
technology, and infrastructure improvements at Shock Trauma, increased operating subsidy for
Montebello rehabilitation programs, and recent State support for UMMS' urban primary care
program.

    Exhibit 9 shows recent State funding for aid to UMMS. This information demonstrates that State
aid to UMMS has increased at an annual rate of 50.97% from fiscal 1999 to 2002. More importantly,
however, is this underscores the recent growth in the number of different funding initiatives to UMMS.

    DLS recommends that a representative of UMMS be prepared to discuss how the funding
requested in connection with the equipment, technology, and infrastructure replacement initiative
and the funding for UMMS' operation of its urban primary care network in West Baltimore fits
into the overall subsidy provided by the State.



                                                     
                            RQ.00 - Aid to University of Maryland Medical System

                                                   Exhibit 7


                             University of Maryland Medical System
                           Shock Trauma Center Analysis of Profitability
                                          Fiscal 1995 through 2002
                                                                                                     % State
                                                                                   Net Income       Operating
                  Gross                       Net Income             State         (Loss) with      Support of
                 Patient       Gross Patient (Loss) before         Operating          State        Gross Patient
Fiscal Year      Revenue       Expenditure State Support            Support         Support          Revenue
1995 Actual     $67,897,000      $69,806,000       ($1,909,000) $2,900,000           $991,000            4.27%
1996 Actual      67,723,000        69,518,000        (1,795,000)     2,900,000       1,105,000           4.28%
1997 Actual      66,168,000        67,898,000        (1,730,000)     2,900,000       1,170,000           4.38%
1998 Actual      74,422,000        78,084,000        (3,662,000)     2,900,000       (762,000)           3.90%
1999 Actual      85,790,000        87,630,160        (1,840,160)     3,017,160       1,177,000           3.52%
2000 Actual.     85,496,000        90,002,675        (4,506,675)     3,107,675     (1,399,000)           3.63%
2001 Est.        88,241,000        92,941,905        (4,700,905)     3,200,905 * (1,500,000)             3.63%
2002 Est.        90,006,000        94,302,932        (4,296,932)     3,264,923 * (1,032,009)             3.63%

*State grant funds in the amount of $3,500,000 not included due to the manner in which equipment costs are amortized
for expenditure accounting purposes, and for comparison purposes.

Source: University of Maryland Medical System




                                                         
                           RQ.00 - Aid to University of Maryland Medical System

                                                   Exhibit 8


                            University of Maryland Medical System
                            Comparison of Revenues and Expenditures




                     $100,000,000




                      $90,000,000




                      $80,000,000



                      $70,000,000



                      $60,000,000
                                    1995        1997    1999       2001

                                                  Fiscal Years
                                           Revenues            Expenditures



Source: University of Maryland Medical System




                                                       
                            RQ.00 - Aid to University of Maryland Medical System

                                                    Exhibit 9


                              University of Maryland Medical System
                                             State Operating Support
                                             Fiscal 1999 through 2002

                      FY 1999         FY 2000          FY 2001           FY 2002          Change         Ann. Chg.
                       Actual          Actual        Appropriation      Allowance         FY 99-02       FY 99-02
UMMS Shock
Trauma               $3,017,160      $3,107,675         $3,200,905       $3,264,923        $247,763          2.67%
Montebello-
Kernan                  691,612       2,133,223          2,301,297         2,748,406      2,056,794         58.39%
UMMS
Equipment                       0               0        3,500,000         3,500,000      3,500,000              n/a

UMMS Urban                                                                                                       n/a
Primary Care                    0     3,250,000          3,250,000         3,250,000      3,250,000

    Total            $3,708,772      $8,490,898        $12,252,202      $12,763,329      $9,054,557        50.98%

Note: Fiscal 1999 funding for Montebello Kernan was appropriated as a fiscal 1999 deficiency appropriation; and fiscal
2000 funding for UMMS Urban Primary Care was appropriated as a fiscal 2000 deficiency appropriation.

Source: Department of Legislative Services




3. Funding for UMMS' Urban Primary Care Program Should Be Reviewed

    Duration of Funding

     The Governor's fiscal 2002 allowance to UMMS includes $3.25 million in general funds budgeted in
DHMH to support UMMS' primary care network in West Baltimore. State assistance for UMMS' primary
care network was first provided in the fiscal 2001 budget when $3.25 million was appropriated for fiscal
2001 and a $3.25 million deficiency for fiscal 2000 was appropriated. This funding was sought to
subsidize operating deficits resulting from the operation of these centers. In the past UMMS has been able
to subsidize the ambulatory care clinics with hospital profits. UMMS contends, however, that the
hospital's financial difficulties have made it increasingly difficult for it to continue subsidizing the operation
of its primary care centers in West Baltimore.

    During fiscal 2001 budget hearing deliberations, UMMS testified that it intended the subsidy to be a
three-year commitment from the State while UMMS evaluated alternative funding mechanisms. Despite
the fact that the State provided a fiscal 2000 deficiency appropriation, UMMS contends that the State
                                                         
                        RQ.00 - Aid to University of Maryland Medical System

commitment began in fiscal 2001 and runs through fiscal 2003. DLS observes that if the State
commitment is for three years, then funding should not be made beyond fiscal 2002.

   Accordingly, DLS recommends budget bill language expressing the intent of the budget
committees that the $3,250,000 provided in the fiscal 2002 represents the third and final year of
State funding for the University of Maryland Medical System’s operation of urban primary care
centers in West Baltimore.

   Provided that it is the intent of the General Assembly that the $3,250,000 provided in the fiscal
   2002 budget to assist the University of Maryland Medical System with its operation of urban
   primary care centers in West Baltimore represents the third and final year of State funding for
   this subsidy.

    DLS recommends that a representative of UMMS be prepared to discuss what it believes to be
the parameters of the State commitment for operating support of its urban primary care centers.
DLS also recommends that UMMS update the budget committees regarding efforts to identify
alternative funding mechanisms for its West Baltimore urban primary care centers.


   Funding for the Urban Primary Care Centers in West Baltimore Should Be Included in
   UMMS's Budget

   The $3.25 million fiscal 2002 allowance for State operating support to UMMS for its operation of
urban primary care centers in West Baltimore is located in DHMH's Community and Public Health
Administration budget under budget code MF02.02. DLS believes that no reasons exist to budget these
funds in DHMH. Accordingly, DLS recommends budget bill language authorizing the transfer of
$3.25 million from budget code MF02.02 to budget code RQ00.01.

   , provided that it is the intent of the General Assembly that $3,250,000 of this appropriation,
   made for the purpose of providing the University of Maryland Medical System with an
   operating subsidy for its operation of urban primary care centers in West Baltimore, shall be
   transferred to the University of Maryland Medical System budget located under budget code
   RQ00.01.




                                                
                       RQ.00 - Aid to University of Maryland Medical System

Recommended Actions

1.   Adopt the following narrative:

     Annual Summary of Expenditures for Equipment, Technology, and Infrastructure
     Improvements at the R Adams Cowley Shock Trauma Center: The committees would like
     to ensure that State grant funds to the University of Maryland Medical System (UMMS) for
     equipment, technology, and infrastructure improvements are used to supplement and not supplant
     financial contributions by UMMS. The committees request that UMMS submit an annual report
     by December 1, 2001, which separately itemizes the utilization of the State grant funds and the
     financial contributions from UMMS towards the five-year equipment, technology, and
     infrastructure improvement initiative at Shock Trauma.
     Information Request              Authors                         Due Date

     Annual report indicating the     University of Maryland          December 1, 2001
     utilization of State grant       Medical System
     funds and financial
     contributions by UMMS for
     equipment, technology, and
     infrastructure improvements
     at Shock Trauma
2.   Add the following language:

     , provided that $3,500,000 of this appropriation shall be contingent upon the enactment of
     legislation to increase the surcharge on the registration fee on motor vehicles.

     Explanation: This language requires that funding from the Maryland Emergency Medical
     System Operations Fund for equipment, technology, and infrastructure improvements at the R
     Adams Cowley Shock Trauma Center be contingent upon the enactment of legislation to increase
     the surcharge on motor vehicle registrations.
                                                                Amount                  Position
                                                               Reduction               Reduction
3.   Delete funds for equipment and technology upgrades at     $ 3,500,000    SF
     the R Adams Cowley Shock Trauma Center. Current
     revenues in the Maryland Emergency Medical System
     Operations Fund (MEMSOF) are not available to meet
     this agenda. Furthermore, there is uncertainty as to
     whether legislation increasing the motor vehicle
     registration fee surcharge will be enacted during 2001.
     If legislation increasing revenues into MEMSOF is
     enacted during 2001, a budget amendment could be
     authorized.
                                                 
                        RQ.00 - Aid to University of Maryland Medical System


4.   Add the following language:

     , provided that authorization is hereby granted to increase this appropriation by up to $3,500,000
     by approved budget amendment contingent upon the enactment of legislation providing sufficient
     revenues to support the increase.

     Explanation: Should the budget committees choose to delete $3,500,000 from the budget
     appropriation to the University of Maryland Medical System for equipment, technology, and
     infrastructure improvements at Shock Trauma, this language authorizes the restoration of those
     funds by budget amendment should legislation be enacted during the 2001 session providing
     sufficient revenues to support the increase.
5.   Add the following language:

     , provided that it is the intent of the General Assembly that $3,250,000 of this appropriation,
     made for the purpose of providing the University of Maryland Medical System with an operating
     subsidy for its operation of urban primary care centers in West Baltimore, shall be transferred to
     the University of Maryland Medical System budget located under budget code RQ00.01.

     Explanation: Funding for an operating subsidy for the University of Maryland Medical System'
     (UMMS) operation of a network of urban primary care centers in West Baltimore is budgeted in
     the budget for the Department of Health and Mental Hygiene. This language authorizes the
     transfer of those funds to UMMS.
6.   Add the following language:

     Provided that it is the intent of the General Assembly that the $3,250,000 provided in the fiscal
     2002 budget to assist the University of Maryland Medical System with its operation of urban
     primary care centers in West Baltimore represents the third and final year of State funding for this
     subsidy.

     Explanation: This language expresses the intent of the budget committees that the $3,250,000
     provided in the fiscal 2002 budget is the final year of State funding for a subsidy to UMMS for
     its operation of urban primary care centers in West Baltimore.
     Total Special Fund Reductions                                $ 3,500,000




                                                  
                          RQ.00 - Aid to University of Maryland Medical System

                                                                                         Appendix 1


Current and Prior Year Budgets
                                     Current and Prior Year Budgets
                       Aid to University of Maryland Medical System
                                             ($ in Thousands)

                       General          Special            Federal        Reimb.
                        Fund             Fund               Fund           Fund         Total
     Fiscal 2000

Legislative
Appropriation              $2,133           $3,108                   $0            $0           $5,241
Deficiency
Appropriation                    0                0                  0             0                0

Budget
Amendments                       0                0                  0             0                0
Reversions and
Cancellations                    0                0                  0             0               $0

Actual
Expenditures               $2,133           $3,108                   $0            $0           $5,241


     Fiscal 2001


Legislative
Appropriation              $2,301           $6,701                   $0            $0           $9,002

Budget
Amendments                       0                0                  0             0                0

Working
Appropriation              $2,301           $6,701                   $0            $0           $9,002

Note: Numbers may not sum to total due to rounding.




                                                      
                                                  Emergency Medical Services Operations Fund
                                                                   Fiscal 1998 through 2006
                                                                    (No Fee Increase)
                              FY 1998      FY 1999     FY 2000     FY 2001     FY 2002               FY 2003       FY 2004       FY 2005       FY 2006
                               Actual       Actual      Actual     Approp.    Allowance              Projected     Projected     Projected     Projected
       Beginning Balance      $14,867,223 $16,028,484 $15,322,111 $10,011,094 $2,208,777            ($7,214,660) ($18,863,583) ($31,435,776) ($46,037,787)
       $8 Fee                   31,246,058   34,240,399   33,202,712     34,801,000   34,905,000     35,324,000    35,430,000    35,855,000    35,963,000




                                                                                                                                                                          RQ.00 - Aid to University of Maryland Medical System
       Interest                    661,778      608,995      539,786        375,416       82,829              0             0             0             0
       Misc. Income                      0    4,075,000      853,224      1,976,566    1,976,566              0             0             0             0
       Total Revenues         $46,775,059 $54,952,878 $49,917,833 $47,164,076 $39,173,172           $28,109,340   $16,566,417    $4,419,224 ($10,074,787)
       MFRI                     $3,990,605   $4,360,605   $4,640,000     $4,880,000   $5,515,000     $5,902,000    $5,509,000    $5,691,000    $5,841,000
       MIEMSS                    7,709,291    8,501,799    8,603,900      8,994,000    9,564,000      9,604,000     9,792,000    10,062,000    10,332,000
       Shock Trauma
24




       (UMMS)                    2,900,000    3,017,160    3,107,675      3,200,905    3,264,923      3,362,923     3,463,923     3,567,923     3,674,923
       Shock Trauma
       Equipment (UMMS)                  0            0            0      3,500,000    3,500,000      3,500,000     3,500,000     3,500,000     3,500,000
       Local Grants (508)        5,245,000    7,500,000   10,000,000     10,000,000   10,300,000     10,609,000    10,927,270    11,255,088    11,592,741
       MSP-Aviation
       Division                 10,901,679   12,298,093   13,555,164     13,880,394   13,243,909     12,995,000    13,810,000    15,381,000    14,608,457
       MSP 12th Helicopter               0    3,953,110            0              0            0              0             0             0             0
       Loan Fund                         0            0            0        500,000    1,000,000      1,000,000     1,000,000     1,000,000     1,000,000
       Total Expend.          $30,746,575 $39,630,767 $39,906,739 $44,955,299 $46,387,832           $46,972,923   $48,002,193   $50,457,011   $50,549,121
       Ending Balance         $16,028,484 $15,322,111 $10,011,094        $2,208,777 ($7,214,660)   ($18,863,583) ($31,435,776) ($46,037,787) ($60,623,908)




                                                                                                                                                             Appendix 2
     MFRI - Maryland Fire and Rescue Institute
     MIEMSS - Medical Institute for Emergency Medical Services Systems
     MSP - Maryland State Police

				
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