Delegate John A. Hurson wanted to make Maryland's system for setting hospital rates fairer to poor people. As chairman of the House health committee, he was in a powerful position to make those changes happen.

But he couldn't get several proposals through his own panel. They were watered down or removed from bills after the rate-setting agency and the powerful trade group representing hospitals teamed up against them.

Hurson's experience was a testament to how sacred rate regulation remains in Maryland, more than 30 years after it was created. Maryland is the only state in which government sets hospital rates for all patients, and the system's survival is a tale of ideology, political power, and supporters' assertions that regulation has helped nearly all of Maryland's nonprofit hospitals thrive.

But it's a system that can also fail some of the people it was set up to protect, an eight-month investigation by The Baltimore Sun found.

Regulators pore over reams of data to determine how much hospitals can charge but don't monitor how hospitals collect patient debts. The system enables hospitals to charge rates to all patients to cover their costs of free and unpaid care, yet hospitals have sued 132,000 patients to collect unpaid bills over the past five years and have won at least $100 million in judgments, court records show.

Policies at hospitals for deciding who is eligible for free or reduced price care vary widely. Some patients wind up facing lawsuits even though they have little means to pay their bills, but the hospitals' trade group has fought off efforts in the General Assembly to make these standards uniform, as they are in some other states.

"The hospitals may be nonprofit, but they are very much about the buck," said Hurson, who left the legislature in 2005. "What they have in the rate-setting commission is a life preserver."

Under Maryland law, hospitals can charge interest at the legal maximum of 12 percent a year, starting 60 days after the patient was discharged - twice the rate that can be charged on other consumer debts. They can keep a judgment in force for more than 20 years.

Some hospitals are placing thousands of liens on patients' homes to collect their bills, despite industry guidelines that caution against wholesale use of the practice.

Leaders of the rate-setting commission conceded in interviews that they were unaware of the number of lawsuits and didn't realize that hospitals file liens against patients' homes and garnish their wages over unpaid bills. They could not explain why some hospitals consistently show surpluses or losses on unpaid and charity care when the rate-setting formula is supposed to ensure that hospitals break even over time.

Gov. Martin O'Malley, reacting to The Sun's investigation, called for an "immediate and thorough review of the credit and collection practices" of Maryland's hospitals. The Democratic governor asked the commission to report back to him by early February.

O'Malley wrote to the panel that while the rate-setting system has "provided unparalleled access to needed hospital services" for over 30 years, the state needs to be sure that hospitals are pursuing reasonable debt collection policies.

Mandel's solution
In 1971, several Maryland hospitals were in financial trouble. Costs had ballooned to well above the national average. Rates were rising sharply, but hospitals were losing money on bills that the poor could not pay.

When the Maryland Hospital Association asked the state for relief, Gov. Marvin Mandel looked for a solution that would give hospitals a financial incentive to care for the disadvantaged while requiring them to control their costs. He called it the "cornerstone of my consumer-protection package."

The result was the creation of the Maryland Health Services Cost Review Commission. Like the Public Service Commission for utilities, it was given the authority to set hospital rates. Part of its charge was to ensure that all patients share in paying for hospitals' costs of charity care and unpaid bills.

The governor appoints the commission's seven members. Although state law says four members can't have "any connection with the management or policy of any" hospital, most have some ties to health care.

The current commission includes the chief executive officer of Holy Cross Hospital in Silver Spring, a medical director at University Specialty Hospital, a former trustee of the Greater Baltimore Medical Center, and a retired physician who is a former high-ranking official at the Department of Health and Human Services, which oversees Medicare and Medicaid. The panel doesn't have a consumer representative.

Elected officials, hospital executives and regulators point to several advantages of rate regulation over a private market. They cite American Hospital Association data showing that the spread between hospital costs and charges in Maryland is the nation's lowest.The system's backers stand by it as the most equitable way to compensate hospitals for the cost of treating the poor.

"We take a more egalitarian approach than the other 49 states, and that requires a pretty significant state regulatory infrastructure," said Carmela Coyle, president of the Maryland Hospital Association.