Maryland sets hospital rates

Image: Seth Sawyers (Creative Commons / Flickr)

Image: Seth Sawyers (Creative Commons / Flickr)

The Affordable Care Act (ACA) is the most sweeping piece of healthcare legislation passed in decades. While authorized at the federal level, much of the implementation of the law depends on state-level execution. From decisions on Medicaid expansion to shaky insurance exchange rollouts, all eyes have been on the states to see just how successful the law will be in transforming the health care system.

In this nation-wide health care theatre, Maryland just jumped to center stage. On January 10, 2014, Maryland was granted a waiver from the Center for Medicaid and Medicare Innovation, under the authority of the ACA, to implement a state-wide initiative to change how hospitals are paid. This waiver builds upon Maryland’s unique rate-setting system, in place since 1977, in which an appointed commission sets hospital rates for Medicaid, Medicare, and private insurers, with the goal of curbing the costs of hospital admissions and spreading the financial risk of care. This is the only all-payer rate setting system in the country, and the model has been very successful in curbing per-admission hospital costs across payers.

However, the waiver had the unintentional consequence of encouraging hospitals to increase volumes, without any incentives for improving quality or decreasing costs. While the system successfully decreased all-payer rates, Medicare payments for hospital admissions in Maryland are some of the highest in the country. Still, the waiver is a game changer. A recent NEJM article describes it as an opportunity for Maryland to make improvements in the health care system by implementing global payment models, limiting expenditures, and tying payments to quality. Maryland hopes to limit the all-payer growth of per capita inpatient and outpatient hospital costs to 3.58%, the per capita growth in the state gross product, and save the Medicare program over $330 million over the next 5 years by limiting Maryland’s Medicare growth rate less than the national growth rate.

Commentary

Why is this a big deal, and what does this mean for doctors and patients? The status quo of hospitals operating in a vacuum will no longer be economically sustainable, and collaborations between hospitals, physicians, and community health organizations must be the new business model. For community doctors, much more emphasis will be placed on coordinating care so patients stay out of the hospital. Hospital-based physicians will see increasing pressure from administrators to meet process and outcome quality goals, and ensure comprehensive discharge planning.

In practice, this will mean taking a bit more time to make sure patients understand their discharge instructions and improved coordination with private physicians and community resources. Most importantly, patients should see improved quality of care and lower costs.

The stakes are high. If Maryland does not meet its targets, the state must go back to the way it was 4 decades ago and utilize the prospective payment system like other states. The rest of the country will be watching closely, as this is the only all-payer model affecting payments across an entire state. If successful, this could be the model upon which other states base their delivery system reforms.

Rajkumar, R. et al. NEJM. 2014; 370: 493-495.

by

Joneigh Khaldun, MD, MPH

Dr. Khaldun is the Director of Health Policy for the Department of Emergency Medicine at the University of Maryland.

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