More on Budgeting

Maryland experiment to shift services away from hospitals falls short of goals, reports say

Paying hospitals a fixed global budget reduced their prices but individual physicians continued to be paid on a fee-for-service basis.

Jeff Lagasse, Associate Editor

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An experiment in Maryland designed to save healthcare dollars by shifting services away from expensive hospital-based care, and toward less-costly primary, preventive and outpatient services, has yielded disappointing results, according to studies in Health Affairs and the Journal of the American Medical Association.

Maryland's program was rooted in the idea that paying hospitals a fixed global budget -- rather than for each patient admission -- would deter unnecessary admissions and provide better care outside of the hospital. Under this program, hospitals that saved money by reducing admissions would keep the savings. If hospitals exceeded their budgets, they would absorb the resulting costs.

The program was implemented in two waves: the first among rural hospitals, and the second among the remaining hospitals in the state. The two studies examined each phase in turn.

In the Health Affairs study, the researchers compared patterns of use and spending among Medicare beneficiaries served by rural Maryland hospitals with global budgets to patterns among patients served by a group of nonparticipating hospitals. After three years, the researchers found no reduction in hospital use or spending that could be linked to the global budget program.

In their JAMA study, the researchers focused on the first two years of Maryland's statewide rollout of the program, which included larger hospitals serving urban and suburban areas of the state. They found no evidence that the global budget program was associated with reductions in hospital use or increases in primary care visits.

As far as what went wrong, one possibility is that the results may stem from complicated administrative logistics, the authors said. Also, the policy changed only the way hospitals are paid, while payments to individual physicians were kept out of the budget and remained on a fee-for-service basis.

The latter could be significant, since the hospital doesn't have much control over day-to-day decisions about care delivery if the physician isn't on board.

Identifying alternatives to the current payment model is important in helping to alleviate the nation's healthcare spending problem, the authors said. They emphasize that Maryland's new payment strategy still might have saved money for the state and Medicare. But savings didn't come from changing the care that Maryland residents received; rather, it came from changes to hospital prices.

Maryland is now tweaking its program to include physicians. In the interim, Pennsylvania is building off of Maryland's program by implementing a global budget model for rural hospitals.

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