Maryland is doubling down on all-payer hospital payment, and CMS is hoping other states might follow suit despite major challenges to its success.
Since the advent of Medicare and Medicaid, states and the federal government have struggled to operate a hospital reimbursement policy that pays reasonable prices to cover costs and a modest profit.
One model is an all-payer program, where commercial and government-funded health plans are all required to pay hospitals the same price. It's similar to the system used by countries like France and Germany, and 30 years ago 10 states tried it, including Maryland, Massachusetts and New York, seeing mixed success.
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All but Maryland abandoned their all-payer policies in the 1980s, but Maryland has kept on. While hospitals in Maryland have not brought down the state's total costs of care, the all-payer system seems promising enough to state and federal leaders under universal healthcare coverage. In a five-year program with Maryland and state hospitals, Medicare is expecting savings of more than $300 million and an inspiration for other states.
Under Maryland's policy, in place since the 1970s thanks to a Medicare waiver, an independent government commission sets a rate structure for each hospital that all insurers must pay.
"This system has eliminated cost shifting among payers, more equitably spread the costs of uncompensated care and medical education, and limited the growth of per-admission costs," wrote Rahul Rajkumar, MD, deputy director at the Center for Medicare and Medicaid Innovation, and colleagues in the New England Journal of Medicine.
"However, in recent years, both the incentives created by Maryland's current Medicare waiver and changes in the delivery system have created unnecessary pressure to increase the volume of hospital services provided," Rajkumar and colleagues said. "This pressure, combined with the fact that Medicare pays higher rates for hospital services in Maryland than it does under the national prospective payment systems for inpatient and outpatient care, has resulted in per capita Medicare hospital costs in Maryland that are among the country's highest."
The Affordable Care Act changed the context to Maryland and every other state's healthcare policy, for the first time creating a way for just about everyone to get comprehensive health insurance. State and federal leaders saw the law's expanded waiver authority as an opportunity to make all-payer payments work.
As Rajkumar explained, the new program "will change the basis for Medicare's participation in Maryland's system." Instead of focusing on a limit on per-admission payment, the new model focuses on overall per capita expenditures for hospital services and improvements in quality and population health outcomes. Before the ACA, Maryland's per-capita healthcare spending was the 15th highest in the nation, at $7,492 per person annually.
Maryland's new program is actually kind of an experiment, to test whether hospital payments that are "accountable for the total hospital cost of care on a per capita basis is an effective model," as CMS said.
In their healthcare services, Maryland hospitals are committing to quality initiatives like reducing 30-day hospital readmissions and hospital-acquired conditions. Maryland will continue its current program tracking 65 "potentially preventable conditions," for which CMS is seeking a 6.8 percent reduction annually. The state and its hospitals will also submit an annual report on population health-level initiatives and outcomes. They're also committing to work as financing collaborators with the state and CMS. The program calls for Maryland to limit all-payer per capita hospital growth, including inpatient and outpatient care, to a rate of 3.58 percent over the course of 2014 to 2019.
Maryland will attempt to limit annual Medicare per capita hospital cost growth to 0.5 percent less than the actual national growth rate. The goal is to save Medicare at least $330 million over the next five years, which amounts to about 0.75 percent of Maryland's current annual Medicare spending of $8.7 billion.
"Maryland will shift virtually all of its hospital revenue over the five year performance period into global payment models," and "may serve as a model for other states interested in developing all-payer payment systems," wrote Rajkumar.
Before the fourth year of the model, Maryland will have to develop a proposal for a new model to begin no later than after the end of the five year performance period. That is if the program meets its goals, and there are major hurdles to success.
If the program fails to meet the five-year performance goals, Maryland hospitals will transition over two years to the national Medicare payment system, which of course is increasingly varied around value-based models.
As Rajkumar argues, Maryland's new model targets two problems in healthcare. "First, a critical challenge for national delivery-system reform is to align payment incentives across multiple payers. Maryland's all-payer system can be a laboratory for rapid innovation in delivery-system reform, because the state can bring all payers to the table in order to create consistent and aligned incentives for providers." Secondly, he argues, Maryland's urban, suburban and rural population of 5.8 million will test the model at a sizable scale and in different localities.
The all-payer model will be a big opportunity for Maryland to solve another problem in U.S. healthcare: administrative complexity, high labor and resource costs of billing departments, and bloated management at insurance companies and hospitals. By eliminating some of costs associated with traditional insurance-provider contracting, some of the savings can be directed in shared savings and some can be reinvested in patient care.
One of the drawbacks to the pre-ACA version of Maryland's was that it covered only hospitals, leaving out the area of medical practices. Now, with most of the state's hospitals being in health systems that include significant outpatient and primary care clinic services, the policy may be more workable if the organizations can operate both comprehensive community care and acute hospital treatment.