More on Reimbursement

Pennsylvania hospitals test new funding model to help with ongoing struggles

The move is designed to help the facilities struggling with a declining number of patients and a shifting payer mix.

Jeff Lagasse, Associate Editor

A handful of rural hospitals in Pennsylvania are experimenting with a new payment model they hope will keep them financially healthy, signaling a shift away from the traditional fee-for-service payment structure.

Five hospitals throughout the state will be piloting a global budget model program, according to local news station WHYY. The program is starting with three commercial insurers, UPMC, Geisinger and Highmark, which have agreed to pay the hospitals a capitated amount.

The move is designed to help the facilities with struggles that are common among rural hospitals, such as a declining number of patients and a payer mix that's shifting to include more people on Medicare and Medicaid, which have lower reimbursement rates than commercial insurance.


What the global budget model does is send a fixed monthly amount to each hospital to help it secure resources such as mental health and substance abuse services.

Such funds would typically be unavailable to smaller providers, but the pilot encourages building such services using a fixed pot of resources, freeing up hospitals to dedicate money to where it's most needed.

The expectation is that at-risk hospitals will be able to stay open and retain more staff, effectively preserving jobs The economic impact to rural areas could be significant as the program expands from five hospitals to about 30 by January 2021.

The pilot was borne of a partnership between the state's Department of Health and the Center for Medicare and Medicaid Innovation. Legislation is currently on the books seeking a $25 million grant for the program and the development of  a Rural Health Redesign Center.

Patients shouldn't experience any differences when it comes to paying for or receiving care. The big change is in how insurers pay the hospital. More insurers may join as the model matures.

Department of Insurance spokesperson Ron Ruman told WHYY the program could free up doctors to provide more services outside the emergency department, leading to lower patient costs.

The hospitals participating in the pilot are Barnes Kasson in Susquehanna; Endless Mountains in Montrose; Jersey Shore in Jersey Shore; UPMC Kane in Kane; and Wayne Memorial in Honesdale.


A similar 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 last year 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.

Twitter: @JELagasse

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