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Unique state of payments as Maryland uses uniform prices

From the April ACP Internist, copyright © 2014 by the American College of Physicians

By Stacey Butterfield

The differences between what hospitals charge and their actual costs and payments received have grabbed headlines lately, with shocking stories of uninsured patients receiving bills much higher than an insurer would ever pay.

Not in Maryland. For the past 40 years, due to a Medicare waiver, hospital charges in Maryland have been set by an independent commission, with the same prices for all payers. The state’s unique system is about to undergo additional reforms, thanks to recent approval of a new waiver from the Centers for Medicare and Medicaid Services.

To learn more about the Maryland system, the new waiver, and the potential for future state innovations, ACP Internist recently spoke with Carmela Coyle, president and chief executive officer of the Maryland Hospital Association.

Q: What’s the history of the Maryland system?

A: Maryland is the only state in the United States where hospitals don’t determine the prices they charge for their services. Instead, our hospital rates are set by an independent, 7-member commission that determines the charges for services for a particular hospital.

That is part of a 40-year history of what we call an all-payer system. All payers—Medicare, Medicaid, Blue Cross/Blue Shield, United Health Care, Kaiser, Aetna, all the rest—pay the same price for the same service within the same hospital. What that has done in Maryland is it has created a very egalitarian approach to providing health care services to all. Everyone pays the same price. We don’t have the issues that exist in the other 49 states with tremendous markups, for example, for the privately insured and the uninsured. It means that we don’t have county and public hospitals, because the uninsured have had access to any hospital. And it means that the setting of rates is done in a very open and transparent process.

In order to achieve it, Maryland required a waiver [40 years ago] from the federal Medicare payment rules. In Maryland, Medicare pays what all other payers pay for hospital services, based on the decisions of our independent commission. Many states today are working on Medicaid waivers. We are the only state that has a Medicare waiver.

Q: How does the new waiver affect the system?

A: The new agreement really changes things quite dramatically. The original waiver looked only at the cost of inpatient stay. Of course, we have seen a tremendous shift over the last 40 years from inpatient care to outpatient care, but none of that was taken into account.

The previous waiver looked only at care for Medicare patients. Today, in pursuit of the [Institute for Healthcare Improvement’s] triple aim, we are thoughtful not just about Medicare patients, but the cost of care to every patient that we treat. We felt it was important to look at the entire cost of care for an individual in the state of Maryland. [Under the new waiver] there are 3 critical financial metrics and 2 critical quality metrics.

Q: What are the financial metrics?

A: In terms of the financial metrics, we are promising in Maryland to limit the rate of growth in hospital spending to no more than 3.58% per capita per year. That reflects the 10-year average rate of growth in the state’s economy. The second financial test is that we will agree over 5 years to save the federal Medicare program $330 million. That number is how much we will save if we are able to hold the trend in Medicare hospital spending to a half a percentage point less than the national trend.

Finally, there is some concern on the part of the federal government that if we squeeze on hospital spending, they don’t want to see it all pop out in other sectors—physicians/nursing, nursing home, home health—so that if we look at the total cost of care, we’re not achieving savings at all. We have agreed to limit the rate of growth in total health care spending to no more than the national trend.

Q: What are the quality metrics?

A: In the previous waiver, there were no quality metrics, not that we weren’t paying attention to quality and safety, but they weren’t built in to the original waiver. The first is on readmissions. Maryland has not performed well in the area of hospital readmissions. We have agreed to bring Maryland’s readmission rate down to the national average within 5 years.

The final quality metric is on [hospital-acquired] infections and complications. We in Maryland have been working on this for a couple of years already. We are being asked to reduce infections and complications by 30% in the next 5 years.

Q: How will these metrics affect the system?

A: What’s perhaps the most dramatic is not contained within the framework of the agreement struck between the state and the federal government. We’re going to try to make good on these financial metrics by implementing hospital-specific fixed budgets in the state of Maryland. We will be moving nearly all hospitals toward these fixed budgets. This is something that has never been tried or tested on this large a scale.

The agreement between the state and federal government begins with a focus on hospitals. However, as part of the agreement, by the end of the fourth year, the state is required to submit a plan to look at ways of bringing all sectors into this objective of limiting rates of growth while encouraging high quality. I mean physicians, nursing homes, home health agencies, and all the rest. There will be much hard work to put that plan together involving all the stakeholders.

Q: How else will the changes affect physicians?

A: Another way that physicians will be intimately involved is that, of course, it is very difficult for any one hospital to meet a fixed budget or a fixed spending target unless physicians and hospitals are pulling on the same rope in the same direction, in both the areas of cost containment and quality improvement.

One of the things that we will be pushing for is greater alignment of physician interests and hospital interests—for the state to apply for a waiver from the federal government so that we can experiment with gain-sharing arrangements, to actually create aligned financial incentives among physicians and hospitals. And of course we will be looking at new models, whether that’s accountable care organizations, patient-centered medical homes, physician hospital organizations, or the 2 or 3 models that we haven’t even thought of yet for creating that kind of care integration.

Q: Is the Maryland system a potential model for other states?

A: I’ve received a number of calls, a number of e-mails, as has the state. We are clearly on the leading edge, if not the bleeding edge, of health care policy innovation.

There are aspects of our 40-year history of hospital rate-setting that [mean] it may not be able to work in other states. Part of the secret sauce is [setting] spending limits by implementing hospital-specific global budgets. I think that would be very challenging in a less regulated environment than we have in Maryland.

However, there are some other states doing some very innovative things, whether it’s Vermont, moving toward a single-payer system. [Or] Massachusetts has really been moving through stages of important reform, not only in coverage expansion, but now cost containment. Oregon is doing some very interesting things with their Medicaid population. We are all really in a mode of creative work.

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