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February 7, 2017

Here's how Maryland's global payment model is working out

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Maryland's global payment model is paying off, achieving quality improvements on top of hundreds of millions in Medicare savings, according to a Health Affairs Blog post.

How the model works

Maryland had a unique payment system for nearly 40 years under which all payers reimbursed hospitals at the same rates, which were set by a state commission.

But facing rising health expenditures and high readmission rates, CMS and Maryland in 2014 reached a five-year deal that went even further: Under the setup, all payers set global budgets for hospitals to cover both inpatient and outpatient care for each year. The idea is that the fixed, predictable revenues mean hospitals have flexibility to invest in care improvements and make care more valuable for patients and payers, the blog authors write.

The program was voluntary, but within six months, every hospital in the state signed up to scrap fee-for-service reimbursement.

Since the program launched, hospitals in the state have taken steps to advance population health and keep readmissions rates down. For example, hospitals to date have formed 10 regional partnerships to provide preventive care and chronic care management, among other services.

The state is also supporting public-private partnerships to boost infrastructure. For instance, the state has a private health information exchange, the Chesapeake Regional Information System for our Patients, aimed at supporting better care coordination among payers, health systems, and providers.  

More than $400M in Medicare hospital savings

So far, Maryland has achieved an estimated $429 million in total Medicare hospital savings, surpassing the $330 million the state promised CMS it would save over five years. Relative to 2013—the year before the program launched—hospitals savings for Medicare were $116 million in 2014, $135 million in 2015, and are estimated to be $178 million through August 2016.

Overall, the authors write between 2013 and August 2016, "the hospital spending growth rate underlying the savings was more than 4 percent below the national growth rate."

In addition, the blog authors note hospital spending for all payers remained in check, meaning that the Medicare savings weren't shifted to the private sector. But they did find that non-hospital utilization—such as home health care and skilled nursing facility services—increased in 2015, as hospitals referred more patients for such services. Overall, the state estimates that the $429 million in total Medicare hospital savings was partially offset by an additional $110 million in non-hospital spending, meaning the estimated net savings was $319 million for Medicare total cost of care, the authors write.

Hospitals in the state also have exceeded the program's key quality goals. For instance, the hospitals have reduced potentially preventable complications by 48 percent (above the five-year, 30 percent reduction target). The hospitals also have narrowed the gap between the state and the national all-cause readmission rate. Maryland's rate in 2015 was 3.4 percent above the national rate, down from 7.9 percent in 2013, and that gap is continuing to narrow in 2016, according to the blog authors.

What's next

While the program's focus on hospitals "creates a foundation for health care payment and delivery transformation," the blog authors write that it does not currently "have the full set of tools needed to address total cost of care." In a progression plan submitted to CMS late last year, state officials suggested ways to expand the program beyond hospitals, detailing strategies for further improving outcomes, curbing any potentially avoidable utilization in higher acuity settings, and reducing costs (Gale, Healthcare DIVE, 2/1; Morse, Healthcare Finance News, 2/1; Sabatini et al., "Health Affairs Blog," 1/31).

Maryland's all-payer global budget cap model and its implications for providers

Download the whitepaper

For the past 40 years, the state of Maryland has pioneered a unique approach to financing hospital payments as a means of limiting spending growth.

This white paper provides an in-depth look at Maryland's model, including details on its history and evolution, lessons learned to date, and broader implications for the future of payment reform.

Download the whitepaper

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