Lawmakers in Vermont got a glimpse Thursday of Maryland’s unique system for compensating hospital systems.
Maryland has had a waiver from the federal Centers for Medicaid and Medicare (CMS) since 1977 that allows them to set reimbursement rates for those programs. In addition, state law allows a rate-setting commission to regulate private insurers in much the same way the Green Mountain Care Board does in Vermont.
Robert Murray, who spent nearly two decades working for Maryland as a hospital regulator and now consults for the Green Mountain Care Board, said Maryland has created what is known as an all-payer system, in which Medicare and Medicaid, private payers, insurance companies and self-insured employers, all compensate providers at roughly the same rate.
The all-payer system greatly reduces what is known as the cost shift, in which providers seek higher reimbursement rates from private payers to compensate for what they receive from public payers. The cost shift is then built back into the premiums paid by people who are covered by commercial insurers. Maryland and its taxpayers have invested heavily in Medicaid over nearly 40 years to prevent a cost shift from existing, and it’s not likely another state could replicate that overnight.
In 2009, Maryland got waiver from CMS for a pilot program to compensate hospital systems based on “global budgets.”
A global budget is the sum of all payments made to a hospital or hospital system from all payers over a given period, typically the previous year, and it is based on a hospital’s historical revenues, which are then adjusted for inflation and changes in the age and size of the population a hospital serves.
The purpose is to move from a fee-for-service payment model, where providers are compensated for the volume of care they provide, toward a model that compensates for the quality of care.
“Everything that was revenue for hospitals becomes a cost they need to manage,” according to Richard Slusky of the Green Mountain Care Board.
Global budgets make current growth strategies pursued by many hospitals unattractive, because instead of boosting revenue they create risk for the hospital, which faces penalties for exceeding its budget.
At the same time, it creates stability in the health care system because it creates a consistent and enforced revenue stream for hospitals, Slusky said.
The pilot hospitals in Maryland have shown promise. They have kept downward pressure on the growth in spending while outperforming other hospitals in the state on quality of care measures, Murray said.
Earlier this year, Maryland received an expanded waiver from CMS to transition more hospitals and hospital-owned physician practices to global budgets. The global budget model in Maryland is limited to hospital systems, and does not pertain to private physician practices.
Vermont is in the midst of its own efforts to reform payment models and ditch fee-for-service. It’s a key component of the state’s health reform goals, because the Shumlin administration has said that providing universal coverage to Vermonters will only be sustainable if the growth in health care costs can be controlled.
The state has launched shared-savings programs for provider groups known as Accountable Care Organizations, which compensate providers on a fee-for-service basis, but allow providers to share savings with payers if they reduce spending while also meeting quality standards.
Slusky said the Green Mountain Care Board is exploring how global budgeting might be achieved in Vermont, and how it would mesh with shared-savings and other payment reforms already underway.
It’s not clear at this point how that would work, but Slusky said the investments Accountable Care Organization providers are making dovetail with delivery reforms under global budgeting.
Both models encourage better care management for patients across the health care spectrum to improve outcomes for a hospital’s entire patient population, he said.
However, there are potential downsides to global budgets, Murray acknowledged.
To stay within predefined spending limits, a hospital could feel pressure to reduce services, transfer costly patients or not take patients with complex medical needs in the first place.
Maryland has sought to counteract those impulses through a robust oversight, Murray said.
Its regulatory regime holds hospitals to a set of quality measures, not unlike the quality measures on which Vermont’s shared-savings programs are predicated.
Maryland also tracks whether hospitals have high patient transfer rates or are avoiding high cost cases, Murray said, which would result in a visit from the state’s rate-setting commission and, if not corrected, a reduction in the hospital’s budget.
