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Md. officials outline plan to save Medicare waiver

ANNAPOLIS — Maryland health officials on Wednesday outlined major changes to how hospital costs are paid in an effort to keep the state’s unique Medicare waiver agreement with the federal government — a deal that has provided enormous financial benefits to the state in recent decades.

Joshua Sharfstein, the state’s health secretary, and John Colmers, chairman of the state’s Health Services Cost Review Commission, briefed lawmakers about the proposal, which was submitted to the federal Center for Medicare and Medicaid Services on Tuesday.

A key component would commit to limiting inpatient and outpatient hospital costs for all payers to a trend based on growth in the state’s economy. Under one of the proposal’s main ideas, Maryland would switch from a system in which hospitals primarily make money when a patient is admitted to one in which hospitals would share in savings as patients stay healthy. Incentives for hospitals under the current system now are based mostly on volume, and the state is essentially proposing changes designed to improve quality of care.

“This proposal would provide meaningful savings to Medicare, state taxpayers, families and small businesses in addition to improving health,” Sharfstein said in an interview after meeting with the Senate Finance Committee.

But hospital representatives are nervous about the sweeping changes, which they describe as the most significant in 40 years.

Carmela Coyle, president and CEO of the Maryland Hospital System, described the proposal as one of “tectonic change” to a $14 billion industry, which is the largest private sector employer in the state.

Coyle said the plan basically would tie hospital spending to growth in the state economy, amid uncertainty about whether recent trends would continue. She also said the plan implements new program and payment incentives that are designed to reach spending targets, while they remain to be developed, approved, tested and implemented.

“What we have, in essence, is a road map,” Coyle said. “We know where we are; we’ve drawn a picture of where we want to go, but when we start to unfold it, there are a whole lot of blanks in between. That means uncertainty. It means uncertainty for hospital leaders. It means uncertainty for payers. The mechanics of how this will work remain undecided.”

$1B in lost reimbursements at stake

Maryland is the only state in the nation to have the Medicare waiver agreement, which has been in place since the late 1970s. It allows Medicare reimbursement rates to providers be based on those set by a state commission, instead of national federal payment principals. However, Maryland must meet tests showing that cumulative growth in state payments doesn’t exceed the growth rate of Medicare payments nationally. The state is getting close to failing to meet the conditions, in part because the system has begun to focus on reducing inpatient services. The rules date back to a time when inpatient services were predominate, and cost per discharge and average length of state were the only measures of efficiency.

The annual financial impact of losing the Medicare waiver to the state’s hospitals is about $1 billion in lost Medicare reimbursements, according to a 2011 analysis by the Maryland Department of Legislative Services.

The proposed changes come at a time when Maryland also is moving to implement the federal health care overhaul. The Senate earlier in the day voted 35-11 for a measure to create a funding stream for the Maryland Benefit Exchange, a new insurance market that will offer residents a choice of private health plans. It also includes an expansion of Medicaid eligibility to 133 percent of the federal poverty line, compared to the current 124 percent. The House also passed its version of the bill earlier this week, and the two chambers simply have to sign off on them to send the legislation to Gov. Martin O’Malley.

Sen. E.J. Pipkin, R-Cecil, criticized the process because lawmakers were only apprised of the Medicare waiver application a day after the proposal was sent to the federal government — while the health care overhaul measure went through the legislative process and gave lawmakers ample time to weigh in and vote on the measure.

“I could argue that this is just as impactful on the citizens of Maryland as that piece of legislation is and, yet, we sit here today, you submitted the application, and that’s it,” Pipkin said.

State officials anticipate several months of review by CMS and other federal agencies before a decision is reached.