Feds OK state’s plan to reform hospital system

Officials struck a celebratory tone at a news conference Friday to announce the federal approval of the state’s proposal to transform the way Maryland hospitals get paid, but emphasized that the transition will be anything but seamless.

Under the new model, hospitals will receive a lump sum of money to take care of an entire group of patients, rather than a payment for each appointment, procedure or other service they provide. Officials say the model gives physicians incentives to improve the overall health of a patient population at a cheaper cost.

Such “global budgets” have been implemented successfully in pilot programs at 10 state hospitals in recent years. For the other 36 acute-care hospitals in the state, though, global budgeting is a drastic departure from the current reimbursement system.

“Maryland’s hospitals know that this is a redefinition of the hospital as we know it,” said Maryland Hospital Association President and CEO Carmela Coyle. “But it’s the right thing to do for Maryland, and we’re up to the challenge.”

If a hospital goes over its spending limit, it gets less revenue the next year. But if it comes up with money-saving programs while maintaining the quality of care, the hospital can keep the surplus. Coyle called the spending caps “tough … but attainable.”

The new plan limits growth in per-capita hospital spending to the rate of growth in the state’s economy. It also requires hospitals to keep the growth rate of Medicare costs lower than the national average growth rate. It is expected to save the federal government at least $330 million in Medicare spending over the next five years.

The state’s proposal, which was submitted to the federal Centers for Medicare and Medicaid Services (CMS) in October, establishes a five-year demonstration project, starting this year, during which the state will implement the new payment model and hospitals will launch or expand programs that emphasize collaboration with physicians’ offices, outpatient community clinics, long-term care facilities and other providers.

Those programs are supposed to further a main goal of the new plan: to reduce costly readmissions — unplanned visits back to the hospital within 30 days of the first visit.

“By shifting away from traditional fee-for-service payment, Maryland’s new model encourages collaboration between hospitals and physicians to improve patient care, promotes innovative approaches to prevention and accelerates efforts to avoid unnecessary admissions and readmissions,” state health secretary Dr. Joshua M. Sharfstein said.

Officials say the new plan allows Maryland to continue its unique “all-payer” system, under which all kinds of insurers — Medicare, Medicaid, private insurance companies and self-paying patients — are charged the same amount for any given hospital service, with the rate set by a special commission.

In other states, payers negotiate rates with the hospitals, and different payers pay different amounts.

To keep the 36-year-old all-payer system, Maryland must remain eligible for its “Medicare waiver” from CMS, meaning the reimbursement rules that apply in other states are waived in Maryland.

To keep that waiver, Maryland must meet certain conditions. The proposal that was just approved updates the waiver conditions to better match today’s health-care environment, in which less care is provided on an inpatient basis.

“Maryland’s unique system has been a model for patient access, cost containment and financial stability, providing more equitable payment levels among payers than anywhere else in the nation,” U.S. Sen. Benjamin Cardin, who attended Friday’s news conference, said in a statement. “The revised Medicare waiver will allow us to continue our state’s commitment to increasing quality and reducing health care costs, while giving the federal government the opportunity to evaluate innovative approaches to reform.”

Gov. Martin O’Malley, Lt. Gov. Anthony Brown and Sen. Barbara Mikulski also spoke at Friday’s news conference.

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