Highlight on Maryland: New Hospital Payment System Being Implemented

Maryland is in the process of transitioning how hospitals are paid under its waiver from the Medicare program to a five-year demonstration program approved by CMS’ Center for Medicare and Medicaid Innovation in January 2014. The payment system will continue to be an all-payer system in which all hospitals will be paid the same rate for the same service.  The difference is that the new payment system will be a global budgeting system in which hospitals will be paid based on their total expected revenues for the year as opposed to being paid a specific fee for each service.

Medicare Waiver

The waiver from Medicare and Medicaid payment rates went into effect on July 1, 1977. Since that time all hospitals in Maryland have been paid the same rate for the same service no matter if the payer is Medicare, Medicaid or a private insurer.  The Health Service Cost Review Commission (HSCRC) was created by the Maryland legislature in 1971.  That law gave the HSCRC the authority set hospital payment rates for all payers.  Federal law took precedent to the Maryland law and it took several years to negotiate with the federal government to participate in the all-payer system, according to a report from the HSCRC. No hospital in Maryland has ever been paid under Medicare’s inpatient prospective payment system (IPPS) or the outpatient prospective payment system (OPPS).

Global Payment System

CMS wanted to move Maryland away from a fee-for-service payment system and towards a payment system similar to IPPS and OPPS and began negotiating with Maryland to do so.  On January 10, 2014 a 5-year demonstration program was approved that would replace the waiver.   Under the demonstration program, Maryland will institute a global payment model within five years. House bill 298, approved on May 5, 2014, requires the HSCRC to develop guidelines for the establishment of global budgets for each hospital and may (1) establish hospital levels and rate increases in the aggregate or on a hospital specific basis and (2) promote and approve alternate methods of rate determination and payment of an experimental nature, according to a legislative synopsis.  Under the global payment model each hospital enters into contract with HSCRC.  Each hospital’s total annual revenue is known at the beginning of each fiscal year and annual revenue is determined from a historical base period that is adjusted to account for inflation updates, infrastructure requirements, population volume increases, performance in quality-based or efficiency-based programs, changes in payer mix and changes in levels of uncompensated care. As of July 16, 2014, the HSCRC reports that 13 hospitals have completed global revenue contracts. Under the demonstration program Maryland is required to limit its annual per-capita total hospital growth to 3.58 percent per year.   The new program will be required to reduce Medicare expenditures by $330 million over the five years of the demonstration. Savings will be measured by comparing the state’s Medicare per-capita total hospital growth to the national Medicare per-capita total hospital cost growth.

Quality Targets

In addition to meeting these fiscal goals, Maryland hospitals will have to meet quality of care targets as well.  Hospital readmissions will have to be reduced from the aggregate 30-day unadjusted all-cause, all-site readmission rate over the 5 year period.  Maryland hospitals will have to achieve a 30 percent reduction in 65 potential preventable conditions over the five-year period; with a goal of an annual reduction of 6.89 percent per year. Maryland’s Governor Martin O’Malley recently announced an 11.5 percent reduction in preventable hospitalizations per 100,000 Marylanders since 2011.  Governor O’Malley credited this reduction to the use of the Chesapeake Regional Information System for our Patients (CRISP) which is a secure health information exchange that all 46 hospitals in the state and a large number of other providers use. CRISP allows physicians to access a patient’s medical records from any participating provider in CRISP in real-time. Using CRISP physicians have access to prior medical records, lab results, radiology results, and other data. The use of CRISP has greatly improved coordination of care and reduced the need to repeat costly diagnostic tests resulting in $65 million in savings according to Governor O’Malley. Maryland is making strides in implementing its new payment and quality of care systems under the new demonstration. Progress is essential because if these goals are not met within 5 years the demonstration will not be extended and hospitals in Maryland will revert to being paid under IPPS and OPPS for Medicare services.