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 payers 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 Hawaiian 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 drive 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.

Former Attorney Sentenced for Role in Medicare Fraud

A former attorney from Florida was sentenced to nearly six years in prison for her participation in a Medicare fraud scheme. Margarita Grishkoff purchased and owned physical rehabilitation facilities that she used to submit false claims to Medicare; she split the proceeds of the false claims with co-conspirators, according to Department of Justice press release. This case was investigated and prosecuted under a special Medicare Fraud Strike Force, the Health Care Fraud Prevention and Enforcement Team (HEAT), that is operating in Miami and eight other cities.

On January 24, 2014, Grishkoff pleaded guilty to conspiracy to commit health care fraud. Grishkoff and others submitted approximately $28.3 million in fraudulent claims to Medicare from 2005 to 2009, of which Medicare paid approximately $14.4 million. Grishkoff had a license to practice law in Florida but was disbarred in 1997.

Fraudulent Activities

Grishkoff was president and a director of Ulysses Acquisitions, Inc., which was a company she used to purchase comprehensive outpatient rehabilitation facilities and outpatient physical therapy providers. Grishkoff and her co-conspirators submitted false claims to Medicare on behalf of clinics they owned in exchange for a portion of the Medicare reimbursement received. Grishkoff and her co-conspirators kept 20 percent and the remaining 80 percent went to other clinic owners and co-conspirators. Grishkoff and her co-conspirators used patient recruiters to obtain identifying information on Medicare beneficiaries and physicians. The patient recruiters were paid kickbacks for this information. This information was then used to submit claims through the clinics Grishkoff and others owned. To distance herself from these activities, Grishkoff and her co-conspirators sold the clinics to nominee or straw owners, all of whom were recent immigrants to the United States with no background in health care.

Grishkoff was sentenced to 70 months in jail with three years’ supervised release upon the ending of her prison term and ordered to pay restitution of $14.4 million. The sentence was handed down by U.S. District Judge Susan C. Bucklew of the Middle District of Florida and investigated and prosecuted by members of the U.S. District Attorney’s office for the Middle District of Florida, HHS Office of Inspector General (OIG) and the FBI’s Tampa Field Office.


This case was investigated as part of the special Medicare task force known as HEAT. Special HEAT task forces are operating in Brooklyn, N.Y.; Los Angeles, Calif.; Chicago, Ill.; Miami-Dade, Fla.; Tampa Bay Fla.; Houston Tex.; Dallas Tex.; Detroit Mich.; and Baton Rouge, La. HEAT teams are multi-agency teams comprised of federal, state, and local investigators designed to combat Medicare fraud. To date nearly 1,900 individuals have been charged who collectively billed Medicare for more than $6 billion since March of 2007 when HEAT began, according to the Department of Justice’s press release.

Little Progress in Reducing Deaths from Preventable Medical Errors

While progress is being made in certain areas of preventable hospital errors, such as dramatic reductions in the rate of central line infections and other hospital associated infections, the overall death rate from preventable medical errors  has not decreased much since the Institutes of Medicine’s (IOM) landmark report, To Err is Human was released nearly 15 years ago. This was the conclusion of a panel of medical experts who testified before the Subcommittee on Primary Health and Aging of the Senate’s Committee on Health, Education, Labor and Pensions at a hearing on July 17, 2014. In fact, the rate may even have increased.

Preventable Errors

Witnesses referred to three studies conducted  from 2011 to 2013 which showed that the number of deaths at hospitals from preventable errors may actually be as high as 400,000 annually, which is significantly higher than the 98,000 annual deaths the IOM report estimated.  The 400,000 number comes from a study conducted by Dr. John James which was published in the Journal of Patient Safety in September of 2013.  Dr. James testified that he got to that number from some pretty simple math. “There were 34 million hospitalizations in 2007, of which approximately 0.9% involved lethal adverse events, and of those approximately 69 percent on average were judged to be preventable,” said Dr. James during his testimony.  He concluded that this leads to 210,000 deaths from preventable medical errors. When he corrected for the missed deaths from medical errors that current tools do not catch, the number came out to be something more like 400,000 lives which “are shortened by preventable adverse event each year,” he stated.

HHS’ Office of the Inspector General estimated that medical errors caused the deaths of nearly 180,000 deaths to Medicare beneficiaries each year in a November 2011 report based on 2008 data, according to Dr. Ashish K. Jha who is also a professor of Health Policy and Management at the Harvard School of Public Health.  Again that number is significantly higher than the 98,000 estimated by the IOM.  Finally a New England Journal of Medicine study of hospitals in North Carolina “showed that there had been little evidence that harm had decreased substantially over the 6-year period,” according to the testimony of Lisa McGiffert, Director of Patient Safety for Consumers Union.


Among the recommendations to reduce this number was better reporting of medical errors, transparency of that reporting to the public and the use of software to go through electronic medical records to uncover medical errors.  All of the witnesses provided anecdotal evidence of medical errors that lead to death, but would not be reported using existing  reporting requirements and software.

One recommendation made by Dr. James and Lisa McGiffert was the establishment of a National Patient Safety Board similar to the National Transportation Safety Board.  The National Patient Safety Board would track the many fragmented safety programs and provide a comprehensive coordinated approach to reducing the number of medical errors, said McGiffert.

Transparency and the public availability of safety data was a recommendation made by Dr. James. He stated that patients have a right to know the safety record of their physicians and facilities where they receive care such as outpatient clinics and nursing homes as well as hospitals.   Dr. Jha recommended more mining of electronic health records to obtain evidence of medical errors. He pointed out that software currently exists that uses data in medical records to identify when a medical error occurred.  Dr. Jha advocated requiring the use of these tools for automated patient safety monitoring  as a part of the meaningful use requirements predicting that it would have a dramatic effect on the reporting of the number of medical errors.

These recommendations were advocated by the witnesses because each related a story of a person  who died as a result of a medical error in a hospital that would never have been reported as a medical error under the current reporting mechanisms.  Dr. James became an advocate of patient safety after his son died due to a medical error.  Dr. James discovered the error by examining his son’s medical records and saw that another physician missed prescribing an essential medication. Dr. James’ point though was that with the current reporting requirements, the failure of one of his son’s doctors to prescribe a medication would not have been reported as a medical error, even though an examination of the medical record indicated it was.

Younger People Travel to Urban Hospitals for Care

In 2010, 6.1 million people who lived in rural areas were hospitalized, and of that number 60 percent sought care at hospitals in rural areas and 40 percent traveled to urban areas for hospital services, according a new report from the Centers of Disease Control and Prevention (CDC). The report, Rural Residents Who Are Hospitalized in Rural and Urban Hospitals: United States, 2010, examined the differences in who sought care in urban areas as opposed to rural areas, what type of care was provided by hospitals in both regions to rural residents, and what type of care settings rural residents were discharged to by urban and rural hospitals. Interestingly, the death rate of rural residents admitted to a hospital in an urban area was the same as a rural resident admitted to hospital in a rural area; 2 percent.

Travel for Care

Elderly rural residents seek care in rural areas, according to the CDC’s report. Roughly 51 percent of rural residents 65 years or older who were hospitalized in 2010 were hospitalized in a rural hospital. A majority of rural residents who were hospitalized in 2010 and were 64 years of age or younger were hospitalized in an urban hospital. The CDC stated that prior research showed that older patients (patients over 65 years of age) were less likely to travelfor hospital services due, in part, to barriers imposed by traveling to urban areas and a preference to remain closer to their homes.

Service Received

A little more than one-third, 38 percent, of rural residents hospitalized in a rural hospital received surgical or nonsurgical procedure during their stay. Rural residents hospitalized in urban hospitals received far more surgical and non-surgical services. Seventy-four percent of rural residents in an urban hospital received a surgical or nonsurgical procedure, and rural residents in urban hospitals were three times as more likely to receive three or more procedures than rural residents in rural hospitals. The CDC referred to a study that showed that due to economies of scale and volume of patients, many rural hospitals do not offer many types of diagnostic tests or specialized treatments.


Rural residents in rural hospitals were less likely to be discharged to their home and more likely to be discharged to another short-term hospital or to a long-term care institution. Only 63 percent of rural residents receiving care a rural hospital were discharged to their home while 81 percent of rural residents in urban hospitals were discharged to their home. Only 3 percent of rural residents in an urban hospital were transferred to another short-term hospital while 7 percent of rural residents in a rural hospital were transferred to another short-term hospital. Repeating the pattern, 14 percent of rural residents who received services from a hospital in a rural area were discharged to a long-term care institution, while only 8 percent of rural residents who received care in an urban hospital were discharged to a long-term care institution.

Earlier Study

The CDC used data from the National Hospital Discharge Survey, which has been conducted annually from 1965 through 2010, for this study. An earlier study by the CDC using the same data showed that overall only 12 percent of the 35 million hospitalization in the U.S. in 2010 were in rural hospitals (see Rural hospitals serve fewer patients, perform fewer services that urban counterparts, reported on April 24, 2014). The earlier report found that the percentage of rural hospitalizations was not only slightly less than the overall rural population, which in 2010 was 17 percent of the country. Data from that study also determined that fewer services were performed in rural hospitals, with only 6 percent of the 51 million inpatient medical procedures performed in 2010 occurring in rural hospitals.