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.

Telehealth Expansion Gets Bipartisan Congressional Support

July 2014 has brought a lot of activity toward expanding telehealth services to improve access to health care for seniors and others and lower the costs of health care for federal health care programs. Members of both houses of Congress and both political parties have introduced bills that would require Medicare to expand telehealth services provided to Medicare and Medicaid beneficiaries. Moreover, CMS’ 2015 Physician Fee Schedule Proposed rule includes a proposal to add annual wellness visits, psychotherapy services, and prolonged evaluation and management services to the Medicare telehealth benefit. In announcing its appreciation for the efforts of legislators to push for improvements in telemedicine coverage, the American Telemedicine Association (ATA) stated that the “bills are instrumental in demonstrating widespread congressional support.”

Telehealth Parity Act of 2014 

On July 31, 2014, House of Representatives members Mike Thompson (D-Calif.), Gregg Harper (R-Mississippi), and Peter Welch (D-Vermont) introduced the Medicare Telehealth Parity Act of 2014 (HR 5380) (Discussion Draft) , which “creates a [three] phase approach over four years to expand coverage of telemedicine-provided services and removes arbitrary barriers that limit access to services for Medicare beneficiaries,” according to an ATA press release. Thompson explained that the bill puts telehealth services under Medicare on the path toward parity with in-person health care visits. The legislation has been referred to the House Energy and Commerce Committee and the House Committee on Ways and Means.

The phase-in begins in rural areas and gradually removes geographic restrictions to patient care. The bill also provides for telehealth services furnished by diabetes educators as well as outpatient therapists, including speech language therapist, audiologists, respiratory therapists, and physical therapists; allows remote patient management services for chronic health conditions such as diabetes, congestive heart failure, and chronic obstructive pulmonary disease, including patient monitoring, patient training, clinical observation, assessment, treatment and other services; and expands home telehealth, hospice, and home dialysis.  The bill requires Government Accountability Office (GAO) to conduct a study of the effectiveness of remote patient monitoring on decreasing hospital readmissions for the chronic conditions included in the bill and the savings to Medicare as well as the implications of greater use of patient monitoring with respect to payment and delivery system transformations. The bill is discussed in more detail in a post by Bryant Storm titled, “Bill Would Stretch Telemedicine to Physical Therapy, Bigger Populations.”

Telehealth Enhancement Act of 2014

The Telehealth Enhancement Act of 2014 (S. 2662), which was introduced by Senators Thad Cochran (R. Mississippi) and Roger Wicker (R-Mississippi), would expand the use of telehealth technology to improve health care for seniors and other patients in underserved areas as well as help lower health care costs. The legislation would waive statutory Medicare restrictions on telehealth services to encourage greater use of telehealth technologies and would extend telehealth coverage to all critical access and sole-community hospitals regardless of metropolitan status. The legislation also covers home-based video services for hospice care, home dialysis, and homebound seniors. Medicare home health payments would be adjusted. In addition, the bill would allow states to modify Medicaid coverage to include telehealth services for women with high-risk pregnancies. The bill has been referred to the Senate Finance Committee. According to the ATA, the bill “includes several provisions that may see significant budget savings and build on recent payment innovations such as accountable care organizations and other incremental budget-sensitive proposals.”

This Senate bill is a companion to legislation introduced by Harper, Thompson, Welch, and Devin Nunes (R-Calif.) last year, known as the Telehealth Enhancement Act of 2013 (HR3306). Many of the provisions of HR 3306 are reflected in S. 2662. The ATA Hub summarized the provisions of HR 3306, stating that such provisions include incentive for reducing hospital readmissions, advancing a health home approach as found in the Medicaid program, care coordination for chronic illness such as Parkinson’s, flexibility for accountable care organizations to offer telehealth services, expansion of geographic locations, coverage of home-based video services, and coverage of Medicaid telehealth services for high-risk pregnancies. HR 3306 is pending in the House Ways and Means Committee and House Energy and Compliance Commerce. According to Wicker, “Telehealth cuts down travel time and increases access to specialists for residents in many rural areas who do not live near these essential health care resources.”

CMS Proposed Rule

CMS proposed to add the following services to the list of services that can be furnished to Medicare beneficiaries under the telehealth benefit: annual wellness visits, including a personalized prevention plan of service, initial visit, and subsequent visit; psychotherapy services, including family psychotherapy with and without patient present; and prolonged evaluation and management services requiring direct patient contact beyond the usual service. CMS found that these services meet the criteria for being on the Medicare telehealth list and are sufficiently similar to psychiatric diagnostic procedures or office outpatient visits currently on the telehealth list to qualify for coverage.


“Telehealth  is one of the most promising aspects of the health care field,” according to Harper. The use of telehealth technology and services may be the answer for improving access to health for seniors and others in underserved areas and lowering health care costs; however, Wayne Caswell, member of ATA and Founder of Modern Health Talk, sees this as “a step in the right direction” but “just a baby step” and noted that he thinks “much more is needed.”  In an article, written in response to the introduction of the Telehealth Enhancement Act of 2013 bill, Caswell cautioned that the telehealth bills introduced in Congress may get resistance from states seeking to “preserve the status quo and the authority of state medical boards.” Other risks related to the expansion of telemedicine services such as privacy, confidentiality, credentialing, and failure of technology for health care providers are discussed in the post, “Growth of Telemediccine Services Brings the Need to Address Associated Risk.

Hospital System’s “Deliberate, Corporate-Driven Scheme” Treated with $98.15M Settlement

Community Health System, Inc. (CHS), which is, according to the Department of Justice, the “nation’s largest operator of acute care hospitals” has agreed to pay $98.15 million in settlements to bring an end to a collection of lawsuits that have alleged the hospital system violated the False Claims Act (FCA) and the physician self-referral law, or Stark Law. While the FCA violations rest in the assertion that Tennessee-based CHS engaged in a system-wide policy of deliberate submission of improper claims to Medicare, Medicaid and other federal health care programs, the Stark Law violation accusations were specifically directed at one CHA affiliate, Laredo Medical Center (LMC), which is located in Laredo, Texas.

False Claims Act

According to the DOJ’s announcement of the CHS settlement, the system, which is based in Franklin, Tennessee but has 206 affiliated hospitals in a total of 29 states, was accused of submitting bills to Medicare, Medicaid, and the Department of Defense’s (DOD) TRICARE coverage for beneficiaries over the age of 65 for inpatient procedures that should have been performed as outpatient or observation procedures. In other words, it was alleged that “the inpatient admission of these beneficiaries was not medically necessary, and that the care needed by, and provided to, these beneficiaries should have been provided in a less costly outpatient or observation setting.” This practice was, according to the DOJ, the result of a “deliberate corporate-driven scheme” employed to increase inpatient admissions of these types of beneficiaries, who were “originally presented to the emergency departments at 119 CHS hospitals.”

Stark Violations

In terms of the activities at the LMC, the government similarly claimed that certain cardiac and hemodialysis procedures were performed in inpatient settings rather than the proper outpatient basis, which resulted in higher claims amounts being submitted to Medicare. In addition to these FCA claims, LMC was accused of improperly billing Medicare “for services referred to LMC by a physician who was offered a medical directorship at LMC, in violation of the Stark Law,” which prohibits “a hospital from submitting claims for patient referrals made by a physician with whom the hospital has an improper financial relationship.”


In regard to the FCA claims within the corporate structure of CHS and throughout the 119 hospitals that were alleged to be involved, CHS agreed to pay $89.15 million in a settlement with the government and several relators that initially brought qui tam suits in order to bring these activities to light. For the alleged Stark Law violations by the affiliated LMS, CHS agreed to pay $9 million dollars. The U.S. District Attorney for the Middle District of Tennessee, David Rivera, noted that “this is the largest [FCA] settlement in this district and it reaffirms this office’s commitment to investigate and pursue health care fraud that compromises the integrity of our health care system.” In addition to paying for their alleged wrongdoings, CHS also, as part of the settlement agreement, will enter into a corporate integrity agreement (CIA) with HHS’s Office of Inspector General (HHS-OIG). That agreement will require CHS to “to engage in significant compliance efforts over the next five years,” and specifically, will require it to “retain independent review organizations to review the accuracy of the company’s claims for inpatient services furnished to federal health care program beneficiaries.”

Government Effort

According to the DOJ’s announcement of this settlement, the identification and resolution of these claims was the “result of a coordinated effort by the U.S. Attorney’s Offices for the Middle District of Tennessee, Southern District of Texas, Northern and Southern Districts of Illinois, Northern District of Indiana, and Western District of North Carolina; the Civil Division’s Commercial Litigation Branch; HHS-OIG; DOD’s Defense Health Agency – Program Integrity Office and the FBI.” The DOJ also notes that this settlement “marks another achievement for the Health Care Fraud Prevention and Enforcement Action (HEAT) initiative,” which was formed by the partnering of the Attorney General’s office and HHS in an effort to “reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.”

MACPAC Debunks Myths of ED Overuse by Medicaid Enrollees

The provision of care in emergency departments (ED) makes up only 4 percent of overall Medicaid spending, according to an issue brief by the Medicaid and CHIP Payment and Access Commission (MACPAC), though increased access to primary care could further lessen Medicaid’s ED spending The issue brief, which addresses commonly held beliefs about the use of the ED in Medicaid stemming from expansion under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), provides “a more balanced picture” of the program, “informed by the latest research.”


Care is expensive in EDs, according to the report, because of their need for 24-hour staff and resource availability. Additionally, “the hospital settings in which most EDs are based have both high overhead and fixed costs.” Because Medicaid enrollees seek care in EDs more than privately insured and uninsured individuals, state Medicaid programs must closely monitor the use of EDs by their beneficiaries. Payers and health plans also play a role in keeping costs down by educating enrollees about the proper ED use and providing quick access to care in alternate settings.

ED Use by Medicaid Enrollees

Non-urgent ED visits by non-elderly Medicaid patients account for only 10 percent of ED visits, which is “a proportion comparable to that of privately insured patients,” according to the issue brief. Thus, most of the ED visits by these patients are for urgent symptoms and serious medical issues requiring immediate medical attention.

Evidence is conflicting on whether the use of the ED by adult Medicaid enrollees is increasing. However, the MACPAC did find that barriers to timely care have resulted in frequent use of the ED by Medicaid enrollees. The issue brief notes, “Despite the fact that nearly all Medicaid enrollees report having a usual place of care other than the ED, approximately one-third of adult and 13 percent of child enrollees have reported barriers to finding a doctor or delays in getting needed care.” These types of delays were more common among Medicaid enrollees than privately insured individuals and reduced with increased access to after-hours care.

There was insufficient evidence to show whether ED use would surge with Medicaid expansion throughout 2014.

Programs to Reduce ED Use

According to the issue brief, state Medicaid programs have utilized programs to reduce ED use, such as diverting patients with non-urgent complaints to lower-cost care settings (which has not proven to be a significant cost-saver) and charging copayments for non-urgent ED use. Alternative sites for non-emergency care, as well as extended hours and next-day appointments, are being more frequently offered to patients who would normally choose the ED. The increased availability of primary care could garner more efficient ED spending, but new delivery models are needed to address the needs of frequent ED users.