More on Maryland’s All-Payer Hospital Reimbursement System

Maryland has a unique system of hospital reimbursement that we have reported on before; a system under which all health care payers basically pay the same amounts for the same services and hospitals get a global budget for those services.  At a time of rapid hospital consolidation and rising prices for commercial payers, the system is worth a careful look.   (CMS Report)   A thorough outside evaluation report from CMS gives insight into the effects of payment scheme.  Maryland has used an all-payer method for hospital inpatient services since the 1970s.  A 2014 modification, under agreement with CMS, gave the state the flexibility to add a global budget for inpatient and outpatient hospital services to the all-payer concept, and contained a commitment that certain savings would be achieved.  Qualitatively, the report indicates that hospitals are making changes to adapt to global budgets.  For the Medicare population, under the new payment method, total spending per beneficiary per month was 2.7% less than a comparator group, driven by 4% less hospital spending, mostly in the outpatient departments and ER.  There were 5% fewer inpatient admissions, 2.6% more ER visits and observation stays, 9.4% fewer ambulatory-care sensitive condition admissions and 2.2% more unplanned readmissions.

In the commercial population, there were 4% fewer admissions, 3.1% fewer ER visits and observation stays, 4% fewer admissions for ASCs, 3.7% fewer readmissions; while per member per month expenditures rose 2.4%.  Although for both Medicare and commercial members, inpatient hospital use went down, the payment rate went up, so there were not significant cost savings for that category of service.  The various strategies hospitals used to reduce utilization and spending appear to have had a mixed effectiveness.  There were no indications that coordination of post-discharge services had improved.  Interestingly, Maryland hospitals had lower patient satisfaction scores than comparison hospitals, both before and after implementation of the new payment method.  There was no indication of unintended consequences, like trying to shift services to pre and post-admission periods or unbundle services covered by the global payments.  Hospital operating margins were generally higher.  Medicare payment rates were a little higher and commercial rates somewhat lower than they would have been in the absence of the global payment scheme.  One impression you get from the report is that hospitals were pretty ineffective at figuring out how to deliver care better, but were good at creating rate adjustments to help relieve pressure from the global budget.  A system worth considering to put some general constraints on spending.