Mary­land’s bold pay­ment re­forms blaze a path, but will oth­ers fol­low?

Modern Healthcare - - NEWS | REGULATION - By Me­lanie Evans

The Demo­cratic pres­i­den­tial can­di­dates sparred vig­or­ously over health­care in their most re­cent de­bate. Fron­trun­ners Bernie Sanders and Hillary Clin­ton dom­i­nated the ex­change, so talk of Mary­land’s sin­gu­lar hos­pi­tal pay­ment re­form ended al­most as quickly as it started.

Not that Martin O’Mal­ley didn’t try to tout Mary­land’s bold ex­per­i­ment on the na­tional stage. “I have to talk about some­thing that’s ac­tu­ally work­ing in our state,” said the pres­i­den­tial hope­ful and former Mary­land gov­er­nor. O’Mal­ley cut off Sanders. Mod­er­a­tor An­drea Mitchell cut off O’Mal­ley.

“An­drea, An­drea, An­drea,” he in­ter­jected and quickly made a case for the Mary­land model. In 2014, the state started to reg­u­late hos­pi­tal spend­ing af­ter nearly four decades of set­ting hos­pi­tal prices for all pay­ers, pub­lic and pri­vate.

Mary­land’s re­forms won praise from Clin­ton. “And that’s ex­actly what we are able to do based on the foun­da­tion of the Af­ford­able Care Act. What Gov. O’Mal­ley just said is one of the mod­els that we will be look­ing at to make sure we do get costs down, we do limit a lot of the un­nec­es­sary costs that we still have in the sys­tem,” she said.

But she quickly turned her at­ten­tion back to Sanders, who just hours be­fore the de­bate, re­leased more in­for­ma­tion about his sin­gle-payer health­care pro­posal, which he calls “Medi­care for all.”

Pun­dits and pol­icy ex­perts have gen­er­ally dis­missed the Sanders plan as a po­lit­i­cal non­starter and still too vague on de­tails to ac­com­plish a trans­for­ma­tion of the U.S. health­care sys­tem far more com­plex than what’s cur­rently un­der­way with the Af­ford­able Care Act.

So what is hap­pen­ing in Mary­land? And is it a good idea for it to be a na­tional model?

“It could be done in any state in the union,” said Dr. Robert Beren­son, an Ur­ban In­sti­tute se­nior fel­low and for- mer CMS of­fi­cial. Look abroad for ev­i­dence that gov­ern­ments could do more to reg­u­late health spend­ing, he said, “It could be done.”

But that would take sig­nif­i­cant po­lit­i­cal will by states to more ac­tively reg­u­late hos­pi­tals, he said, which all states but Mary­land aban­doned.

Mary­land is also still an ex­per­i­ment, with en­cour­ag­ing early num­bers, but no guar­an­tee of suc­cess.

The state started set­ting hos­pi­tal rates for pri­vate pay­ers in 1974 and three years later won per­mis­sion from the fed­eral govern­ment to also set rates un­der Medi­care and Med­i­caid. Mary­land pol­i­cy­mak­ers say that move has erased the cost-shift­ing that most U.S. hos­pi­tals rely on to make up for low rates from pub­lic pay­ers.

Although the all- payer model al­lowed Mary­land to sig­nif­i­cantly re­duce its costs per ad­mis­sion, growth in the vol­ume of ad­mis­sions un­der­mined its broader suc­cess in hold­ing down spend­ing.

So in 2014, Mary­land agreed to set a bud­get for each hos­pi­tal for all pa­tients. The bud­get in­cludes pay­ment from ev­ery in­surer. The state also promised that the bud­get would not grow faster than the state econ­omy each year. A com­mis­sion tracks hos­pi­tal

bills, hos­pi­tal prices and pa­tient vol­ume. It also makes com­plex ad­just­ments to ac­count for very sick pa­tients, trans­fers be­tween hos­pi­tals, flu out­breaks and other fac­tors that can in­crease or de­crease de­mand for hos­pi­tal ser­vices.

Mary­land and fed­eral of­fi­cials hope that hos­pi­tals will work hard to stay un­der bud­get by avoid­ing un­nec­es­sary hos­pi­tal care, and the state has pledged to save Medi­care $330 mil­lion over five years.

The state’s previous rate-set­ting sys­tem did noth­ing to con­trol how many pa­tients were ad­mit­ted to hos­pi­tals or how much care hos­pi­tals pro­vided, so spend­ing soared.

“If you can only sell pants for $2, you will need to sell a lot of pants,” Joshua Sharf­stein, former sec­re­tary of the Mary­land De­part­ment of Health and Men­tal Hy­giene, told the Ur­ban In­sti­tute last Novem­ber.

“Global bud­get is a huge shift,” Sharf­stein said in an in­ter­view. He is now as­so­ci­ate dean for pub­lic health prac­tice and train­ing at Johns Hop­kins Univer­sity.

Hos­pi­tals no longer need to stay full to make money, he said; keep­ing beds full was the busi­ness model when hos­pi­tals got paid per ad­mis­sion. A global bud­get al­lows care to be de­liv­ered else­where with the goal of keep­ing peo­ple out of the hos­pi­tal in­stead.

“Health­care should be or­ga­nized to pro­mote pre­ven­tion and bet­ter health, as much as it is to pro­vide high-qual­ity care for peo­ple who are re­ally sick,” Sharf­stein said.

Other states could fol­low Mary­land’s strat­egy, though most prob­a­bly won’t reg­u­late prices, he said. But global bud­gets could still work on their own. “I think the ap­petite for rate-set­ting isn’t as high as the ap­petite for global bud­gets,” he said.

In Mary­land, some early re­sults are promis­ing. Hos­pi­tal spend­ing grew more slowly than the econ­omy in the first year. Hos­pi­tals also saved Medi­care an es­ti­mated $116 mil­lion in 2014, state and fed­eral of­fi­cials re­ported in the New Eng­land Jour­nal of Medicine in Novem­ber last year.

Other re­sults are mixed. The rates dropped for some con­di­tions that can be avoided with pre­ven­tion and qual­ity im­prove­ment ef­forts. But in­fec­tions from cen­tral ve­nous catheters and catheter-re­lated uri­nary tract in­fec­tions went up, not down.

And some of the re­sults were just plain bad. Pa­tien­t­ex­pe­ri­ence scores across the state are among the na­tion’s worst. Hos­pi­tal ad­mis­sions and re­peat vis­its im­proved but re­mained above the U.S. av­er­age. Spend­ing per Medi­care en­rollee in 2014 re­mained higher than al­most ev­ery other state.

Over­sight of the bud­get by an in­de­pen­dent com­mis­sion is a com­plex un­der­tak­ing. No­tably, Mary­land must mon­i­tor hos­pi­tal vol­ume and de­cide when in­creases and de­creases are war­ranted.

For ex­am­ple, hos­pi­tals could see more pa­tients than pro­jected un­der their bud­get be­cause of mar­ket-share gains or a bad flu sea­son. Hos­pi­tals could see fewer pa­tients be­cause of suc­cess­ful ef­forts to re­duce avoid­able ad­mis­sions.

But hos­pi­tals could also try to game the sys­tem, and Mary­land of­fi­cials are tasked with try­ing to tell the dif­fer­ence. “I think that’s a very in­ter­est­ing ex­per­i­ment,” Beren­son said.

Mary­land sees com­pe­ti­tion for mar­ket share as one of the pro­gram’s strengths. Hos­pi­tals have an in­cen­tive un­der the global bud­get to vie for cus­tomers on pa­tient sat­is­fac­tion, qual­ity and price.

Hos­pi­tals can in­crease rates by up to 5% within their bud­get, and up to 10% with reg­u­la­tory ap­proval. “But they are still in a com­pet­i­tive mar­ket and may not want to have rates that high,” John Colmers told the Ur­ban In­sti­tute in Novem­ber. Colmers is chair­man of the Mary­land Health Ser­vices Cost Re­view Com­mis­sion, which sets rates for all pay­ers.

Early per­for­mance sug­gests hos­pi­tals have done well so far. Their fi­nan­cial per­for­mance im­proved or re­mained the same in 2014, the first year the state used the new bud­gets, said hos­pi­tal an­a­lyst Stephen In­franco, a di­rec­tor at Stan­dard & Poor’s.

Bet­ter cost con­trol has en­cour­aged in­vest­ments in am­bu­la­tory care, as Mary­land hos­pi­tals seek to treat pa­tients in the least-costly set­ting. “They’re all try­ing to fig­ure that out,” In­franco said.

Hos­pi­tals have also ben­e­fited from pre­dictable bud­gets. “It cer­tainly is eas­ier to bud­get if you know what your rev­enues are go­ing to be next year,” said Eva Thein, a se­nior di­rec­tor at Fitch Rat­ings. “Vol­umes have been volatile in dif­fer­ent parts of the coun­try and in dif­fer­ent parts of Mary­land.”

Bon Se­cours Bal­ti­more Health Sys­tem came in un­der bud­get the first two years and re­duced its num­ber of po­ten­tially avoid­able con­di­tions and read­mis­sions, said Sa­muel Ross, CEO of the Bal­ti­more-based hos­pi­tal.

The fixed bud­get al­lowed the hos­pi­tal to hire pa­tient li­aisons who co­or­di­nate care and re­sources when pa­tients leave the hos­pi­tal and re­turn home, he said.

Li­aisons work with pa­tients to over­come bar­ri­ers, in­clud­ing health lit­er­acy, trans­porta­tion and nav­i­gat­ing fol­low-up ap­point­ments. “It’s pro­vid­ing those sup­ports be­yond the walls of the hos­pi­tal that help to en­sure that they won’t come back” or re­duce that like­li­hood, he said.

Bet­ter cost con­trol has en­cour­aged in­vest­ments in am­bu­la­tory care, as Mary­land hos­pi­tals seek to treat pa­tients in the least-costly set­ting.

Former Mary­land Gov. Martin O’Mal­ley brought up his state’s ex­per­i­ment of set­ting bud­gets for all hos­pi­tals dur­ing the Jan. 17 Demo­cratic de­bate in Charleston, S.C.

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