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Will Maryland's pioneering healthcare system become the nation's new roadmap?

Maryland is no stranger to healthcare reform. Its unique hospital payment model has roots back to the early 1970s, when several states in the Northeast set hospital rates for Medicaid and private insurance. In 1974, Maryland’s legislature established the Maryland Health Services Cost Review Commission (HSCRC) to set hospital service rates. 

The seven-member board is independent and decisions are not subject to legislative or executive review. Although the state had established an all-payer hospital rate system, Medicare and Medicaid were still paying hospitals under their own guidelines. The HSCRC negotiated a waiver (the “HSCRC waiver”) with federal authorities in 1977 so the two agencies had to pay hospitals the same rates set by the Commission. In exchange, the state has been required to keep rate increases in costs per hospital admission below the national average.

The rate system proved successful, Carmela Coyle, president and CEO of the Maryland Hospital Association, wrote in a Health Affairs blog, with state hospital costs falling from almost 24% above the national average to below the national average. The waiver has also saved the state more than $45 billion since it went into effect. In order to keep the waiver, the state had to show Medicare costs were growing slower in Maryland than other states. However, since the model only measured inpatient expenses, it didn’t reflect the trend moving toward more outpatient treatments. The waiver needed to be changed – and to include goals to improve care quality, as required by the Affordable Care Act (ACA).

An updated model for better care

After two years of negotiations with CMS, Maryland implemented its modernized waiver, spearheaded by then-Governor Martin O’Malley in 2014. According to CMS, the state’s all-payer rate setting model for hospital services “presents an opportunity for Maryland and CMS to test whether an all-payer system for hospital payment that is accountable for the total hospital cost of care on a per capita basis is an effective model for advancing better care, better health, and reduced costs.” 

The terms of the five-year agreement include specific requirements state hospitals must meet:

  • Hospital spending is limited to an annual growth cap of 3.58% per capita;
  • Reduce Medicare hospital spending by $330 million over five years;
  • Readmission rates must be reduced to national average within five years;
  • Infections and hospital-acquired conditions must be reduced by 30% within five years; and
  • Growth in Medicare spending per beneficiary must be limited to no more than the national growth.

Preliminary results after the first year of implementation, as presented by an article in The New England Journal of Medicine look promising. The state was able to shift from fee-for-service payments by payers and by July 2014 hospitals agreed to move 90% of the state’s hospital revenue into global budgets. 

Additional first-year key achievements include: Saving Medicare $116 million; reducing all-payer hospital spending growth per capita to 1.47% and Medicare hospital spending growth per beneficiary by 1.8%. Hospital-acquired conditions rate dropped almost 26%. The only glitch in the state’s sterling first year record is its Medicare readmission rates. The target goal decrease of 0.96% wasn’t reached, but at 0.7%, Coyle wrote in a more recent Health Affairs blog, “hospitals are reducing readmissions and reducing readmissions faster than the rest of the nation.”

“This 'all-in' attitude illustrates the determination of hospitals to get on board with changes that are helping us get patients the right care, at the right time, in the right setting,” Coyle wrote. The global budget model shifts hospitals’ focus to quality care rather than volume and provides rewards for investing in population health improvements. 

Challenges ahead

In an interview with Healthcare Dive, Coyle explained some of the challenges currently involved with the state’s healthcare transformation process. One is the use of global budgets, which provide incentives for hospitals to improve care and reduce costs, but not for physicians, who are still paid on a fee-for-service basis. “What we’d like to do, which is something the accountable care organizations (ACOs) are allowed, is to utilize an opportunity called 'gain share' between hospitals and physicians,” Coyle said. 

This allows the two groups to define certain areas of quality improvements and if those are met, the hospital is allowed to share any savings with the physicians, what Coyle refers to as “creating options for economic alignment.” Although the state requested this as part of the waiver upgrade in 2014, CMS did not approve it. It has been in discussions with the agency for the past year or so, and Coyle said she’s “hopeful” it will be approved. “Unless we can create economic alignment between hospitals and physicians, it will be very difficult for us to sustain the kind of savings and improvements we achieved in our first year.”

Another provision the state requested during the waiver modernization was to establish a data infrastructure to help hospitals with care coordination. “As we begin to look at reducing the total cost of care, not just the hospital cost of care, we’re attacking it blind. We only have data about what’s happening to individuals when they’re in the hospital. We don’t have access to the entire episode of care…It’s very difficult to coordinate care when we don’t know what other providers or services an individual may be seeking,” Coyle explained.

Steve Ports, principal deputy director of policy & operations at HSCRC, also stressed the importance of hospitals having access to non-hospital data to address patients with chronic needs. “Global budgets have completely changed the mindset of hospitals. While they have been major players in the community in the past, the new model compels them to partner with community providers around patient care…While this is a priority for the hospitals and the state, the data and infrastructure are not yet fully in place.”

A unified vision

Transforming a healthcare system is a complex, complicated process and Maryland’s Citizens’ Health Initiative plays a key role in that process. As part of its agreement with CMS, the state has to file an annual report on its population health measures. “Consumer engagement is absolutely essential to Maryland’s continued success in a population health model,” stated Coyle.

Vincent DeMarco, president of Maryland's Citizens’ Health Initiative and an adjunct professor at Johns Hopkins Bloomberg School of Public Health, has implemented programs to coordinate care between hospitals and consumers.

By organizing 11 public forums across the state last year, attended by more than 800 people representing thousands of residents and organizations, DeMarco told Healthcare Dive the forums provided a way to communicate information to consumers about the healthcare transformation as well as to discuss ways hospitals and communities can work together. “What we learned in the forums is that people are very happy the state and hospitals are being pro-active with the health system transformation in trying to really move the healthcare system towards keeping people healthy and out of the hospital.”

One initiative that was discussed widely in the forums was to develop a Faith Community Health Network, based on a successful program launched in Memphis. This works through an agreement with hospitals and congregations to coordinate care through volunteer congregation liaisons who help keep patients healthy after they leave the hospital. “The Faith Community Health Network is the best way we know how to engage as many residents directly in this process,” said DeMarco. “We’re going to start with this and reach out to other communities from there.”

Can the all-payer model work nationwide?

Although first-year results of Maryland’s all-payer model look promising, it remains to be seen whether the model is sustainable over a long period of time. “A number of states are looking more deeply into what we’re doing. I think we’re perceived more as a curiosity,” said Coyle. However, she noted, “the general model of global budgets could be very useful potentially for rural hospitals, for whom a volume-based model is extremely challenging.” Steve Ports said the global budget concept and payment structures built around quality could work nationally. However, he concluded that in order for Maryland’s model to be successful, “it will require engagement by hospitals, physicians, post-acute care providers, consumers/patients, payers, as well as behavioral health and social services providers.”

The next big hurdle for Maryland will be on Dec. 31, when it will have to file an application with CMS to move the current hospital payment model over to a total cost-of-care model to be implemented in 2019. Coyle expressed concerns meeting the deadline since she said it took six years to develop the hospital-based waiver. “I think it’s crucial to all stakeholders for this model to be successful and we don’t want to sacrifice our ability to be successful by rushing this process.”  

Maryland must meet the terms of its five-year agreement with CMS, or it will have to revert to the national Medicare payment system, negating decades of work in developing its innovative healthcare model. However, commitment to this healthcare transformation from those involved in the process seems solid. “The new healthcare environment being created in Maryland – one never tested on such a large scale and under such scrutiny – is the right thing to do for the patients and communities that hospitals have the privilege to serve,” Coyle summarized in a blog.

Filed Under: Payer Health Law
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