In the midst of the political machinations and panic-inducing announcements that have characterized healthcare in recent times, the state of Maryland has quietly been implementing an alternative approach to managing rising hospital costs: the total patient revenue (TPR) program.
TPR was created by the Maryland Health Services Cost Review Commission (HSCRC) to give hospitals a financial incentive to change the way they manage their resources, with the ultimate goal of slowing down cost increases while preserving the quality of care. Maryland already regulates charges in all the state’s acute care hospitals, but TPR takes it a step farther.
The theory behind TPR
In a nutshell, the HSCRC examines a hospital’s patient mix and services and sets the amount of revenue that a hospital will get each year from the patients in its service area. At the beginning of each year, the hospital knows what its total revenue that year will be. The amount of revenue may be adjusted annually to take into consideration changes in the community, changes in service levels or shifting of services to other settings.
Hospitals are encouraged to focus on improving care and managing health at the community level. They are financially motivated to control lengths of stay, reduce unnecessary testing, prevent inappropriate admissions, and generally operate in a more efficient manner. They are also incentivized to reduce readmissions, a strong motivator for careful patient education and post-discharge follow-up. In general, facilities that provide excellent and efficient care should save money.
Implementation Challenges
TPR has been introduced slowly and only to sole community provider hospitals and hospitals in areas of the state that do not have “densely overlapping” service areas – rural hospitals, essentially.
The first hospital to try TPR was Garrett County Memorial Hospital (now Garrett County Regional Medical Center) in Oakland, Maryland, a small town of about 2,000 people. Garrett County signed on more than 20 years ago and is still using TPR. A second hospital adopted TPR in FY 2008, and eight more hospitals transitioned to this model in FY 2011.
Jerry Schmith, recently retired, was director of the Center for Revenue and Compliance at the HSCRC. He recalled that it wasn’t difficult to get hospital staff on board with TPR, but you’ve got to have the support of the physician community as well. There is a risk of a disconnection occurring when patients leave the hospital environment and go back to their physicians, who are still getting paid the same way they always have. The HSCRC has been working on compensation models that involve physicians, such as a bonus for meeting certain outcome measures. “It really is exciting, and the physicians are really starting to get it,” said Schmith.
Does TPR work?
According to Schmith, quality measures over the past five years were better at TPR hospitals. As for hospital readmissions, a 2014 study in Healthcare indicated there were no statistically significant changes in the probability of readmissions as a result of TPR after 18 months, a result the researchers speculated may have to do with the lack of a “coordinated care delivery infrastructure” in rural hospitals.
This is an area in which the HSCRC’s financial goals line up well with the industry’s growing interest in coordination of care and community health measures. “We have been pushing hospitals more and more to that paradigm,” said Schmith, noting that hospitals cannot solve the care coordination challenge alone. For patients to receive the right care after a hospital discharge, it’s necessary to collaborate with partners outside the hospital, and the HSCRC has set aside funding for innovative partnerships to try to improve quality.
But perhaps most importantly, the program has provided some financial stability to rural acute care hospitals, which are quickly becoming an endangered species.
“Nationally, there is a decline in the volume of admissions, particularly at rural hospitals.”
Jerry Schmith
Former Director, Center for Revenue and Compliance at the Maryland Health Services Cost Review Commission
In a financial model that’s based on patient volumes, that trend spells trouble. The number of rural hospitals that have closed over the past few years bears this out. TPR has offered insulation against market changes, giving participating hospitals time to adjust.
“This is a safety net where they have a guaranteed income base,” Schmith said.
Next steps
In its Fiscal Year 2016 Report to the Governor, the HSCRC has set ambitious goals, including shifting at least 80% of hospital revenue to a population-based payment structure. To achieve this, the state has begun implementing a financial model similar to TPR that can be applied to hospitals in competitive markets: a global budget revenue (GBR) model. All Maryland hospitals that were not under a TPR agreement are now in a GBR agreement, putting 96% of acute hospital revenue under the GBR model.
Like TPR, GBR seeks to promote better case and lower costs. Both set a revenue limit for participating hospitals in order to encourage them to focus on community health management and improving quality of care. The Affordable Care Act supported these goals, and a repeal would represent a significant blow in terms of getting “the right care at the right time from the right place” as poor, uninsured patients returned to using emergency care in place of primary care.
Nevertheless, TPR, and now GBR, appear to be among the most promising models for controlling the cost of care. Other states are no doubt watching Maryland carefully to see how the state’s hospitals perform financially while operating in the country’s increasingly volatile healthcare market.
