A Promises to Save $1B by the End of the Year
A Promises to Save $1B by the End of the Year
What is Maryland's goal all about, and what does this mean for health reform?
The federal health program, Medicare, is constantly under scrutiny by lawmakers and reformers on strategies to reduce costs. As a byproduct of rising costs throughout the healthcare system, Medicare is one of the most expensive federal programs and is the subject of great debate as the US nears its debt limit. Many lawmakers have tried to push through measures that would cut payments to healthcare providers for certain treatments and diagnoses given to Medicare beneficiaries.
The state of Maryland is trying to save the federal Medicare program $1 billion over 2019 through 2023 through its implementation of one proposal to curb costs. Today, we dive into the all-payer rates, global budgets, and Maryland’s Total Cost of Care Model.
What’s the All Payer Rate Model?
Most healthcare providers in the United States have to deal with a handful of health insurers, also known as payers. The biggest and most universally accepted of these payers is Medicare, which is administered by the federal government and designed to cover most Americans over the age of 65. Other government health programs like Medicaid (for low-income Americans) and CHIP (for children under certain income levels) are run by the state, and of course, there are the plethora of private health plans. Each of these payers typically pay different amounts for services to a healthcare provider.
Medicare uses the prospective payment system (PPS) which pays providers a fixed amount for specific services that are billed for by the provider. Most other plans and payers will pay an amount for services that is determined based on various negotiations. Typically, Medicaid pays less than Medicare, which usually pays less than private insurers. The higher payment rates of private insurance theoretically can offset any losses incurred by treating Medicaid and Medicare beneficiaries.
Managing these different payment rates is a challenge, and the difference between Medicaid and private insurance reimbursement can create adverse effects that incentivize care of higher-income individuals on private insurance over those with Medicaid.
During the 1960’s and 1970’s, almost 30 states had programs to review and regulate hospital pricing and budgets. Some of these states imposed price controls that dictated the rate which hospitals could charge for some services. A wave of deregulation and favoring of managed care organizations led to many of the states abandoning such programs under the promise that managed care (most private insurance today) could negotiate with hospitals and manage provider networks that reduce healthcare expenditures. Maryland was an exception.
Under the state all-payer model (APM), all payers had to pay the same amount for hospital services. Theoretically, this prevents hospitals from overcharging private insurance and gives providers equal financial reward for treating Medicaid, Medicare, and private plans’ patients.
In Maryland, APM started with just regulating prices for private insurers in 1974, but in 1977, the state got permission from the federal government to do the same for Medicare and Medicaid. These two programs, although they pay less than private in many cases, account for a large share of Americans.
It cannot be understated that policy effectiveness of rate setting depends on cooperation from the feds to let the state set prices paid by Medicare and Medicaid.
Global Budgets
The Affordable Care Act (ACA) became law in 2010, and many of its provisions took hold in 2014. At the time, Maryland’s APM was demonstrated to keep the cost per hospital visit low, but overall hospital care expenditures were still climbing due to readmissions and chronic illnesses.
In an agreement with the Centers for Medicare and Medicaid Services (CMS), Maryland modified its modeled by introducing global budgets for hospitals for an experimentation period of 5 years. With the global budget model, the state determines a budget and maximum revenue for each hospital based on prior budgets. The idea is to cap increases in hospital revenues (and thus Medicare’s spending on hospitals) to under 3.58%.
With a maximum revenue, the hospital’s profitability comes from its ability to drive down costs — ideally by reducing readmission and preventable hospital-acquired conditions.
Maryland, with this program, aimed to save Medicare at least $330 million from 2014-2018. By the end, the state claimed to save almost $1.2 billion, by comparing the state’s growth in Medicare spending versus the cost of Medicare across the rest of the US.
Now, Maryland is trying to save Medicare $2 billion for the 8-yearlong period from 2019 through 2026 through the Total Cost of Care Model (TCoCM). One milestone is at the end of 2023, by which the state needs to have saved Medicare $1 billion in expenditures.
The TCoCM consists of three large components, building upon the past APM experiment’s structure. First is the familiar hospital payment program which gives each hospital a payment to cover the cost of all healthcare services for a population of people. The idea is that with a flat payment in exchange for taking care of a population of people in the state, the hospital must ensure that people are not unnecessarily getting readmitted or contracting preventable illnesses that would increase cost and eat away profitability.
Another aspect is the care redesign program (CRP). If a hospital is able to save on its global budget allotment under the hospital payment program, the hospital can give incentive payments to other healthcare providers it collaborates with to improve coordination of a patient’s medical care. The idea here is to allow hospitals to partner with other providers and give other providers an incentive to figure out ways to catch expensive conditions early and treat them.
The Maryland Primary Care Program (MDPCP) is the third aspect, which gives primary care providers incentive payments for high measures of clinical quality and effective care management as a way to make primary care a key component of preventing hospitalizations
Conflicts of Interest
APM and the global budget model has been part of other proposals for healthcare reform across the country. APM, notably, has been used in health systems abroad like in Germany and Japan to counter rising costs for healthcare providers’ medical services. As opposed to PPS cuts proposed by some trying to curb the cost of Medicare, an all-payer rate setting model offers providers another way to keep revenues healthy without prices exploding for payers and patients.
Some proposals for a single-payer system in the US, notably Medicare 4 All, cite the use of global budgets to control costs.
There are notable drawbacks, however. Health insurers already block members from certain treatments and services in the prior-authorization process and utilize deductibles and co-pays to limit use of medical services to keep spending low relative to premium revenue. It’s not hard to believe providers engaging in similar under-provision of care to keep profit margins higher under the context of an all-payer rate with global budgets.
In a world without a global budget, providers could simply lobby the government to allow higher yearly increases in revenues, which would not offer the extent of the healthcare cost controls that this was all intended to create. Regulatory capture by providers will surely drain the taxpayer and lead to higher premiums for insurers to offset higher healthcare service prices.
The work done in Maryland will be crucial to seeing not only how much the taxpayer can save, but also how regulatory authorities could fend off lobbying and align stakeholders to improve access and affordability of care.