An unusual state of hospital finances

An independent commission sets hospital charges, with the same prices for all payers.

The differences between what hospitals charge and their actual costs and payments received have grabbed headlines lately, with shocking stories of uninsured patients receiving bills much higher than an insurer would ever pay.

Not in Maryland. For the past 40 years, due to a Medicare waiver, hospital charges in Maryland have been set by an independent commission, with the same prices for all payers. The state's unique system is about to undergo additional reforms, thanks to recent approval of a new waiver from the Centers for Medicare and Medicaid Services.

To learn more about the Maryland system, the new waiver, and the potential for future state innovations, ACP Hospitalist recently spoke with Carmela Coyle, president and chief executive officer of the Maryland Hospital Association.

Q: What's the history of the Maryland system?

A: Maryland is the only state in the United States where hospitals don't determine the prices they charge for their services. Instead, our hospital rates are set by an independent, 7-member commission that determines the charges for services for a particular hospital.

Q: How does the new waiver affect the system?

A: The new agreement really changes things quite dramatically. The original waiver looked only at the cost of inpatient stay. Of course, we have seen a tremendous shift over the last 40 years from inpatient care to outpatient care, but none of that was taken into account.

Q: What are the financial metrics?

A: In terms of the financial metrics, we are promising in Maryland to limit the rate of growth in hospital spending to no more than 3.58% per capita per year. That reflects the 10-year average rate of growth in the state's economy. The second financial test is that we will agree over 5 years to save the federal Medicare program $330 million. That number is how much we will save if we are able to hold the trend in Medicare hospital spending to a half a percentage point less than the national trend.

Q: What are the quality metrics?

A: In the previous waiver, there were no quality metrics, not that we weren't paying attention to quality and safety, but they weren't built in to the original waiver. The first is on readmissions. Maryland has not performed well in the area of hospital readmissions. We have agreed to bring Maryland's readmission rate down to the national average within 5 years.

Q: How will these metrics affect the system?

A: What's perhaps the most dramatic is not contained within the framework of the agreement struck between the state and the federal government. We're going to try to make good on these financial metrics by implementing hospital-specific fixed budgets in the state of Maryland. We will be moving nearly all hospitals toward these fixed budgets. This is something that has never been tried or tested on this large a scale.

Q: How else will the changes affect physicians?

A: Another way that physicians will be intimately involved is that, of course, it is very difficult for any one hospital to meet a fixed budget or a fixed spending target unless physicians and hospitals are pulling on the same rope in the same direction, in both the areas of cost containment and quality improvement.

Q: Is the Maryland system a potential model for other states?

A: I've received a number of calls, a number of emails, as has the state. We are clearly on the leading edge, if not the bleeding edge, of health care policy innovation.

There are aspects of our 40-year history of hospital rate-setting that [mean] it may not be able to work in other states. Part of the secret sauce is [setting] spending limits by implementing hospital-specific global budgets. I think that would be very challenging in a less regulated environment than we have in Maryland.

However, there are some other states doing some very innovative things, whether it's Vermont, moving toward a single-payer system. [Or] Massachusetts has really been moving through stages of important reform, not only in coverage expansion, but now cost containment. Oregon is doing some very interesting things with their Medicaid population. We are all really in a mode of creative work.