New hospital payment model reduces costs for Medicare beneficiaries in Maryland

RESEARCH TRIANGLE PARK, NC— A new model for hospital payments in Maryland has reduced both total expenditures and total hospital expenditures for Medicare beneficiaries in its first two years of operation, according to a new report from researchers at RTI International.

In 2014, the state of Maryland and the federal Centers for Medicare and Medicaid Services (CMS) began testing an alternative payment structure for inpatient and outpatient hospital services.

Known as the All-Payer Model, the new system limits hospitals’ revenues from Medicare, Medicaid, and private insurers to a global budget for the year. This builds on Maryland’s hospital rate-setting system that had operated since the 1970s, where all payers pay the same rates. CMS wanted to test whether global budgets could help Maryland limit cost growth and reduce avoidable hospital use.

The goal of the model is to limit per capita total hospital cost growth for both Medicare and all payers and to generate $330 million in Medicare savings over 5 years. RTI researchers are conducting an evaluation of the All-Payer Model for CMS and outlined their findings from the first two years in a report to CMS.

“Our evaluation found an aggregate savings of $293 million to Medicare during the first 2 years of the model,” said Susan Haber, ScD, an RTI senior director of health economics and the lead of RTI’s evaluation. “We are continuing to monitor the hospitals’ progress to see whether these savings grow as they gain more experience with global budgets.”

Other findings from the evaluation include:

• Hospital expenditure savings for Medicare were achieved by reducing expenditures for outpatient emergency department and other hospital outpatient department services
• Hospitals varied considerably in their engagement with making changes to adapt to the new model
• Inpatient admissions declined, but there were no savings in Medicare expenditures for inpatient hospital services because the payment per admission increased
• Maryland hospitals have reduced avoidable utilization among Medicare beneficiaries, but made less progress in improving care continuity
• Maryland hospitals have been able to operate within global budgets without adverse effects on their financial status
• Maryland’s all-payer rate-setting system eliminates cross-subsidization among payers

The data used in RTI’s study came from Medicare claims before and after the arrival of global budgets. To complement the quantitative study, RTI researchers interviewed senior leaders at Maryland hospitals, as well as staff members at state agencies, hospital advocacy groups, and selected payers. The researchers also conducted focus-group discussions with physicians and nurses.

“Maryland embarked on a unique test of hospital global budgets in the context of health care delivery redesign,” said Heather Beil, Ph.D., a research public health analyst at RTI and associate director of the evaluation. “We will need additional data to determine the overall success of the model, including effects on Medicaid and privately-insured patients.”