Payment reform is key to better health
Hospitals are pushing back on an experiment that would put providers on budgets. CMS should ignore their lobbyists and consultants playing games with numbers.
Changing the way hospitals and doctors get paid is central to reforming our dysfunctional health care system. Payment reform can achieve better health outcomes, improve the patient experience and help keep overall health care costs in check, the three goals of any reform worthy of the name.
I am a partisan in this debate. Nearly two years ago, I co-wrote a two-part series in Health Affairs (here’s Part 1 and Part 2) touting Maryland’s payment system, which features common prices for all payers and capped hospital budgets. The four-person team was led by Dr. Ezekiel Emanuel of the University of Pennsylvania, a frequent advisor to Democratic administrations on health care policy.
Under all-payer pricing, hospitals charge every payer — whether a private insurer, Medicare, Medicaid, the Veterans Administration, or people without insurance — the same price for the same service. In every other state, hospitals charge varying rates: The uninsured pay the highest prices; private insurers (or, to be more precise, the employers and individual customers who buy their policies) pay on average 2 1/2 times what Medicare pays; and Medicaid and the VA pay the least.
Since the late 1970s, Maryland has retained a state-appointed commission (The horror! Government regulation!) to set hospital rates. Individual hospitals come before the Health Services Cost Review Commission when they want a rate increase, just like any other public utility. The hospitals document their costs and the commission sets rates that enable the institution to pay its bills and earn a small profit (or pad the endowment-like rainy day funds of non-profit hospitals, which most are).
During the past decade, Maryland made two major revisions to its all-payer pricing model, largely because hospitals had avoided its rate-control virtues by increasing the volume of services they delivered. In 2014, the state set budget caps for its hospitals, which limited their revenue growth each year to a percentage set by the commission. And in 2018, the state, with the federal government’s blessing, took their model one step farther: It set limits on the total cost of care (not just for hospitals but all medical services) for its Medicare beneficiaries.
Under this latest permutation of Maryland’s program, hospitals that hold total Medicare costs in check share those savings with the physician practices, nursing homes and other providers that collaborate in holding those costs below a fixed budget. The program also increased investment in primary care practices, giving these relatively low-paid physicians the financial support needed to coordinate care for individuals with complex medical needs.
In conducting a review of the Maryland experience, I spent weeks pouring over reviews conducted by outside evaluators hired by the Centers for Medicare and Medicaid Services. CMS’ beancounters wanted to know whether government’s paying for the actual cost of care (establishing the same prices for government and private payers), when coupled with global budgets, had actually succeeded in limiting the growth in overall spending for Medicare beneficiaries. (Because all-payer pricing ends cost-shifting between various payers, the government pays Maryland hospitals more for Medicare and Medicaid beneficiaries than it does in other states. The flip side is that the privately insured pay less.)
The reviewers answered in the affirmative. “Between January 2014 and June 2018, uniform ‘all-payer’ pricing within hospitals coupled with global hospital budgets lowered Medicare spending in Maryland by nearly $1 billion, or about 10% of total hospital spending in the state, the review concluded. They also found that commercial insurers paid rates per inpatient admission that were 11 percent to 15 percent lower than what these insurers paid comparable hospitals in other states. (More on using comparable hospitals to measure success or failure rather than per capita spending in a moment.) Those lower prices were offset by the higher prices Medicare and Medicaid paid.
Given those results, CMS, which under the Affordable Care Act was empowered to experiment with various payment reforms, called Maryland’s all-payer pricing/budget cap system its most successful alternative payment experiment.
Last October, CMS’ Innovation Center followed up by unveiling an experimental program that will allow up to eight other states to adopt variations of the Maryland model. Dubbed AHEAD (for All-Payer Health Equity Approaches and Development), the agency will announce its first planning grant winners in July, a spokeswoman for the agency told me this week.