Medicare is encouraging states to move toward global budgeting. Alas, all-payer pricing didn't make the cut.
I have a parochial interest in promoting Medicare’s the latest payment reform program. Last year, I was part of a writing team whose two-part series in Health Affairs (see here and here) urged the CMS Innovation Center to allow other states to adopt Maryland’s hospital pricing system, where providers are required to charge every payer, whether government or private, the same price for the same service.
Under the Maryland scheme, now in effect for nearly a decade, prices are adjusted routinely so provider revenue never exceeds a preset global budget for the total cost of care for all patients. Annual growth in the budgets, which can be adjusted for changes in patient demographics, utilization and new technology, is limited to a target that is set below the economic growth rate.
An independent analysis commissioned by CMS found Maryland’s global budgeting system over the past decade exceeded all other reform programs in holding down program costs.
Now, the Maryland model, along with related but limited versions in Vermont and Pennsylania, has become the basis for a new CMS reform program, which was officially launched a month ago. The Innovation Center dubbed it AHEAD for states Advancing All-Payer Health Equity Approaches and Development.
The outline of what states must include in their proposals goes well beyond holding growth in the total cost of care below current projections. The agency anticipates stepping up its investment in primary care and care coordination by authorizing a special monthly $17 per-beneficiary payment for those services. States must have plans in place for achieving better health outcomes and addressing existing health inequities.
The model is also unique in that it extends its reach to private payers and their patients. At an online briefing held two weeks ago, Innovation Center officials said commercial and Medicare Advantage insurers are “encouraged” to participate in setting up the program since states must show by the beginning of the second year of implementation that at least one private insurer is involved.
The global budget
The program’s heart is the global budget. A few states already have the capability to establish and monitor budgets because their insurance or health departments collect data for annual rate reviews. But if a state does not and still wants to apply to be one of the eight accepted into the program, CMS is developing a template that states can adopt.
“Global budgets will be based on historic revenue and built from the ground up,” said Emily Moore, who was tapped by Innovation Center chief Elizabeth Fowler to run the program. “Once that is determined, CMS will apply adjustments … for investment in care coordination; quality; and health equity. The budget will be set prospectively on an annual basis.”
There is one aspect of Maryland’s system that is completely missing from the AHEAD model: all-payer pricing. That would likely require an act of Congress since setting a single price for every service would require raising Medicare and Medicaid rates to offset the fall in commercial rates, which on average are about 2 1/2 times Medicare’s rates for individual services.
Some might argue why not adopt Medicare rates for all services. The answer to that is simple: Providers would refuse to participate, just as they did in Washington State when it tried to establish a public option for its Obamacare exchange based on Medicare rates. That state eventually came up with a blended rate of about 160% of Medicare rates.
Maryland’s all-payer pricing system always depended on additional subsidies to pay the higher prices being charged for both Medicare and Medicaid patients. CMS approved that waiver more than three decades ago. Sen. Barbara Mikulski, when chair of the Senate Appropriations Committee, later enshrined it in law, even applying it to the Veterans Administration when it sends patients into private facilities.
I believe that would be a wise investment on behalf of taxpayers. Sure, it would result in a windfall for private insurers and employers, whose prices would be reduced. But some of that revenue could be captured through higher tax collections from increased corporate profits and increased wages.
The benefits would be enormous. It would result in sharply reduced administrative costs by eliminating the complexity of hospital and physician billing operations, which currently must keep track of the different prices they charge multiple insurers, Medicare, Medicaid and private pay patients.
It would eliminate the kabuki drama surrounding annual provider-insurer price negotiations, which have never succeeded in holding prices in check. Private sector health care rates are projected to rise 6.5% next year, about twice Medicare’s rate increase. Over the past decade, they have consistently gone up at a faster rate than Medicare and Medicaid (see my post It’s Still the Prices, Stupid from last month).
Even without all-payer pricing, the proposed program holds out the hope that more states will move their major health care systems, their federally-qualified health centers and rural health providers toward global budgeting. Global budgets will provide them with greater flexibility to address the social care needs of their patients.
CMS will begin accepting applications later this fall. It has earmarked $96 million for up to eight states (or large regions within states) to begin planning for implementation. It anticipates state programs launching in the fall of 2026, with expectations they will maintain participation through 2034.
Of all the Innovation Center programs launched to date, this is certainly the most ambitious — and the most promising. I am looking forward to seeing which states, if any, are willing to give their providers a big shove in the direction of true transformation.
I’m a fan of Jamelle Bouie, the New York Times columnist. One of my favorite features in his weekly online newsletter is his concluding section, where he includes brief summaries and links to what he’s “Now Reading.” Going forward, I will provide something similar with my posts.
In a Viewpoint article on the JAMA Network, C. Joseph Ross Daval, Liam Bendicksen and Aaron S. Kesselheim warn that proposed legislation, which has garnered bipartisan support, would gut Medicare’s ability to say no to unproven therapies.
In the New York Review of Books, Kim Phillips-Fein, professor of History at Columbia, reviews two new books on the depredations of private equity, especially in health care.
In the summer issue of Democracy Journal, Julie Kohler, a consultant, and Jamila Headley, co-executive director of Be A Hero, make the case for demanding a care economy.
In a recent study on The Revolving Door in Health Care Regulation in Health Affairs, authors Genevieve Kanter of USC and Daniel Carpenter of Harvard found nearly a third of federal appointees to health-related agencies left for private industry after government service, double the number that entered the government from the private sector.
That is all for this week.
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