Jan. 10—Maryland replaced a 36-year Medicare agreement that allowed the state to set hospital prices with a waiver that will cap hospital spending growth.

Hospitals in the state agreed to an all-payer annual per capita growth limit, including inpatient and outpatient care, of 3.58 percent. That growth is below the state’s historical trend. Maryland will also limit annual Medicare per-capita hospital cost growth to a rate lower than the national annual per-capita growth rate per year for 2015 to 2018.

The new waiver from the Centers for Medicare & Medicaid Services (CMS) allowed the state of Maryland to replace its unique all-payer rate-setting system for hospital services with the new per-capita hospital spending limit and initiatives aimed at improving patient outcomes.

Although Medicare growth in Maryland under the previous waiver outstripped national averages, supporters said it was less than hospitals would have spent without it. The new approach is expected to save Medicare at least $330 million over the next five years.

"By shifting away from traditional fee-for-service payment, Maryland's new model encourages collaboration between hospitals and physicians to improve patient care, promotes innovative approaches to prevention, and accelerates efforts to avoid unnecessary admissions and readmissions," Joshua M. Sharfstein, MD, secretary of Maryland's Department of Health and Mental Hygiene, said in a release.

Maryland will shift virtually all of its hospital revenue over the first five years to global payment models, according to a CMS fact sheet.

Hospital quality improvement will be measured under readmissions, hospital-acquired conditions, and population health. Maryland hospitals' all-cause, all-site readmissions exceed the national average, so the initiative aims to bring them in line within five years.

Challenges Remain

If Maryland hospitals fail to reach the performance goals during the first five years, then they will transition back into the national Medicare payment systems for the first time in four decades.

Possible concerns with the new approach among hospital experts stemmed from the initiative’s exclusion of physicians, who can drive some hospital healthcare expenditures.

"The key to meeting this new challenge and making the system a success will be an even closer collaboration among all our partners and our patients and communities as we embark upon a path that promises lower costs, higher quality, and a healthier Maryland," Carmela Coyle, president and CEO of the Maryland Hospital Association, said in a release.

If the new Maryland waiver is successful in improving the quality of care and reducing healthcare spending, then it may serve as a model for other states interested in developing all-payer payment systems, according to CMS.

Publication Date: Friday, January 10, 2014