Maryland is seeking federal approval to expand a hospital cost-savings program to include doctors, rehabilitation facilities, skilled-nursing centers and others who treat patients insured by Medicare.
The 10-year program, which would take effect in January 2019, aims to provide an incentive for health care providers to work more closely with hospitals to improve quality and reduce Medicare costs. The plan calls for Maryland to save $300 million in annual Medicare costs by the end of 2023.
"That's bold," said Jack Meyer, a health economist at Health Management Associates and a consultant for the state's proposal. "States don't generally do that, guaranteeing savings to Medicare."
But Maryland is no stranger to bold health policy.
The proposal builds on a five-year pilot program for hospitals that began in 2014. That program, authorized by the Centers for Medicare and Medicaid Services, aimed to control rising hospital costs by flipping hospitals' incentive from boosting the number of patients they see to ensuring patient health.
The program called for hospitals to save $330 million in Medicare costs and penalized them if patients were readmitted too quickly, which forced hospitals to pay more attention to what happens when patients leave. But there was little incentive for the primary care doctors, specialists, skilled nursing and rehabilitation facilities that see patients next to help hospitals reduce costs.
When the pilot ends in 2018, Maryland officials want to replace it with this new plan that will include other health care providers in cost-saving efforts in a more meaningful way.
The state released the plan Thursday for public feedback and discussion. Any final plan still must be negotiated with and approved by the Centers for Medicare and Medicaid, which could seek changes to this plan.
Gov. Larry Hogan applauded the proposal as a way to "build on our state's already strong tradition of innovation in health care access and affordability."
Under the new proposal, other health care providers would be eligible for financial incentives and additional resources if they work as a team with hospitals to improve patients' health and reduce Medicare expenses.
"I think this reflects a realization by the state that if they don't pay attention to the rest of the health care system, their ability to squeeze more and more savings out of hospitals will diminish," said Meyer, a former member of the state's Health Services Cost Review Commission, which regulates hospital rates.
The proposal would not regulate doctors' pay, but it aligns with new federal regulations that are similarly shifting doctors to payments based on the quality of care they provide.
Under new federal rules, doctors' Medicare payments can be reduced or increased depending on whether they meet new federal quality improvement benchmarks.
Maryland's proposal creates ways for doctors to work more collaboratively with hospitals, which will help them meet those federal mandates, said Gene Ransom, CEO of MedChi, the Maryland State Medical Society, which represents doctors.
"We think this could really create new opportunities for physicians to not only comply with new rules, but to allow them to benefit from new partnerships with hospitals that may not be available in other states," Ransom said.
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Hospitals are eager to advance a program that has benefited them significantly.
The pilot that launched in 2014 was an update to a decades-old agreement with the federal government that allows Maryland to regulate how much hospitals are paid for services.
Under that agreement, which dates to the 1970s, Maryland was allowed to regulate hospital rates so that private insurance companies, Medicare and Medicaid all paid about the same price.
In every other state, Medicare reimburses less than the cost of services, so hospitals negotiate higher prices for private insurance companies and the uninsured are charged even more. As a result, Medicare pays more here than anywhere else — about $1.7 billion more than the state would receive otherwise — and hospital prices aren't inflated for other payers.
"Preserving the state's Medicare demonstration is a top priority for us all," said Carmela Coyle, CEO of the Maryland Hospital Association, in a statement. "We look forward to working together to make this happen and working together to address the issues the state must lead to make this a successful arrangement."