Hospitals save $100 million in Medicare costs

Maryland hospitals collectively generated more than $100 million in Medicare savings in the first year of an experimental payment system being watched closely by the federal government as a possible national model for reducing health care costs.

The state's medical institutions agreed last year to a five-year agreement with the U.S. Centers for Medicare and Medicaid Services. It drastically changed the way they did business and aimed to curb costs, in part by reducing expensive hospital stays and handling more patient care at the doctor's office.


"Hospitals at the blink of an eye really changed their systems into something that hasn't been broadly tested before — and we are pleased with the first year results," said Carmela Coyle, CEO of the Maryland Hospital Association.

Hospital officials — and health care advocates — also contend that the new cost-cutting effort has not come at the expense of patient care.

Critics have raised concerns that hospitals, under increasing bottom-line pressure, would deny tests and other care to patients as they scrutinized spending, or that they would raise prices in other areas.

The Maryland Health Services Cost Review Commission, the panel that sets hospital rates, formed an advocacy group to monitor for potential problems with care or price increases and found none, said Steve Ports, deputy director for policy and operations at the commission.

The head of the advocacy task force, Vinnie DeMarco, said the group has held community forums and other outreach events with consumers to monitor patient care.

"We are keeping our eye out and have not heard any complaints," said DeMarco, president of the Maryland Citizens Health Initiative, a consumer health advocacy group.

Maryland is the only state in the nation with a waiver from federally set Medicare rates. In a bid to reduce overall health care costs, Maryland has been allowed to set its own Medicare rates as well as rates charged to private insurers.

In the rest of the nation, Medicare typically reimburses hospitals at a low rate, and hospitals make up for it by charging other patients more. While Medicare may pay more in Maryland, state officials have been able to keep the rate of hospital cost increases lower than in other states.


That success in holding down a key driver of skyrocketing health care costs helped to persuade federal officials to renew and modernize the waiver, which has been in place for nearly four decades.

But that updated agreement hinged on the ability of the state's hospitals to meet new criteria that focused on preventive care as well as keeping costs down.

The hospitals agreed that their costs cannot grow faster than 3.58 percent in the first five years — the state economy's average annual growth in the past decade. They also agreed to save Medicare at least $330 million over that five-year period.

The new agreement radically altered Maryland's reimbursement system. Rather than tying reimbursement to admissions, the new system gives hospitals a pool of money that will grow in tandem with the state's economy.

CMS Deputy Administrator and Director Jonathan Blum said during a visit to Baltimore last year that the new approach could disprove the notion that quality health care must be expensive. While other programs similar to Maryland's have shown success across the country, he said, Maryland would be the first to test the premise statewide.

The first-year savings were calculated by the Maryland Hospital Association. Coyle said that far exceeded goals set under the agreement.


Officials with the Centers for Medicare and Medicaid Services are expected to release their own first-year analysis in the coming weeks.

Ports said preliminary numbers generated by the Maryland Health Services Cost Review Commission showed savings of the magnitude found by the hospital association.

"The first year has been a wonderful success for patients and for population health in general," Ports said.

The state's hospitals were able to cut costs by better coordinating care with patients, Coyle said. That meant making sure they had prescriptions and follow-up doctor appointments before leaving the hospital. Care coordinators called patients after discharge to make sure they continued care.

"We begin to look at not just the clinical barriers to health, but the non-clinical barriers as well," Coyle said. "Sometimes what is preventing someone from doing well is the lack of transportation to be able to get to their doctor's appointments."

The hospitals also have reduced the hospital readmissions rate faster than the rest of the nation and cut infections and other hospital-acquired conditions by 26 percent, Coyle said.

Coyle acknowledged the new system has come with growing pains, describing it as turning a barge in the mouth of a narrow river.

Gene Ransom, the CEO of MedChi, the Maryland State Medical Society, applauded the first year's results but cautioned about the road ahead.

"The first years of savings might be the easiest," Ransom said. "Anybody who works on budgets knows the first half comes easy, but the second half you have to cut into real meat. We have a lot of work and learning to do as we continue to change."

Ransom added that the state needs to further reduce hospital readmissions, something that entails changing the culture of both hospitals and patients.

Justin Deibel, chief financial officer at Mercy Medical Center in Baltimore, said changing mindsets about patient care and tying that to reducing costs has proved difficult.

"You are ultimately trying to do what is better for the patient," he said.