When Maryland convinced the federal government to allow a massive experiment under the Affordable Care Act to change the way hospitals are paid to care for patients, it was a very big deal. Creating incentives for hospitals to keep patients healthy and in the community rather than paying them more to fill their beds was nothing short of revolutionary. Working out the details in a way that satisfied players in the health care system whose interests were sometimes opposed was a monumental task. It almost didn't happen, and that was when the O'Malley administration was negotiating with the Obama administration.
The fact that the Hogan administration just got the Trump administration not only to renew the Medicare waiver that makes it possible but to expand it to encompass health spending beyond hospitals is all but miraculous. It's a testament in part to an admirably bipartisan commitment to Maryland's particular system of health care — both Rep. Andy Harris and Sen. Ben Cardin had glowing quotes about it in Gov. Larry Hogan's press release, which may well be the first time that's happened. It reflects a willingness by the Hogan administration to invest tremendous effort into safeguarding what is probably one of the least understood but also most impressive elements of Gov. Martin O'Malley's legacy. And above all, it reflects not only the fact that the Maryland model is working but also that it has only scratched the surface of transforming our health care system.
Maryland has since the 1970s operated under a waiver from traditional Medicare rules. Medicare agreed to pay the same amount private insurers did for particular services at a given hospital so long as Maryland set rates in such a way that kept the rise of inpatient hospital costs in check. During Mr. O'Malley's administration, the changing nature of health care made the metric on which the state was judged both harder to meet and less meaningful. Losing the waiver would have cost Maryland hospitals about $2 billion a year in federal reimbursement, so the O'Malley administration took advantage of a provision of the ACA to attempt an ambitious effort to realign the system's goals and incentives in a way that was designed both to save money and achieve health policy goals, such as reducing the rate of hospital readmission.
The new system puts hospitals on what's known as a "global budget" — effectively, they get a set amount of money per year to care for the patients they serve, so their incentive is to keep people healthy in the most cost-effective way possible. As one hospital CEO explained it in the early days of the experiment, he used to get nervous if he drove into the parking garage and had an easy time finding a space. Now he gets nervous if too many spaces are full.
The most recent report to the Centers for Medicare and Medicaid Services (CMS) on Maryland's progress found that the state saved Medicare more than $500 million over the first three and a half years of implementation without jeopardizing hospital finances or shifting costs to other parts of the system. Patients' satisfaction with Maryland hospitals has not declined, inpatient hospital admissions dropped and the system showed some progress on measures like readmission rates. But the report found that Maryland still had a long way to go in terms of coordinating care across sectors of the health care system and in seeing the same savings among those with commercial insurance as with Medicare patients.
The agreement the Hogan administration negotiated with CMS should help overcome those remaining challenges. It brings nursing homes and primary care providers into the same system of incentives that hospitals adopted four years ago, and that should pave the way for new initiatives to coordinate services. It also broadens the outcome goals to include a variety of public health measures related to opioid abuse, diabetes, heart disease and other chronic conditions. It's a true continuation of the spirit of the waiver but one that will require diligent follow-through by the state and the diverse players in Maryland's health care system.
It would be difficult for other states to quickly replicate Maryland's system wholesale — our decades of hospital rate regulation set the stage for it — but there are signs that elements of it could spread. Vermont has adopted something generally similar, and interest in the idea of global budgets is strong among rural hospitals, which struggle to survive under a fee-for-service model. Rural hospitals in Pennsylvania are adopting global budgets, and teams from several states are coming to Johns Hopkins at the end of the month for a policy symposium on how to do the same. It's the kind of experimentation the ACA was supposed to foster, and it's heartening that despite changes in leadership in Annapolis and Washington, Maryland continues to lead the way.