Maryland Moves To Modernize Hospital Pay

Oct 9, 2013

Johns Hopkins hospital in Baltimore
Credit Conway71 via Wikimedia Commons

Monday morning was unusually busy for the emergency room team at the Anne Arundel Medical Center.

Ambulances arrived at the rate of five per hour. Nearly all the patient cubicles were filled, and still more folks waited their turn nearby.  Computers at the central desk monitored heart rates and other vital signs from afar.

For AAMC’s bean-counters this might be termed a good day. Hospitals in Maryland are paid on the basis of volume: the more patients the better. But Tori Bayless, the hospital’s president and CEO, says her goal is to treat as many people as possible outside the hospital—or not at all. “The ER team does incredible work, they provide great care,” she said. “But there may be a more appropriate setting for some of those visits than the high cost of a hospital ER.”

Unlike other states where hospitals charge whatever the market will bear, payment rates in Maryland are set by a state commission. And they apply equally to all payers, including private insurance companies and Medicare.  But the 36-year-old practice of charging on the basis of patient volume is outmoded, says Tom Mullen, the CEO of Mercy Hospital in Baltimore. “What’s happened over time is that more business has moved to the ambulatory side.  You get a surgery now, an orthopedic surgery, there’s a good chance it could be outpatient,” Mullen explained.

What’s worse, state Health Secretary Joshua Sharfstein says, is that the current system actually penalizes hospitals for keeping patients healthy. “If there is a great program to keep people from having heart attacks or strokes that they could implement, it shouldn’t be against their own financial interest to do that.”

After nearly two years of negotiations, state officials have produced a new hospital rate-setting plan based on total spending. In that way, hospitals that offer more outpatient care through community clinics and other means will be rewarded by keeping their costs down. “What we’re trying to do is shift the basis of payment away from that fee-for-service system so that hospitals can actually have more operating margin if their communities are healthier,” said Sharfstein.

In order to make this change, though, the state needs federal approval because Medicare is involved.  And with much of the federal government shutdown over a budget dispute, it’s not clear when that might come.

John Colmers, who is chairman of the rate-setting Health Services Cost Review Commission, said the state is eager to formally begin what is expected to be a complicated process. “Every day that we delay, is a day that we are not introducing these new incentives in the way in which care is being delivered here.”

Even so, hospitals worry about moving too fast, Bayless said. “Forty-nine hospitals across the state, we’re all moving at a different pace depending on how much planning and investment we’ve already made. So there is some angst.”

Mullen acknowledged the payment proposal represents a massive change, but one that’s necessary to deal with an aging population. “And I think if we can pull it off, it will be a model for the country and it will be fantastic for the people who live here in Maryland.”

It might even keep them out of the hospital.