Maryland's all-payer hospital system can provide valuable insights for other states' healthcare systems, but moving other states to a similar system likely would be difficult, according to an article published May 31 by Troyen Brennan, MD, PhD, in Health Affairs.
Dr. Brennan is an adjunct professor at the Harvard Chan School of Public Health and was formerly executive vice president and chief medical officer of CVS Caremark and chief medical officer at Aetna.
The CMS pilot program, called the Maryland Total Cost of Care Model, consists of an all-payer rate regulation system among commercial and public payers, while hospitals operate under a prospective budget. The system has operated in the state in some form since the 1970s. Only Maryland — and West Virginia to a lesser extent — has laws that allow for some form of hospital payment rate regulation, which is why the state's healthcare system has caught the eye of researchers.
One study found that when commercial and public insurers pay global budgets and uniform prices, it leads to lower costs, higher quality care and more incentives for reform, especially with managing unnecessary hospital admissions. Another study of Maryland's system found the use of global budgets can influence future payment model reform.
Despite the research, there are differences in the Maryland system that must be considered before other states could move in the same direction.
Dr. Brennan highlights that Maryland's all-payer model has reduced Medicare spending and therefore could be a replicable model in that regard. From 2013 to 2019, Medicare spending per member decreased from $11,989 to $11,377. A CMS study of the program found it had saved the state $1 billion from 2014 to 2018.
Despite the savings, another CMS study in 2021 found the federal government spent $13,037 per member in Maryland. That's more than any other state, which on average spends $10,891 per member. For hospital spending, Maryland spent $7,111 per member, with the average state spending $5,816.
One study did not find any decreases in hospital use or increases in primary care use under the Maryland model, though a CMS study found $975 million in total Medicare savings over a five-year period, $796 million of which were from hospital savings. A majority of the savings was from a decrease in inpatient admissions, but commercially insured patients did not see significant savings or a reduction in admissions. Hospitals were occasionally confused by variations in payment rates and budget negotiations, but were overall satisfied with the system's results. Payers also found that hospitalizations decreased under the global budget incentives and delivered greater care equity. Medicare payments were 33 percent to 44 percent higher in Maryland than in other states.
Using the CMS estimate of $7,111 per member in hospital costs for the more than 1 million members in Maryland in 2018, hospital payment rates were 40 percent lower and created more than $2.5 billion in annual savings.
Another effect of Maryland's system is that Medicare Advantage rates are at 12 percent compared to 40 percent nationwide because Medicare Advantage plans cannot be priced to compete with the state's high Medicare rates.
Dr. Brennan writes that these savings mean commercial payers are not subject to the same cross-subsidy pressures as other Maryland payers and that Medicare could have saved more money if it had applied typical payment rates in the state.
Although not perfect, Maryland providers and payers generally agree the all-payer system has led to fewer hospital admissions. Dr. Brennan writes that concepts such as linking global budgets to primary care reform could be a model for other states and CMS should continue to study the entire system along with individual pieces. Still, the differences in hospital reimbursements may make replicating Maryland's system difficult.
Going forward, Dr. Brennan writes the system should focus on being more comprehensive. CMS is unlikely to ever end the program because it would not be able to raise rates fast enough with commercial payers to create cross-subsidies, and it would undermine the progress made at cutting hospital admissions.