On January 10, 2014, the state of Maryland and the federal Centers for Medicare and Medicaid Services announced the re-invention of Maryland's all payer hospital rate-setting system. Maryland's 36 year experiment with operating our only all-payer hospital rate regulation system where third parties pay the same for hospital services is about to enter a new phase.
Maryland is staying with an all-payer model but it is moving from fee-for-service reimbursement to a global payment model. The biggest difference is that Maryland's hospital price setting system will continue to operate while adding a cap on all hospital spending. Hospital spending growth, linked to projected overall growth in the state economy, should not exceed 3.58 percent for the next five years.
Maryland's all payer hospital rate-setting system, as originally configured, has been a remarkable example of innovation and experimentation these last several decades. It has also been an important reminder that health care payment system innovation may actually rise from below. Robert Murray offers a good description of its origins and operation here.
But Maryland's all payer hospital rate-setting system has struggled in recent years to deliver on its cost-containment goals. Over time, even one of the boldest examples of payment system innovation struggled with the weight of a procedurally driven health care system. In short, there were still few incentives for keeping individuals healthy outside of the hospital and too many rewards for treating problems in the most expensive venue. And so Maryland's hospitals begin their great migration to wellness centers.
If this works, physician office visits and nursing homes get the treatment next. If it fails, Maryland reverts to the default administered pricing system. If this works, we might see some version of this (combined with aspects of payment system reform from Massachusetts and Vermont) on a much larger scale.
x-posted at PrawfsBlawg: http://prawfsblawg.blogs.com/