Can All-Payer Payment Reform Work? The Maryland Example
As Massachusetts and the Congress look for feasible policies to slow down the increase in health care costs, one state continues to set an example of steady cost control in hospital care for years. A recent Wall Street Journal article discusses Maryland’s independent price-setting policy for hospital care.
Massachusetts was one of about 10 states that regulated hospital prices during the 1970s and 80s. We abandoned our increasingly ineffective rate control system in 1991 along with most other states (details here). Maryland remains the sole exception.
Beginning in 1977, Maryland delegated the task of setting reimbursement rates for acute-care hospitals to an independent agency, the Maryland Health Services Cost Review Commission. At the time, the state’s hospital costs were 25% higher than the national average. Comprising a staff of 30 and overseeing 47 acute-care hospitals, the commission collects extensive information on each hospital and sets reimbursement rates, providing for a predictable budget and shielding hospitals from uncompensated care. Maryland’s hospital costs today are 2% lower than the national average, showing remarkable cost control over the years.
Maryland’s policy requires hospitals in the state to charge the same rate for insured and uninsured patients. While in most states hospitals are free to charge the uninsured higher rates, Maryland reimburses its hospitals for all provided charity care.
Under a special agreement with the federal government, Maryland’s all-payer system sets Medicare reimbursement rates as well. Hospitals in other states respond to declining Medicare and Medicaid rates by shifting the cost of care to private insurers, a cycle which contributes to the growing costs of health care. Yet, in Maryland the rates in both public programs have remained high, preventing the expensive and mostly unchecked cost shift. The state rates include a subsidy for charity care however, costing Medicare $500 million this year.
An all-payer scheme, such as Maryland’s current payment structure, is one of the major policy options looke at by RAND Health in its recent report to the Massachusetts Division of Health Care and Policy. The report suggests that the success of the policy depends on proper design of the rate-setting commission and the collection and use of hospital data. The Payment Reform Commission also recommended an all-payer global payment system.
As the debate here and in Washington questions the ability of government to promote efficiency and value, the Maryland example provides some important food for thought.
-Igor Gorlach
September 17th, 2009 at 9:47 am
Business and community leaders have an unusual role in setting health policy in Maryland. The state regulators work very closely with the hospital association, and the MD hospital association is comprised of hospital trustees, not hospital executives. I believe that this structure has enabled Maryland to succeed in both cost control and quality improvement where other states have failed.
The Maryland Hospital Association
“is the only state hospital/health care association in the United States led by the trustees of hospitals and health systems. The association’s Board of Trustees is comprised of the chief elected trustee leader (or his or her designee) from each member institution. The Board meets twice a year to approve the association’s strategic direction and budget.
“Ongoing organizational activity and policy are determined by the Executive Committee of the Board, which meets monthly. The majority of Executive Committee members are hospital or health system trustees. Members include MHA’s officers (Board chair, two vice chairs, secretary, and treasurer); the chairs of each of three policy councils; trustee and executive councilors-at-large; and the board chairs of the Maryland Healthcare Education Institute, PRIME, the Health Policy Leadership Alliance, and the association’s representative to the American Hospital Association’s House of Delegates.”
from http://www.mdhospitals.org/mha/About_MHA/What_MHA_Does.shtml
September 17th, 2009 at 8:32 pm
I hope there are some better statistics to review than the one you reproduced on the blog(charges v cost). The cost to charge ratio depicted on the graph does not reveal the price paid by insurers or government agencies for health care. Why? Nobody pays full charges. This statistic does not tell us anything about the effectiveness of the Maryland system.
February 7th, 2010 at 7:39 pm
[...] should re-examine price setting. Mahar looks to the Maryland hospital rate-setting experience (as have we) for an example of a system that protects consumers and government against market failures inherent [...]