For the past 40 years, the state of Maryland has pioneered a unique approach to financing hospital payments as a means of limiting spending growth.
The latest iteration of Maryland's all-payer rate-setting model produced nearly $116 million in Medicare savings in its first year of operation.
This white paper provides an in-depth look at Maryland's model, including details on its history and evolution, lessons learned to date, and broader implications for the future of payment reform.
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The all-payer model Maryland is now utilizing was developed in partnership with the Centers for Medicare and Medicaid Services (CMS) as a state-driven initiative to accelerate payment and delivery transformation.
Although it is technically a new model, it is nonetheless important to understand the history of Maryland's rate approach because this iteration builds upon the existing hospital all-payer rate-setting mechanisms through the addition of a global hospital budget cap along with several pay-for-performance programs. Keep reading on p. 3.
Maryland's all-payer rate-setting model prior to 2014
Hear Advisory Board experts and leaders involved in designing Maryland's model discuss details, results to-date, lessons learned, and what's next.
Since developing its all-payer rate-setting system in the 1970s, Maryland has relied upon its core infrastructure while making frequent adjustments to fine-tune the effectiveness of the model.
This "evolutionary" approach to ensuring flexibility and making updates on an on-going basis likely is one of the strengths of Maryland's effort that has allowed the state to preserve its rate-setting system longer than peers. Keep reading on p. 4.
Introduction of global budget caps under 2014 update to waiver
In 2012, Maryland began negotiating several updates to its waiver with CMS. The waiver agreement was ripe for modernization as care increasingly shifted to outpatient settings and the state faced the possibility of failing to meet its Medicare cost-per-case spending targets, a key condition of its arrangement with CMS.
In addition, CMS expressed interest in helping the state pursue a path more focused on holding providers accountable for per-capita spending trends.33 Ultimately, CMS and Maryland agreed to a new five-year waiver, beginning January 1, 2014, that utilizes a modified payment model developed in partnership with the Center for Medicare and Medicaid Innovation (CMMI). Keep reading on p. 7.
Market implications of update waiver
Maryland's most recent all-payer model appears to be impacting providers' approach to care efficiency and quality in its early stages, but its impact may be limited in some respects because the current model only focuses on hospital services.
Hospitals appear to be accelerating development of their population health strategies and expanding collaborations in response to the model’s incentives. However, some hospitals' initial focus also may be on growing market share and shifting care to non-hospital settings. Keep reading on p. 10.
As Maryland's experience with the global budget cap model evolves, the state's ability to meet the waiver's performance requirements and drive improvements in population health depends on several critical elements.
Early results, as well as conversations with provider executives, suggest that the model is progressing in the right direction. But it is essential to monitor whether the state is able to maintain the positive pace of progress seen at the outset. Keep reading on p. 12.
More resources about Maryland's model
Download the full white paper
Payer and Regulatory Policy
Risk Based Contracting
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What Maryland's All-Payer Model Teaches About the Future of Payment Reform