robert murray, maryland health services cost review commission: the maryland all-payer hospital...

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Activity Based Financing Conference Metro Toronto Conference Center

January 29-30, 2014

Experience with DRG-Based Payment, Other Prospective Rate Setting and Pay-for-

Performance Arrangements

From the State of Maryland

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Presented by Robert B. Murray, Global Health Payment, LLC (former Executive Director of the Maryland Rate Commission - HSCRC)

[email protected]

Draft Overview of Presentation

1. General Themes Emphasized in the Presentation

2. Background on Maryland and Factors leading to All-payer “activity-based” DRG Development

3. U.S. Health Care Financing System vs. the Maryland “All-Payer” Hospital Rate Setting System (Characteristics of Maryland’s System)

4. Steps in Development and Necessary Infrastructure/Data Systems

5. Key Rate Setting Features and Design in Maryland

6. Key Results: Strengths/Weaknesses & Lessons Learned

7. System Evolution: Use of Pay-for-Performance Mechanisms to promote Quality/Efficiency

8. System Evolution: Maryland realized that “activity-based” systems do not impose the desired level of “accountability” on providers

9. Summary/Conclusions 2

Draft Major Themes of Presentation

• In general, the Maryland payment experience illustrates the benefits of a “rule-based” payment structure with the use of consistent and clearly defined incentives and targets

• This, along with the ability to evolve the Rate System over time, have been Maryland’s two Key Success Factors

• However, equally important lessons from Maryland (and any other DRG-based system) come from the weaknesses of the System and the major mistakes made along the way

• The ultimate goal of any payment systems should be to adopt incentive based arrangements that provide the highest level of accountability for the cost and quality of care provided

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Background on the

Maryland Hospital Rate

Setting System

Draft Experimental Hospital Payment Systems

5 GLOBAL HEALTH PAYMENT, LLC

Other Experimental Rate Setting States in 1970s & 80s

NY 1989

NJ 1980

MASS 1984

One very successful All-Payer Global Budget Demonstration: Rochester NY 1980-89

Maryland 1976 Also, Medicare (the US Public insurance program For the elderly) adopted a DRG-based payment system In 1983 (Inpatient Prospective Payment System or “IPPS”).

Draft Background on Maryland

• 6.1 Million people

State of Maryland

• Two major Metro areas

• Second highest number of Physicians per Capita in US

• $15 billion in hospital revenue = $90 bill RMB (37% of total Maryland health spending)

• 700,000 discharges per year

• 2nd highest income per capita

• 14% of population > age 64

• 46 acute care hospitals

Baltimore City

Washington DC

• 3 Large Teaching Hospitals, 30 Multispecialty Urban, Suburban & 13 Rural Hospitals

Draft Factors Leading to Creation of the Hospital

Payment System

• In the early 1970s most “payers” (private insurance and public programs like Medicare/Medicaid) paid hospitals on the basis of “reported costs”

• Historical Cost-based Payment provided no incentive for efficiency

• Maryland costs/case were 25% above the U.S. and growing faster

• Cost-based Payment also didn’t finance care to uninsured patients

• Hospitals serving large number of uninsured, were financially distressed (on the verge of bankruptcy)

• In general, Hospitals supportive of the development of a consistent payment approach across all payers

• Maryland Developed a Consistent, Rule-based Approach to Payment

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(stability, predictability, consistency)

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Maryland Stands in Contrast to the US

System of Financing Hospital Care

Medicare

US Healthcare System

Private Payer 2

Private Payer 3

H

All-Payer Systems Establishes a platform of more Rational & Consistent Prices Applies to both public and private payers (All-Payers) Places downward pressure on and costs, Improves resource allocations and provides incentives for improved quality

Inconsistent payment methods and incentives applied Few incentives for cost control or improved quality Prices very high and not related to the cost or quality Poor resource allocation & high administrative costs

H H H H H H H

Medicaid

Pluralistic (fragmented) Financing System in the United States

All-payer Case Based System

Private Payer 1

Consistent Platform of Payments and Incentives

Over 2,000 private insurers

One implication of a fragmented Payment System: Hospitals have most of the Market Power

Draft Characteristics of the Maryland Hospital

Payment System

• Governed by an Independent Governmental Commission

• Broad legal authority (both federal and state levels) to collect data and set hospital rates

• 7 Commissioners and a profession staff of 30 individuals

• Authority applies to facility services and not physician services

• Data Driven: Heavy focus on development of Cost and Clinical Coding data infrastructures (use of fines for late/inaccurate reporting & audits to ensure data quality)

• Emphasis on equity in setting rates (across all payers)

• Mechanisms to pay for care to the Uninsured

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Draft Characteristics of the Maryland Hospital

Payment System

• Use of Prospective Financial Incentives

• Heavy emphasis on the “Compliance” function (enforce rates)

• Evolution over time to use of different structures:

Per Case (DRGs);

Per Outpatient Visit (APGs);

Various efficiency-based and quality-based P4P mechanisms;

Eventual use of Admission-All Cause Readmission Episodes (most hospitals)

An increased emphasis on the use of Prospective Global Budgets

• So Maryland is a “Hybrid” System – with a gradual de-emphasis on pure DRG-Payment Incentives toward Global Budget Incentives

• Eventual focus on the goals of Population-based payment and Population-based health

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Major Components Maryland’s

Rate System

Data, Systems and Infrastructure

Draft Initial Focus on Development of Significant

Cost Accounting and Clinical Coding Data

Infrastructures • Two major Infrastructure Development Efforts Initially

① Development of a Uniform Accounting and Reporting System (UARS) for reporting volume and cost data

② Development of a Case Mix and Clinical Coding System for reporting Patient-Level clinical and demographic data

• The UARS Prescribed the Format for Reporting Cost data to the HSCRC

• The Clinical Data Reporting System used ICD-9 diagnoses and procedure (and other data) as the basis for DRG assignment

• Both Systems were then Linked to Provide the Basis for DRG Relative Weight Development


Draft Goals of the Cost Data Collection

Activity • Prescribe a manner and format for accounting for and reporting

inpatient, outpatient, ancillary direct and indirect costs

• Definition of output and volume measures

• Allow for continuous updating of the Rate Setting System and monitor volume and cost performance

• Compile data in a format so that it could be used by hospital management to evaluate their performance relative to other peer hospitals

• Provide transparence and allow bench-marking by the HSCRC

• Establish DRG weights that are reflective of relative resource use

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(i.e., Allow for Pricing Accuracy and more efficient allocation of resources)

Draft Goals of Cost Data Collection Activity

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R. Busse, et al, DRG’s in Europe. European Observatory on Health Systems and Policies, 2011

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Generic Cost Accounting System

1 - Uniform Chart of Accounts

2 – Allocate to Departments

3 – Overhead Allocation/ Step-down

4 – Linking costs by service to individual patient services

5 – Establish DRG Relative Weights

Draft Purpose and Goals of Data Collection

Activity • Need to Measure Variations in illness of patients from hospital to hospital

• Need to to relate patient characteristics (& the characteristics of their illness) to the type/amount of hospital resources they consume

• This in turn provides the ability to define a more consolidated Output Measure from the hospital production process adjusted for patient illness

• Each DRG is a type of product produced by the hospital

• When you have a product and an expected resource use for each type of product (each type of Case) you can establish a price for that product

• DRGs are also valuable tools (original purpose) to manage their patients (clinically and operationally)

• Later - use in quality of care assessments & Pay for Performance (P4P)

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Draft Case Mix Data Elements Collected


(8) Source of Admission

(9) Admission from the Emergency Room.

(10) Date of Birth.

(11) Sex.

(12) Filler. For Race variables

(13) Ethnicity.

(14) Marital Status

(15) Area of Residence (county)

(16) Residence Zip Code

(17) Primary Health Plan Payer (Medicare, Medicaid, Commercial, HMO, Champus etc.)

(18) Secondary Health Plan Payer

(19) Census Tract

(20) Disposition of the Patient

(21) Alternative Rate Case Identifier.

(22) Expected Primary Payer

(23) Secondary Payer

(24) Attending Physician

(25) Operating Physician

(26) Major Hospital Service & Special Care Unit Stay.

(27) Type of Daily Hospital Service

(28) Psychiatric Days of Service.

(29) Readmission (w/in 31 days)

(1) Medicare Provider Number. (2) Medical Record Number. (3) Admission Date. (4) Discharge Date (5) Record Type (6) Admission Hour (7) Nature of Admission.

Draft


(30) Medical/Surgical Intensive Care Days. (31) Coronary Care Days. (32) Burn Care Days. (33) Neonatal Intensive Care Days. (34) Pediatric Intensive Care Days. (35) Shock Trauma Days. (36) Other Special Care Days (includes Definitive Observations, Oncology, Intensive Care, and Distinct Rehabilitation Unit Days). (37) Birth Weight.

(41) Principal Diagnosis.

(42) Other Diagnosis 1-30

(56) External Cause of Injury Code (“E-Code”).

(58) Principal Procedure and Date.

(59) Other Procedure 1 and Date

(74) Patient Revenue Data.

(74.1-10a) Revenue Code (UB-04 Codes). (74.1-10b) Rate Center Code (ICU, Med/ Surg., Peds, Psych, OR, Radiology, Blood, Lab, ER, etc.)

(74.1-10c) Units of Service (days, RVUs, Minutes, etc.)

(74.1-10d) Total Charges

(75) Diagnosis Present on Admission.

(76) Provider Specific Admission Source (Hospital ID Number)

(77) Provider Specific Discharge Disposition

(97) Patient Account Number

(99) Enterprise Master Patient Identifier

Case Mix Data Elements Collected

Draft Case Mix Production Schedules


Draft Commission DRG Weights and other Information


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Rate Setting System

Key Characteristics and

Components

Draft Key Structural Features of any Rate Setting

System

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1. The Rate Base Base from which the rates of the system are derived. The most common Rate Base for hospital rate setting systems are a hospital’s actual cost or aggregate payments under an existing rate system during a previous year (the Base Year

2. Adjustments to the Rate Base

Generally two forms of adjustments – a) to standardize for differences in relative efficiency of a target hospital or b) potential increases in the Rate Base to seed fund certain initiatives

3. Trend Factor Or Inflation Factor - Applied to the Rate Base to adjust this base forward to the first and subsequent rate years

4. Basis of Payment (Structure of Payment)

Defines the fundamental rate structure and thus the incentives applied in the payment model (e.g., per case, PMPM). We will seek incentives that will reduce costs and unnecessary services

Feature Discussion Maryland Adaptation


System (continued)

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5. Volume Adjustments

Also influences the incentives facing a provider. Applied to reflect the fixed and variable nature of a hospital cost structure

6. Compliance The enforcement of any limits placed on the hospital by the rate setting system imposed

7. Reinsurance Can be applied to a provider in a payment system to ensure that the financial risk assumed is reasonable and manageable

8. Prospectivity Is the feature whereby the rate system imposes limits on payment in advance but allows the participating hospital(s) to keep all (or most) of any gains and absorb all (or most) of any deficits incurred (i.e. the hospital will not be “ratcheted” down)



System

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1. The Rate Base Base from which the rates of the system are derived. The most common Rate Base for hospital rate setting systems are a hospital’s actual cost or aggregate payments under an existing rate system during a previous year (the Base Year

Used Historical Costs (with some exceptions) to establish hospitals’ Rate Base for DRGs

2. Adjustments to the Rate Base

Generally two forms of adjustments – a) to standardize for differences in relative efficiency of a target hospital or b) potential increases in the Rate Base to seed fund certain initiatives

No initial adjustments to Rate Base but Adjusted over time

3. Trend Factor Or Inflation Factor - Applied to the Rate Base to adjust this base forward to the first and subsequent rate years

Index of hospitals’ input cost inflation & other adjustments

4. Basis of Payment (Structure of Payment)

Defines the fundamental rate structure and thus the incentives applied in the payment model (e.g., per case, PMPM). We will seek incentives that will reduce costs and unnecessary services

Initially, unit rates, later per case DRGs, Episodes of care and Global Budgets



System (continued)

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5. Volume Adjustments

Also influences the incentives facing a provider. Applied to reflect the fixed and variable nature of a hospital cost structure

Developed a Volume Adjustment System to “capture the marginal revenues” associated with Volume increases

6. Compliance The enforcement of any limits placed on the hospital by the rate setting system imposed

Robust Compliance Mechanism with “Hard” enforcement year end

7. Reinsurance Can be applied to a provider in a payment system to ensure that the financial risk assumed is reasonable and manageable

Used of Outlier Payments and limited use of Aggregate Stop Loss

8. Prospectivity

Is the feature whereby the rate system imposes limits on payment in advance but allows the participating hospital(s) to keep all (or most) of any gains and absorb all (or most) of any deficits incurred (i.e. the hospital will not be “ratcheted” down)

Maryland’s system has “efficiency adjustments” relative to cost standards but otherwise is fully Prospective – meaning it never “rebases hospitals” to actual cost


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Basis of Payment and Transfer Risk

9

Financial Risk Spectrum

J Ambulatory Care Manage, Vol. 32 No. 3 pp 241-251. Averill, et. al.

Degree of bundling

Level of financial

(insurance) risk

More bundled

episode pmt

transfers risk from

insurer to provider ->

Hospitals gradually assume increased Levels of “financial risk”

As payment bundle broadens

Hospitals Assume more Financial Risk

Draft Importance of Maintaining a Volume

Adjustment for an “Activity-Based”

System • The Original Maryland DRG-based System included a 50% Variable Cost adjustment for incremental volume growth

• This meant that hospitals experiencing service volume increases (either inpatient or outpatient) only retained 50 cents on the dollar on the margin

• This was included to provide disincentives for hospitals to increase volumes unnecessarily to increase profitability

• The Volume Adjustment was largely removed in the 1990s. When Managed Care retreated, hospital volumes in Maryland rose rapidly

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Volume Adjustment was Re-imposed in 2009 over strong protests from Hospitals

01 02 03 04 05 06 07 08 09 10

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

US Adm %

MD Adm %

Admission Growth Maryland vs. US

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Results

Strengths and Weaknesses

(1976-2011)

Draft General Favorable Results

• Equity in payment across all payers along with Consistency of incentives to hospitals and Predictability in revenues

• Mechanism to fund care to uninsured patients (extra provision built into the rates of all payers to fund)

• Strong incentives to control cost per case and ability to limit growth in cost per case over time (HSCRC limits the annual update of hospital charge per case)

• Better resource allocation DRG price = cost resource use and as a result far less variation in cost per DRG

• Lower administrative costs (standardized pricing)

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More Equitable Pricing in Maryland

• Maryland Hospital Regulation created consistent payment levels across all Payers (public and private)

• Also, a mechanism to fund case provided to uninsured patients in the state (Maryland 17% uninsured)

Maryland’s Imposes a “Uniform Markup” Of regulated Charge Over Approved Costs and Every payer pays The Charges Set by the HSCRC

Having many different P4P funding “silos” dilutes effectiveness

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DRG system Controlled Growth in Cost Per Case

• Lowest Rate of Cost per Case Growth of any State 1976-2011 • 1976: Maryland Cost per case was 25% ABOVE the US average

• 2011: Maryland Hospital cost per case 3% BELOW the US average

• Estimated $45 billion savings to the State over the period 1976-2011

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

76 80 84 88 92 96 '00 '04

US hospital cost growth

per case (all-payers)

Maryland hospital slower Cost growth per Case

“Bending the Curve”:Growth in Hospital Costs per case (MD vs. US)

Indexed

Rate of

Growth

HSCRC set Approved Charge per Case

Then Controls Trend Factor

This applies to All Payers

Draft Maryland has less Cost Variation Average Cost per Discharge

U.S., MARYLAND, and NEW JERSEY, 2008

U.S. MD NJ

Top 75th Percentile $9,565 $8,561 $10,369

Low 25th Percentile $5,936 $6,330 $7,552

Median $7,436 $7,325 $8,483

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

Source: AHRQ Health Care Cost and Utilization Project (HCUP) National Inpatient Sample and State Databases. Specialty hospitals are excluded.

Maryland

New Jersey

U.S.

Draft Weaknesses of Per Case Payment Systems

• Physicians not included (incentives not aligned)

• Highly complex system and costly to implement

• Issues with DRG Creep (Induced Coding dynamic) particularly when switched to a Severity-Adjusted DRG grouper

• No incentives for High Cost Hospitals to move down to an Efficient Standard

• No incentives for Quality

• Gave up system of Volume Controls –huge increases in “activity”

– Hospitals, quickly realize they can increase profits by greatly expanding services, paying doctors to increase billings (admissions, tests, diagnostic tests and outpatient services)

• As volumes increased, Maryland’s costs per Capita rose rapidly, and overall accountability for cost eroded

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Draft The Effect of Up-coding: Maryland Hospitals

• Three hospitals in Maryland were experimentally placed on a Severity-Adjusted DRG grouper (All Patient Refined – DRGs) in the early 2000s

• By 2005 they had nearly doubled the average number of reported secondary diagnoses on their inpatient claim forms

• This resulted in an increase in measured case mix of more than 10% adding over $100 million to their combined inpatient rate bases

• A similar impact was witnessed when the APR-DRG grouper was extended to all acute general hospitals– the case mix of rural hospitals increased by 16.89% and urban hospitals case mix increased by 13.9%

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Draft Evolution in Payment Reform – Move to

Prospective Payment Models to Increase

“Accountability”

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Cost-Based Payment or Line-Item Historical Budget approaches provide little or no incentive for containing costs

As a result, sub- entities are not held accountable for efficiency and effectiveness

Prospective Unit Rate Systems set a fixed rate for an individual service (a rate per day or a rate per service)

Hospitals held accountable for their cost per unit of service

Hospitals provided more Units!

Prospective per case systems using DRGs - set fixed rates per type of case based

Held Hospitals accountable for their cost per Inpatient Case

Hospital did more cases and no limits on Outpatient vol.

Historical Cost-Based Budgeting

Fixed Payment per

Unit of Service

Fixed Payment per Case (DRGs)

Increasing levels of aggregation of services under fixed payment

Increasing incentives to improve efficiency and eliminate waste

Draft

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System Evolution:

Development of (P4P)

Incentives for Improved

Quality/Efficiency

Draft P4P: Relative Efficiency

• Core payment system provided incentives for improved efficiency per case (at existing level relative to others)

• HSCRC had ability to introduce new payment mechanisms

• In addition to core payment system – use of an annual P4P benchmarking analysis (“Screens”)

• Ranks hospitals’ Case-mix adjusted cost per case

• Each hospital receives additional rewards or penalties based on relative position vs. Peer Group Average

• Revenue neutral basis system wide

Draft P4 Efficiency Screen Revenue Neutral “Scaling” $27,519,000 on the Basis of Case Mix adjusted Cost per Case

46 hospitals included in analysis

Worst Performing

Best Performing – lowest adjusted cost/case

$27.5 million “scaled” from here

To Here

Position

Above/Below

Hospital Name State Avg. Rank Percentile Adjustment D olla r I mpac tSouthern Maryland Hospital 7.91% 1 0% -1.50% ($2,360,295)

Chester River Hospital 6.23% 2 2% -1.35% ($400,075)

Doctors Community Hospital 5.86% 3 3% -1.17% ($1,344,352)

Johns Hopkins Hospital 5.35% 4 3% -1.12% ($9,414,111)

Memorial of Cumberland 4.65% 5 4% -1.07% ($1,802,459)

Harford Memorial Hospital 4.52% 6 4% -1.05% ($650,226)

: : : : : : :

: : : : : : :

: : : : : : :

State-wide Avg. 0.00%

: : : : : : :

: : : : : : :

: : : : : : :Frederick Memorial Hospital -4.93% 40 87% 0.791% $1,332,482

Memorial Hospital at Easton -5.13% 41 89% 0.830% $799,235

Calvert Memorial Hospital -6.06% 42 91% 0.855% $526,285

Washington County Hospital -6.18% 43 93% 0.897% $1,426,287

Fort Washington -6.57% 44 96% 0.910% $345,357

Union of Cecil -8.07% 45 98% 1.140% $763,107

Dorchester General -11.86% 46 100% 1.500% $452,449

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Gradual use of P4P Methods around Quality

• Phase I: Maryland Hospital Acquired Conditions 2009 • 49 Potentially Preventable Complication Categories

• Payment Incentives linked to relative hospital performance on risk-adjusted rates of complications (not present on admission)

• Maryland experienced Substantial Reductions in Infection and Complication rates

• Phase II: Maryland Hospital All-Cause Readmission Rates (Hospital Improvement & Hospital Rank)

• Phase III: Working toward establishing a Balanced Portfolio of Quality-Related Measures • 30 day Mortality • Preventable Events (ER visits, Ancillary Use) • Ambulatory Care Sensitive Conditions • Patient Satisfaction and Patient Safety

Diagnosis Data can be used to measure Quality:

Linked in to Payment Incentives

Experienced a 15% decline in Hospital Acquired Conditions with savings >$105 million

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System Evolution:

New Basis of Payment

Prospective Global Budgets

Draft Maryland Realized that Hard Prospective

Budgets Created Greater Accountability for

Hospitals • Maryland: Comprehensive System with Consistent Incentives

• 100% Prospective System so Payments are Predictable and Hospitals keep savings if they lower costs

• DRG system controlled growth in Per Case Costs well

• Hospitals responded by doing more cases and providing more Outpatient Services than necessary

• Use of Volume Adjustment to reduce incentive to increase cases

• However the best system to impose “Accountability” is a Prospective Budget Based System

• Maryland still has some DRG payment (with Volume Controls) but now moving to Global Budgets for each hospital

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Draft Evolution in Payment Reform – Move to

Prospective Payment Models to Increase

“Accountability”

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Cost-Based Payment or Line-Item Historical Budget approaches provide little or no incentive for containing costs

As a result, sub- entities are not held accountable for efficiency and effectiveness

Prospective Unit Rate Systems set a fixed rate for an individual service (a rate per day or a rate per service)

Hospitals held accountable for their cost per unit of service

Hospitals provided more Units!

Prospective per case systems using DRGs - set fixed rates per type of case based

Held Hospitals accountable for their cost per Inpatient Case

Hospital did more cases and no limits on Outpatient vol.

Prospective fixed payment can apply to larger “bundles” of services such as an Episode of care

Providers held accountable for costs of care to a patient over a period of time (i.e. Admission and Readmissions over 30 days)

Prospective Budget associated with a population provides guaranteed amount of funds for a year

These are HARD budgets strictly enforced

Hospital keep any “savings” but held Accountable for their costs

Historical Cost-Based Budgeting

Fixed Payment per

Unit of Service

Fixed Payment per Case (DRGs)

P4P & Fixed Payment per

Episode

Fixed Budget for a

Population

Increasing levels of aggregation of services under fixed payment

Increasing incentives to improve efficiency and eliminate waste

Also increasing levels of accountability at the Sub-entity level

Draft

Garret Co. $42m

W. Maryland HS $291m

Wash. Co. 148,000 residents; $250 million budget

Carroll Co.$202m Union of Cecil $128m

Mem. Easton $160m

McCready $19m

Calvert $118m

Real Life Example: State of Maryland, USA – Transitioning Of Hospitals from DRG-based Payment to Global Budgets

$783 Mill.

Population-based Global Budget Systems implemented for largely rural and isolated hospitals serving discrete communities

Washington DC

Budgets can also be established for a given region – provides hospitals incentives to share services and work together

Isolated Service Area

Draft Example of a Hard Prospective Budget for an

Isolated Hospital serving a Discrete

Community • Washington County Hospital

• Sole Community Hospital located in a rural area of Maryland

• Separated by distance and mountain ranges

• Serves 148,000 population in Washington County

• Limited “in-migration” from other parts of the State

• Budget in Prior year = $250,000,000

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Estimated Estimated Performance

Cost Inflation Demographic Year

Trend Changes Budget

Adjustments: 2.50% 1.50%

Base Year Rev. $ 250 Million X 1.025 X 1.015 = $260 Million

Base Year Costs $ 250 million Performance Year Cost $255 Million

Costs Reduced by Elimination

of Unnecessary Admissions/

Profit $ 0 million Readmissions $5 Million

% Margin 0.00% 1.92%

In future Years – hospital invested in heavily in Primary Care Infrastructure in the Community

Hospital also Subject to Strong Incentives to maintain Or improve Quality Through P4P scaling

Substantial reductions in unnecessary admissions/readmissions and improved efficiency

Draft

Extending Global Budgets To Suburban Hospitals

Step 2: Set Prospective Budgets for Hospitals with Well-Defined Primary Service Areas

Draft

Later: Urban Cap Structures Applicable to 10-15 Urban facilities

Step 4: Require Patients to Select Primary Care Physicians and Build Hospital Budgets based on PCPs Affiliated with each Hospital in Urban Areas

Washington DC Area

Baltimore City Hospitals Including Johns Hopkins and other Large Hospitals

Draft Summary of Maryland

Experience • Maryland’s regulated system has been successful because

• It is based on well developed data systems

• It is structured to address market failures in the health care financing system

• It is designed to be fair and promote equity

• And address other public policy goals (i.e., finance care to the uninsured)

• It has been flexible and has the ability to evolve

• The Maryland Experience reflects an evolution of Payment Principles and Incentives over time

• Gradually increasing the level of risk and accountability applied to hospitals

• With stronger emphasis on population-based financing to promote population-based health care delivery

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Draft Maryland Experience: There is a Trade

off between “Activity” and

“Accountability” • Cost-based payment and line-item Historical Budget systems lead to uncontrolled cost increases did not create needed “accountability”

• Prospective Payment Systems DRG systems implemented in Maryland (and in U.S. for Medicare) improved accountability per case

• Per Case Systems did spur increased “activity”

• But as a Fee-for-Service system it created incentives for the provision of unnecessary services

• In Response – Maryland has gradually changed its payment incentives – shifting more risk to hospitals and increasing their accountability

• Accompanied by Strong P4P incentives re: Quality & Access

• Now – primary focus on Budget Based systems (but use of elaborate cost and DRG-based data underneath)

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Marginal Rev > Marginal Cost for each new Service Has lead to provision of unnecessary/marginal services

Draft

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Thank you

robert murray, maryland health services cost review commission: the maryland all-payer hospital...

Health & Medicine