Maryland Hospital Reform: Bold Cost Containment Plan

The federal government has approved a Medicare waiver for Maryland intended to reduce hospital spending, Stateline reports today. Maryland is already the only state to set uniform prices for all hospitals. The same medical procedure costs the same in every hospital in the state regardless of the insurer, including Medicare and Medicaid. This has been true since 1974.

The Medicare waiver is how Maryland can set Medicare hospital rates – otherwise it would be subject to federal rules on rates. If the waiver succeeds in holding down costs, Maryland will continue to set its own Medicare hospital rates, currently higher than those in other states.

The newest waiver is an extension of a plan already in place. While it seems counterintuitive that fewer admissions would increase hospitals’ bottom lines, that has been the result of the previous waiver. Western Maryland Regional Medical Center, one of 10 voluntarily participating hospitals, signed up in 2010. The first year the hospital had a 2 percent loss compared to its average 2 percent profit. The second year in the program, the profit hit 5 percent and is on track to be 8 percent this year, according to the chief financial officer quoted in Stateline.

Hospitals, that will have a global budget target, and to cut costs they may hire doctors to work in nursing homes to prevent emergency room visits and admissions. These providers may also collaborate with physicians in the community to expand services and follow-up of chronically ill patients to avoid hospitalization. For the five year period covered by the waiver, the state’s goal is to limit hospital inpatient and outpatient costs to 3.6 percent growth, the state’s average gross state product growth rate.

Hospitals will participate voluntarily, although all are still subject to the uniform prices, and must declare participation in the next few weeks. Gov. O’Malley’s budget proposal would sweeten the pot with $30 million dollars in grants this year, and $40 million in each of the next four years, to hospitals for information technology infrastructure and new staffing needs.

Resources:

  • Read more from Stateline here.
  • Maryland health chief Sharfstein explains the waiver to Baltimore Business Journal here.
  • Maryland Department of Health documents on the waiver proposal here