Maryland Hospitals To Be Paid Differently: Will That Affect Your Care?

medicareOn January 10, 2014, the Centers for Medicare & Medicaid Services (CMS) and the state of Maryland jointly announced a new initiative to “modernize Maryland’s unique All-Payor rate-setting system for hospital services that will improve patient health and reduce costs.”  Sounds great, “improve patient health and reduce costs,” but what is the reality? Well, first one has to understand the uniqueness of the present system in Maryland.

Four decades ago the state was faced with a number of disturbing trends. Hospital costs in Maryland were rising much faster than the national average and Maryland hospitals with high levels of uninsured patients were on the verge of bankruptcy. In other states, such as California, hospitals were said to be engaged in rampant “cost shifting” and “patient dumping” whereby patients without insurance were being refused by profitable hospitals. Around this time Medicare was starting to come up with its own solutions.

Not wanting to cede control to the emerging payment policies of the federal government, the state developed its own unique “All-Payor” hospital system and convinced the federal government to issue Maryland a waiver from the Medicare payment system. To keep hospital costs from exploding, a Hospital Services Cost Review Commission was created; and all insurance companies were required to pay hospitals the same rate mandated by the commission rather than negotiated by the individual hospitals and insurance companies. The rates paid could differ from hospital to hospital,  depending on its mix of uninsured. From a social policy point of view, the program was successful. It kept hospitals solvent, provided a dependable method for hospitals to get paid, and obviated the need for public hospitals for the uninsured.

For 36 years Maryland remained the only state in the union to have been granted and kept its Medicare exemption. However, as health care evolved, the Maryland system did not. With health care shifting increasingly to an outpatient setting, the inpatient Maryland model no longer was capable of keeping global health costs down for a number of reasons, many self-inflicted.

State agencies allowed large hospital conglomerates such as Medstar to take over multiple smaller hospitals and then get into the business of running outpatient services while charging and getting paid higher inpatient rates. Meanwhile, the  Cost Review Commission continued to approve costly additions to hospitals offering duplicate services even as hospital occupancy rates were falling. Finally, insurance companies such as United (annual profits of over $5 billion) were allowed to maximize their profits in the face of increasing hospital costs by cutting reimbursements to experienced primary care practices to 20% or less than Medicare. Add to that the debacle of the Maryland Health Exchange, the premise that the exchange would foster competition among health insurers was laid bare when Cigna and Aetna could not be convinced or cajoled to participate,  essentially leaving just United, Carefirst, and Kaiser to participate.

To keep its cherished waiver Maryland has agreed to require Maryland hospitals to keep annual increases for both inpatient and outpatient services not to exceed 3.58% over the next five years and thereby generate $330 million in Medicare savings over a five-year performance period. Also  the hospitals will need to initiate programs to improve their quality ratings. In theory, if Maryland can’t pull this off,  they will then lose the waiver (unless the politicians get involved as they likely did this time around).

So where does that leave us? At the end of the day, we are left with a system in Maryland essentially dominated by a couple of monolithic health care companies (United and Carefirst) with little competition, huge hospital systems which for years have gotten used to being fed a rich diet doled out by order of the state, and a decimated primary care system.

The likely scenario will be an acceleration of present trends,  more consolidation and less competition, doctors with years of training and experience replaced by mid levels (nurse practitioners and physician assistants just graduated from college), registered nurses with years of training replaced by medical assistants with weeks of training, quality  assessed by bureaucratic checklists, and cost savings to pay for all those new shiny buildings coming from layoffs of the most important asset – experienced people.

2 thoughts on “Maryland Hospitals To Be Paid Differently: Will That Affect Your Care?

  1. As Maryland residents and patients, what action should we take? Is there anything positive about this? Maybe I’m just tired of all “the sky is falling” by the media and politicians regarding ACA and other healthcare issues.

    I do appreciate the outstanding service your practice offers and I sincerely hope you are not negatively affected by these changes.

  2. Nancy, Thx for the comments. I agree that the sky isn’t falling – people will unfortunately continue to get sick, and hospitals will thankfully continue to do a good job getting them better. But I do think it’s important for people to be aware of what is happening. Resources for healthcare are finite and need to be properly apportioned. In Maryland the hospitals have, in my opinion, gotten too powerful and too cozy with the state regulators. They pretty much have gotten everything they have wanted. Ditto for United and Carefirst, the two big insurance gorillas on the block. United has amassed more and more profits and Carefirst has amassed a bigger and bigger bureaucracy. That means that the pie has shrunk for the frontline physicians in primary care. As to what a Maryland resident is to do: stay informed and look past those “feel good” articles and advertisements on TV and in the local newspapers. Express to your state representatives your concerns about these issues – They are not nearly as informed on these issues as you might presume them to be. Fortunately our unique practice model helps to insulate us from these global changes and provide our patients the care they are used to and deserve. 🙂

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