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Maryland’s Statewide Value-Based Payment Models Benefit both Healthcare Providers and Patients

By shifting away from fee-for-service, the state encouraged collaboration between hospitals and physicians to improve care and lower costs

Maryland “leads the way” in value-based payment reform, according to a series of articles published in Health Affairs. “The evidence is clear,” the article declares, “Maryland’s application of uniform prices within global budgets lowers total care costs, reduces unnecessary utilization, and incentivizes proactive preventive and chronic disease management care. Can other states implement Maryland-like payment models and achieve similar financial success?” It’s a fair question.

It is widely-known that clinical laboratory testing is integral to early and accurate diagnosis, and, under Maryland’s current reimbursement model, hospital/health system C-suite administrators have recognized that a robust clinical laboratory service is invaluable to showing progress toward cost containment and patient outcomes goals. But how did that come about? And what can other states learn from Maryland’s success?

Focusing on Better Patient Outcomes at Reduced Costs

Maryland’s current value-based payment arrangement set its first roots back in 2014. That is the year when the state of Maryland and the federal Centers for Medicare and Medicaid Services (CMS) announced a “new initiative to modernize Maryland’s unique all-payer rate-setting system for hospital services aimed at improving patient health and reducing costs,” declared a press release at that time.

Dubbed Maryland’s “All-Payer Model,” the press release went on to say, “This initiative will replace Maryland’s 36-year-old Medicare waiver to allow the state to adopt new policies that reduce per capita hospital expenditures and improve health outcomes as encouraged by the Affordable Care Act. Under this model, Medicare is estimated to save at least $330 million over the next five years.” Did that happen? Apparently so.

The state designed its “All-Payer Model” hospital payment system to render reimbursements based on populations served and the quality of care provided. The program focused on better patient outcomes and higher quality care at a reduced cost, instead of concentrating on the volume of care. The system incentivized hospitals to prevent readmissions, infections, and other potentially avoidable events. 

“By shifting away from traditional fee-for-service payment, Maryland’s new model encourages collaboration between hospitals and physicians to improve patient care, promotes innovative approaches to prevention, and accelerates efforts to avoid unnecessary admissions and readmissions,” said pediatrician Joshua Sharfstein, MD, Vice Dean for Public Health Practice and Community Engagement at the Johns Hopkins Bloomberg School of Public Health in a 2014 CMS press release.

Sharfstein was the Secretary of Maryland’s Department of Health from 2011 to 2014.  

Then, in 2019, Maryland implemented the successor to the state’s “All-Payer Model” dubbed the “Total-Cost-of-Care (TCOC) Model.”

According to the CMS, whereas the All-Payer Model “established global budgets for certain Maryland hospitals to reduce Medicare hospital expenditures and improve quality of care for beneficiaries,” the TCOC “builds on the success of the Maryland All-Payer Model by creating greater incentives for healthcare providers to coordinate with each other and provide patient-centered care, and by committing the State to a sustainable growth rate in per capita total cost of care spending for Medicare beneficiaries.”

The TCOC began on January 1, 2019, and runs through December 31, 2026.

Nicole Stallings of the Maryland Hospital Association
“Our focus is really on the health of our communities,” Nicole Stallings of the Maryland Hospital Association told State of Reform. “We don’t have a public hospital system, we don’t have tiered hospitals, we don’t have hospitals that are having to close because we are able to spread cost really equitably across our system. Equity being a core pillar is something that we know is critically important to maintain. We want to see more alignment there as we now try to tackle these population health goals. But we believe there’s more collaboration happening here than anywhere else,” she added. Clinical laboratories have an important role to play in population health. (Photo copyright: Center Maryland/Vimeo.)

Results of Maryland’s All-Payer-Model Program

In general, an all-payer system allows a state to manage healthcare prices via rate setting where all healthcare payers, including the government, private insurers, and employer healthcare plans, pay similar prices for services provided at individual hospitals.

When it announced the results of the five-year All-Payer-Model program, Maryland’s Health Services Cost Review Commission—the state agency responsible for regulating cost and quality of hospital care in Maryland—declared the program’s targets had been achieved. They included:

  • 1.92% average annual growth per capita in hospital revenue (goal was to be less than or equal to 3.58%).
  • $1.4 billion cumulative Medicare savings in hospital expenditures.
  • 53% reduction in hospital-acquired conditions (goal was 30% reduction over five years).
  • Below national average for hospital readmissions of Medicare patients within five years.
  • All of Maryland’s 47 acute-care hospitals paid based on health populations served—not number of services rendered—with 98% of total hospital revenue under Global Budget Revenue (GBR) payment method.

In addition, the Maryland HSCRC report indicated that innovative care was a key tenet of the model and that hospitals benefitted from being given the ability to:

  • Invest in new healthcare programs that improve collaboration with other providers in the community.
  • Implement new clinical protocols, patient safety techniques, and follow-up procedures for high-risk patients at hospital discharge.
  • Create hubs of care to triage needs, coordinate important services, and ensure patients in need are connected to services outside the hospital.

After the success of the Maryland All-Payer Model, the state’s Total-Cost-of-Care Model program continued to focus on healthcare cost savings to Medicare. But it introduced population health improvement activities across the entire healthcare delivery system.

Future of Maryland’s Total-Cost-of-Care Model Program

Maryland’s TCOC Model program seeks more than $1 billion in Medicare savings by the end of 2023, or the fifth performance year of the program. According to the CMS Innovation Models webpage, Maryland’s TCOC Model includes the following three programs:

  • The Hospital Payment Program, where each hospital receives a population-based payment amount which covers all hospital services provided during a year.
  • The Care Redesign Program, which allows hospitals to make incentive payments to nonhospital healthcare providers who partner with hospitals to provide care.
  • The Maryland Primary Care Program, which incentivizes primary care providers to offer advanced care services to their patients.

An analysis of the first two years of the TCOC program found some significant improvements particularly in the areas of care management, access, and continuity.

In the first performance year of Maryland’s TCOC model, the state reduced spending by $365 million, relative to national trends, according to a Mathematica implementation report.

Part of the success of the model is due to its use of global, fixed budgets that are set for every hospital. Rates are established by an independent commission which prevents cost shifting and provides a more equitable system for patients where they pay the same price for the same service at all hospitals throughout the state, Mathematica noted. 

“We believe [global budgets are] a real distinguishing factor, because unlike the rest of the country, our hospitals aren’t paid more to do more,” said Nicole Stallings, told State of Reform. Stallings is Chief External Affairs Officer and Senior Vice President, Government Affairs and Policy at the Maryland Hospital Association (MHA).

Expanding Maryland’s All-Payer-Model Program to Other States

In 2016, CMS established the Center for Medicare and Medicaid Innovation (CMMI) to identify ways to improve healthcare quality and reduce overall costs in the Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) programs. Maryland’s All-Payer model has produced the most savings out of any of the projects and experimental payment programs researched by CMMI. The success of Maryland’s programs prompted CMMI to look at expanding similar programs in other states.  

Reductions in hospital costs combined with improved outcomes can only benefit patients and the healthcare industry in the long run. Since clinical laboratory testing is integral to early diagnoses and treatment of diseases, under Maryland’s current reimbursement model a robust clinical laboratory service is invaluable for succeeding at cost containment and patient outcome goals.   

JP Schlingman

Related Information:

Meaningful Value-Based Payment Reform, Part 1: Maryland Leads the Way

Meaningful Value-Based Payment Reform, Part 2: Expanding The Maryland Model to Other States

The National Implications of Maryland’s All-Payer System

The Total Cost of Care Model: Uniquely Maryland, Uniquely Successful

CMS and Maryland Announce Joint Initiative to Modernize Maryland’s Health Care System to Improve Care and Lower Costs

Maryland All-Payer Model to Deliver Better Care and Lower Costs

CMS: Maryland All-Payer Model

CMS: Maryland Total-Cost-of-Care Model

Maryland’s All-Payer Model Results

Evaluation of the Maryland Total Cost of Care Model: Implementation Report

Maryland Total Cost of Care Model Reduced Spending by $365 Million in First Year