This article first appeared in the January/February 2010 issue of the newsletter "States in Action."
Since 1971, Maryland has maintained a unique hospital payment system in which all payers—public and private—pay the same rates for the same service at a given hospital. This approach was enacted by the Maryland legislature following a period of rapidly rising hospital costs and serious financial losses by hospitals treating large numbers of uninsured patients. The legislation also established the Health Services Cost Review Commission (HSCRC), a government agency with broad powers of hospital rate setting and public disclosure. The HSCRC believed that hospitals should operate under consistent payment and so, in 1977, negotiated a waiver with the federal government to require Medicare and Medicaid to pay Maryland hospitals on the basis of rates approved by the HSCRC. As a result, the HSCRC exercises full rate-setting authority for all payers and all general acute hospitals in Maryland—the only arrangement of its kind in the U.S. This system has enabled Maryland to implement a number of innovative payment and access initiatives while avoiding "cost-shifts" that have occurred in other states, whereby hospitals charge higher prices to private insurers and the uninsured to make up for shortfalls from public payers.
In addition, the HSCRC and its all-payer system created a framework for Maryland to consider emerging best practices in payment reform and implement reforms across all payers. Maryland has been a leader in improving payment accuracy, bundling payments for outpatient services, and pay-for-performance initiatives, including incentives to reduce preventable adverse events.
The HSCRC used its exemption under the Medicare waiver to formulate a state-specific methodology that is broader in scope than Medicare's policy or any other states' nonpayment policies. HSCRC establishes annual benchmark rates for 50 preventable complications that are based on the statewide average rate for each preventable event. HSCRC then calculates the expected rate for each hospital based on its patient mix and compares the expected to the actual rate. If a hospital's actual rate of conditions is lower than expected, it receives an overall percentage increase in its rates the following year; if it is higher than expected, it receives an overall percentage decrease the following year.
"We expect our hospital payment adjustments to bring down the statewide average for preventable adverse events over time," says HSCRC Executive Director Robert Murray. "By modifying the financial incentives associated with medical errors, we expect that hospitals will now work continuously to raise the bar on patient safety."
For more information
Contact Robert Murray, executive director of the Maryland Health Services Cost Review Commission, at firstname.lastname@example.org.