An analysis of Maryland’s global budget program for rural hospitals showed that it had no impact on hospital use or spending, compared with a control group, despite hopes that it would reduce both. The program did not include health services provided outside the hospitals or payments to physicians, which may have limited incentives for providers.
Our results underscore the need for policymakers to consider incentives for behavior change among hospitals and physicians when designing alternative payment models for hospital care.
Since the 1970s, Maryland has operated a rate-setting system that sets the prices hospitals can charge health care payers. Without a global budget, however, hospitals could increase their revenues simply by providing more services to patients. By constraining revenue through a set global budget, policymakers sought to give hospitals a financial incentive to limit unnecessary hospital use through more effective patient care management programs in non-hospital settings that could reduce avoidable emergency department (ED) visits and hospital stays.
Maryland’s global budget specifies the total amount of revenue an acute-care hospital can receive from Medicare, Medicaid, commercial insurers, and self-pay patients for inpatient, ED, and outpatient services provided on the hospital campus. The state implemented the program in phases, starting with eight rural hospitals in 2010 and followed by 36 larger urban and suburban hospitals in 2014.
Prior evaluations of Maryland’s program have been limited by short follow-up periods and a failure to isolate payment changes from other influences. Those other studies also focused on urban and suburban hospitals, which have different economic incentives than rural hospitals due to competition from other local hospitals. With Commonwealth Fund support, researchers led by Eric Roberts of the University of Pittsburgh and Ateev Mehrotra, M.D., of Harvard Medical School compared changes in service utilization and spending among Medicare beneficiaries at the rural hospitals participating in the global budget program to changes in a within-state control group.
By 2013 — three years into the program — no significant changes were seen in care use or price-standardized hospital spending for Medicare beneficiaries in the participating rural hospitals compared with the control group. Acute hospital stays and return visits to the hospital after 30 days changed by similar amounts in areas served by the participating rural hospitals and the control group without exposure to global budgets.
The Big Picture
The implementation of the global budget program in Maryland’s rural hospitals was not associated with reductions in hospital use, despite policymakers’ hopes and expectations. One reason, the researchers say, is that while the program set global budgets for hospital care, it did not include services provided outside the hospitals or payments to physicians. In other payment models currently being tested and implemented — such as those for accountable care organizations — budgets cover total spending and physician groups assume financial risk and reward. Maryland’s global budget may not have provided sufficient incentives for physicians to reduce hospital use, the authors conclude. It could also be that it will take more than three years for positive changes to emerge.
In 2017, Maryland implemented a program to encourage hospitals to coordinate and manage care for chronically ill patients. There are also plans to establish spending benchmarks for the total costs of care and to align the financial incentives of hospitals and physicians.
About the Study
The researchers analyzed enrollment and claims data for fee-for-service Medicare beneficiaries in Maryland from 2007 to 2013 at seven of eight rural hospitals that were placed under the global budget in July 2010. The authors compared trends in hospital use and spending for these patients with trends in a control group of rural hospitals that did not participate in the 2010 global budget program.
The Bottom Line
A global budget program implemented in Maryland in 2010 in rural hospitals had no impact on hospital use, compared with a control group of within-state hospitals. When designing payment models, policymakers should consider the incentives for both hospitals and physicians.