Medicare Physician Payment Reform: Will 2014 Be the Fix for SGR?

By Mark McClellan, MD, PhD; Kavita Patel, MD, MS; Darshak Sanghavi, MD

JAMA, January 13, 2014

Every year since 2001, the SGR formula (sustainable growth rate) has called for an across-the-board reduction in payment rates, because the overall increase in the volume and intensity of physician-related services has exceeded the target SGR. Since 2002, Congress has stepped in with short-term legislation to avert the payment reduction.

What is different this year is that the patch has been enacted for only 3 months. This is because the congressional committees with jurisdiction over Medicare also passed bipartisan legislation to “fix” the SGR permanently and support a transition to payments based on a fundamentally different definition of value, with higher payments related to measures of better quality and efficiency for patients, not greater volume and intensity of services.

One major challenge to the ultimate success of the reform legislation is whether effective alternative payment systems can be developed quickly enough. Although there is promising evidence for many payment reforms now, no specific alternative payment models have been identified that could clearly reduce costs while improving quality across the nation. Moreover, participation in Medicare’s Physician Quality Reporting System has been limited, and many physicians believe that it has not improved quality.

How much physician payment reform occurs in 2014 may come down to how much physicians are willing to advocate for alternatives to the predictable but consuming short-term patches—alternatives that may not be permanent or clear but that would give physicians much more opportunity to lead in reforming health care.

http://jama.jamanetwork.com/article.aspx?articleid=1814190

This year we are finally going to enact an SGR fix (eliminate a flawed formula that otherwise would result in intolerable reductions in Medicare payments), and replace it with a system designed to reward better quality and greater efficiency. But if you read the third paragraph above, you will see that we don’t know how to do that! And this comes from former CMS administrator Mark McClellan and his colleagues at the Brookings Institution.

Instead of continuing to futz around with Mickey Mouse schemes allegedly aimed at improving quality and efficiency, we should adopt a system that is specifically designed to improve the way we spend out health care dollars – a single payer national health program. When we speak of an improved Medicare for all, we are referring to improvements made possible through a single system of financing health care – Medicare improvements which would be very difficult or impossible to implement as long as Medicare remains only one component of our fragmented, dysfunctional health care financing system – a system only perpetuated by the Affordable Care Act.

Implementing Health Reform: Four Years Later

By Timothy S. Jost
Health Affairs, January 2014

Despite enormous potential, the Affordable Care Act has been plagued by controversy and confusion from day one.

Looking Ahead

It is likely that more complaints will be heard once people actually use their ACA coverage. Many exchange carriers are offering limited provider networks. Narrow networks allow insurers to reduce premiums as they exclude the most expensive providers and negotiate steep discounts with those who remain. Consumers will like the low premiums but will be unhappy to learn that their doctors are not available and shocked to discover charges from out-of-network specialists when they go to in-network hospitals.

Consumers may also be surprised by the magnitude of cost sharing under ACA plans. Bronze plans may have $6,000 deductibles, and silver plans can have deductibles of $2,000 or more. Even at these levels, of course, cost-sharing obligations will be lower than many policies found now in today’s nongroup market. But this is not free care, or anything close to it.

Millions of low-income Americans in states that refuse to expand Medicaid will find themselves too poor to receive any help. This is, of course, not the fault of the ACA but rather of its opponents. But the public may not grasp this distinction.

Other problems will also attend the implementation of the 2014 reforms, and all will be widely reported. Employers may continue to reduce employees to thirty hours or otherwise try to avoid offering health insurance to their employees. Insured and self-insured plans will bear part of the cost of expanding coverage and reinsuring high-cost enrollees in the individual market, increasing their costs. Finally, public outrage is sure to hit the headlines again when tax filing time arrives in 2015 as some individuals will be assessed the penalty for remaining uninsured, while others will face a repayment demand for overpaid premium tax credits.

Going forward, one of the most important challenges facing the ACA will be whether its benefits become apparent quickly and dramatically enough to offset the problems that are currently dominating the news coverage of the health reform law. Even more important may be the question of how much it will matter that the greatest beneficiaries of the ACA are likely to be low-income Americans, who are less likely to be politically active than many of the higher-income Americans who will be adversely affected by higher insurance premiums and taxes.

In the end, the most important fact is that the ACA addresses a real and dramatic problem: nearly fifty million uninsured Americans. Its opponents in Congress have failed to put forth any credible proposal to address this problem since the law was enacted. As disruptive as it may in fact be, the ACA does address this problem. If it succeeds, America will be a better place. If it fails, it is unlikely that another solution will be forthcoming any time soon, perhaps not for another generation.

http://content.healthaffairs.org/content/33/1/7.full

Comment:

By Don McCanne, M.D.

Timothy Jost is one of the most astute, objective analysts and observers of the unfolding of the Affordable Care Act. We should listen to him when he describes the negative impact that ACA will have on moderate- and higher-income Americans. They will be especially unhappy with their loss of choice of physicians and hospitals because of the narrow or ultra-narrow networks, and they will be greatly displeased with out-of-pocket costs that are much greater than they previously experienced.

Although Jost suggests that the determination of the success or failure will be based on how successful the enrollment of the 50 million mostly lower-income uninsured Americans will be, it is more likely that those with incomes above 400 percent of the federal poverty level who will be bearing the full costs of their insurance, directly or through wage concessions, will consider the shift in employer-sponsored plans toward narrow networks and high cost sharing to be a failure of policy.

Although Jost also discusses the positive features of ACA, they do not offset the negative since we did not have to accept such a compromised system.

Although he suggests that another solution is unlikely for a generation, once the politically active people with good jobs and decent incomes realize what happened and what they could have had, the demand for single payer Medicare for all will move the process much earlier. At least for their benefit, and for the benefit of all U.S. residents, we hope so.

Implementing Health Reform: Four Years Later

By Timothy S. Jost
Health Affairs, January 2014

Despite enormous potential, the Affordable Care Act has been plagued by controversy and confusion from day one.

Looking Ahead

It is likely that more complaints will be heard once people actually use their ACA coverage. Many exchange carriers are offering limited provider networks. Narrow networks allow insurers to reduce premiums as they exclude the most expensive providers and negotiate steep discounts with those who remain. Consumers will like the low premiums but will be unhappy to learn that their doctors are not available and shocked to discover charges from out-of-network specialists when they go to in-network hospitals.

Consumers may also be surprised by the magnitude of cost sharing under ACA plans. Bronze plans may have $6,000 deductibles, and silver plans can have deductibles of $2,000 or more. Even at these levels, of course, cost-sharing obligations will be lower than many policies found now in today’s nongroup market. But this is not free care, or anything close to it.

Millions of low-income Americans in states that refuse to expand Medicaid will find themselves too poor to receive any help. This is, of course, not the fault of the ACA but rather of its opponents. But the public may not grasp this distinction.

Other problems will also attend the implementation of the 2014 reforms, and all will be widely reported. Employers may continue to reduce employees to thirty hours or otherwise try to avoid offering health insurance to their employees. Insured and self-insured plans will bear part of the cost of expanding coverage and reinsuring high-cost enrollees in the individual market, increasing their costs. Finally, public outrage is sure to hit the headlines again when tax filing time arrives in 2015 as some individuals will be assessed the penalty for remaining uninsured, while others will face a repayment demand for overpaid premium tax credits.

Going forward, one of the most important challenges facing the ACA will be whether its benefits become apparent quickly and dramatically enough to offset the problems that are currently dominating the news coverage of the health reform law. Even more important may be the question of how much it will matter that the greatest beneficiaries of the ACA are likely to be low-income Americans, who are less likely to be politically active than many of the higher-income Americans who will be adversely affected by higher insurance premiums and taxes.

In the end, the most important fact is that the ACA addresses a real and dramatic problem: nearly fifty million uninsured Americans. Its opponents in Congress have failed to put forth any credible proposal to address this problem since the law was enacted. As disruptive as it may in fact be, the ACA does address this problem. If it succeeds, America will be a better place. If it fails, it is unlikely that another solution will be forthcoming any time soon, perhaps not for another generation.

http://content.healthaffairs.org/content/33/1/7.full

Timothy Jost is one of the most astute, objective analysts and observers of the unfolding of the Affordable Care Act. We should listen to him when he describes the negative impact that ACA will have on moderate- and higher-income Americans. They will be especially unhappy with their loss of choice of physicians and hospitals because of the narrow or ultra-narrow networks, and they will be greatly displeased with out-of-pocket costs that are much greater than they previously experienced.

Although Jost suggests that the determination of the success or failure will be based on how successful the enrollment of the 50 million mostly lower-income uninsured Americans will be, it is more likely that those with incomes above 400 percent of the federal poverty level who will be bearing the full costs of their insurance, directly or through wage concessions, will consider the shift in employer-sponsored plans toward narrow networks and high cost sharing to be a failure of policy.

Although Jost also discusses the positive features of ACA, they do not offset the negative since we did not have to accept such a compromised system.

Although he suggests that another solution is unlikely for a generation, once the politically active people with good jobs and decent incomes realize what happened and what they could have had, the demand for single payer Medicare for all will move the process much earlier. At least for their benefit, and for the benefit of all U.S. residents, we hope so.

Health Care on a Budget: The Financial Burden of Health Spending by Medicare Households

By Juliette Cubanski, Christina Swoope, Anthony Damico and Tricia Neuman
Kaiser Family Foundation, January 9, 2014

The Medicare program offers health and financial protection to more than 50 million seniors and younger people with disabilities.  However, the high cost of premiums, cost-sharing requirements, and gaps in the Medicare benefit package can result in beneficiaries spending a substantial share of their household budgets on health care.  

Medicare households devoted nearly 14% of total household spending to health-related expenses in 2012, on average — a substantially larger share than non-Medicare households.

Spending on health insurance premiums, including for Part B, Part C (Medicare Advantage), Part D and supplemental coverage (such as Medigap and retiree health plans), was about two-thirds (65.4%) of Medicare households’ average health care spending in 2012, and 9.1% of Medicare household spending overall.  Medical services (such as hospital stays, physician services, lab tests, and X-rays) were the next largest component of Medicare households’ health spending (18.5%), followed by prescription drugs (13.0%) and medical supplies (3.1%). 

The financial burden of out-of-pocket health spending is felt disproportionately by some subgroups of Medicare households, including older beneficiaries and those with incomes between 100% and 399% of poverty.

As policymakers consider options to address federal budget concerns, including policies to rein in Medicare spending, these findings highlight the importance of assessing the effects of such proposals on out-of-pocket health care spending among Medicare beneficiaries — a majority of whom already live on tight budgets.

http://kff.org/medicare/issue-brief/health-care-on-a-budget-the-financial-burden-of-health-spending-by-medicare-households/

****

Amount of Savings Needed for Health Expenses for People Eligible for Medicare: More Rare Good News

By Paul Fronstin, Ph.D., Dallas Salisbury, and Jack VanDerhei, Ph.D.
Employee Benefit Research Institute, October 2013

Individuals should be concerned about saving for health insurance premiums and out-of-pocket expenses in retirement for a number of reasons. Medicare generally covers only about 60 percent of the cost of health care services for Medicare beneficiaries ages 65 and older, while out-of-pocket spending accounts for 12 percent. Furthermore, the percentage of private-sector establishments offering retiree health benefits has been falling, and where benefits are offered, they are becoming less generous. This is true even in the public sector.

Couples at the 90th percentile in drug expenses would need $220,000 to have a 50 percent chance of having enough money to cover health care expenses in retirement. They would need $295,000 to have a 75 percent chance of covering their expenses and $360,000 to have a 90 percent chance of covering their expenses.

However, it should be noted that many individuals will need more than the amounts cited in this report because this analysis does not factor in the savings needed to cover long-term care expenses, nor does it take into account the fact that many individuals retire prior to becoming eligible for Medicare.

Finally, issues surrounding retirement income security are certain to become an even greater challenge in the future, as employers continue to scale back retiree health benefits and as policymakers begin to realistically address financial issues in the Medicare program with solutions that are likely to shift more responsibility for health care costs to Medicare beneficiaries.

http://www.ebri.org/pdf/notespdf/EBRI_Notes_10_Oct-13_RetSvgs-IRAs.pdf

Comment:

By Don McCanne, M.D.

The bad news is that out-of-pocket expenses for those on Medicare are significant and fall disproportionately on older individuals and those with incomes between 100% and 400% of the federal poverty level. Although some relief is anticipated with the closing of the Part D donut hole, the overall burden is expected to increase, especially with proposed policies that would increase spending on Medicare insurance premiums.

A far more equitable system would be to completely separate payments for the financing of health care from the benefits received. That is, eliminate premiums, deductibles, co-payments and coinsurance and instead use a single public fund for health care to which individuals contribute based on ability to pay (i.e, progressive taxes). Then care is accessed based only on medical need, not on ability to pay.

As long as Medicare remains a separate program exclusively for the elderly and for individuals with long term disabilities, we are going to see efforts made to try to limit federal spending on Medicare, passing more costs onto the beneficiaries. Increases in premium revenues is quite likely, not only for Part B and Part D of Medicare, but also for private Medigap, Medicare Advantage, and retiree health plans. Also, proposed taxes on Medigap premiums are on the agenda.

Both of today’s articles demonstrate that the burden is already too great, especially for the majority who are on tight budgets. Rather than shifting yet more responsibility for health care costs onto the backs of Medicare beneficiaries, we should be reducing it. If we were all in this together, as we would be with an improved Medicare for all, we would be demanding relief from excessive out-of-pocket costs while begrudgingly paying our taxes.

Health Care on a Budget: The Financial Burden of Health Spending by Medicare Households

By Juliette Cubanski, Christina Swoope, Anthony Damico and Tricia Neuman
Kaiser Family Foundation, January 9, 2014

The Medicare program offers health and financial protection to more than 50 million seniors and younger people with disabilities.  However, the high cost of premiums, cost-sharing requirements, and gaps in the Medicare benefit package can result in beneficiaries spending a substantial share of their household budgets on health care.

Medicare households devoted nearly 14% of total household spending to health-related expenses in 2012, on average — a substantially larger share than non-Medicare households.

Spending on health insurance premiums, including for Part B, Part C (Medicare Advantage), Part D and supplemental coverage (such as Medigap and retiree health plans), was about two-thirds (65.4%) of Medicare households’ average health care spending in 2012, and 9.1% of Medicare household spending overall.  Medical services (such as hospital stays, physician services, lab tests, and X-rays) were the next largest component of Medicare households’ health spending (18.5%), followed by prescription drugs (13.0%) and medical supplies (3.1%).

The financial burden of out-of-pocket health spending is felt disproportionately by some subgroups of Medicare households, including older beneficiaries and those with incomes between 100% and 399% of poverty.

As policymakers consider options to address federal budget concerns, including policies to rein in Medicare spending, these findings highlight the importance of assessing the effects of such proposals on out-of-pocket health care spending among Medicare beneficiaries — a majority of whom already live on tight budgets.

http://kff.org/medicare/issue-brief/health-care-on-a-budget-the-financia…

****

Amount of Savings Needed for Health Expenses for People Eligible for Medicare: More Rare Good News

By Paul Fronstin, Ph.D., Dallas Salisbury, and Jack VanDerhei, Ph.D.
Employee Benefit Research Institute, October 2013

Individuals should be concerned about saving for health insurance premiums and out-of-pocket expenses in retirement for a number of reasons. Medicare generally covers only about 60 percent of the cost of health care services for Medicare beneficiaries ages 65 and older, while out-of-pocket spending accounts for 12 percent. Furthermore, the percentage of private-sector establishments offering retiree health benefits has been falling, and where benefits are offered, they are becoming less generous. This is true even in the public sector.

Couples at the 90th percentile in drug expenses would need $220,000 to have a 50 percent chance of having enough money to cover health care expenses in retirement. They would need $295,000 to have a 75 percent chance of covering their expenses and $360,000 to have a 90 percent chance of covering their expenses.

However, it should be noted that many individuals will need more than the amounts cited in this report because this analysis does not factor in the savings needed to cover long-term care expenses, nor does it take into account the fact that many individuals retire prior to becoming eligible for Medicare.

Finally, issues surrounding retirement income security are certain to become an even greater challenge in the future, as employers continue to scale back retiree health benefits and as policymakers begin to realistically address financial issues in the Medicare program with solutions that are likely to shift more responsibility for health care costs to Medicare beneficiaries.

http://www.ebri.org/pdf/notespdf/EBRI_Notes_10_Oct-13_RetSvgs-IRAs.pdf

The bad news is that out-of-pocket expenses for those on Medicare are significant and fall disproportionately on older individuals and those with incomes between 100% and 400% of the federal poverty level. Although some relief is anticipated with the closing of the Part D donut hole, the overall burden is expected to increase, especially with proposed policies that would increase spending on Medicare insurance premiums.

A far more equitable system would be to completely separate payments for the financing of health care from the benefits received. That is, eliminate premiums, deductibles, co-payments and coinsurance and instead use a single public fund for health care to which individuals contribute based on ability to pay (i.e, progressive taxes). Then care is accessed based only on medical need, not on ability to pay.

As long as Medicare remains a separate program exclusively for the elderly and for individuals with long term disabilities, we are going to see efforts made to try to limit federal spending on Medicare, passing more costs onto the beneficiaries. Increases in premium revenues is quite likely, not only for Part B and Part D of Medicare, but also for private Medigap, Medicare Advantage, and retiree health plans. Also, proposed taxes on Medigap premiums are on the agenda.

Both of today’s articles demonstrate that the burden is already too great, especially for the majority who are on tight budgets. Rather than shifting yet more responsibility for health care costs onto the backs of Medicare beneficiaries, we should be reducing it. If we were all in this together, as we would be with an improved Medicare for all, we would be demanding relief from excessive out-of-pocket costs while begrudgingly paying our taxes.

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

Centers for Medicare and Medicaid Services, January 10, 2014

On 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-payer rate-setting system for hospital services that will improve patient health and reduce costs.

Maryland operates the nation’s only all-payer hospital rate regulation system.  This system is made possible, in part, by a 36 year old Medicare waiver (codified in Section 1814(b) of the Social Security Act) that exempts Maryland from the Inpatient Prospective Payment System (IPPS) and Outpatient Prospective Payment System (OPPS) and allows Maryland to set rates for these services.  Under the waiver, all third party purchasers pay the same rate.  The State of Maryland and CMS believe that the new model test announced today will provide an opportunity for Maryland to reform its delivery system to align with the goals of delivering better health, better care, and lower cost.  

Terms of the Model

Maryland’s all-payer rate setting system for hospital services presents an opportunity for Maryland and CMS to test a unique model that has the potential to inform CMS and other states.  This opportunity is available through the authority of the Innovation Center, which was created by the Affordable Care Act to test payment and service delivery models.

Under the terms of the Maryland All-Payer Model:

• Maryland will agree to permanently shift away from its current statutory waiver, which is based on Medicare payment per inpatient admission, in exchange for the new Innovation Center model based on Medicare per capita total hospital cost growth.  

• This model will require Maryland to generate $330 million in Medicare savings over a five year performance period, measured by comparing Maryland’s Medicare per capita total hospital cost growth to the national Medicare per capita total hospital cost growth.

• This model will require Maryland to limit its annual all-payer per capita total hospital cost growth to 3.58%, the 10-year compound annual growth rate in per capita gross state product.

• Maryland will shift virtually all of its hospital revenue over the five year performance period into global payment models, incentivizing hospitals to work in partnership with other providers to prevent unnecessary hospitalizations and readmissions.  

• Maryland will achieve a number of quality targets designed to promote better care, better health and lower costs.  Under the model, the quality of care for Maryland residents, including Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) beneficiaries will improve as measured by hospital quality and population health measures.  

• If Maryland fails during the five-year performance period of the model, Maryland hospitals will transition over two years to the national Medicare payment systems.  

• Before the start of the fourth year of the model, Maryland will develop a proposal for a new model based on a Medicare total per capita cost of care test to begin no later than after the end of the five year performance period.

This model will test whether an all-payer system for hospital payment that is accountable for the total hospital cost of care on a per capita basis is an effective model for advancing better care, better health and reduced costs.  CMS expects that this model will be used to engage all Maryland hospitals, as well as other care providers, in payment reform and innovation.  

CMS and Maryland expect that the All-Payer Model will be successful in improving the quality of care and reducing program expenditures for Maryland residents, including Medicare, Medicaid, and CHIP beneficiaries.  Moreover, the Maryland system may serve as a model for other states interested in developing all-payer payment systems.

http://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-Sheets/2014-Fact-sheets-items/2014-01-10.html

****

Guiding Principles for Implementation of Population­-Based and Patient Centered Payment Systems: A Report from the Advisory Council to the Maryland Health Services Cost Review Commission, January 31, 2014

The State of Maryland is leading a potentially transformative effort to lower health care spending in the State while at the same time improving access to care and quality of care. Stated in terms of the “Three Part Aim,” the goal is a health care system that enhances patient care, improves health outcomes, and lowers total costs.

To achieve this goal, the State of Maryland worked closely with the Centers for Medicare and Medicaid Services (CMS) throughout 2013 to craft an innovation plan that would make Maryland a national leader achieving the Three Part Aim and permit the federal government to continue to participate in the four‐decade long all‐payer system that has proven to be both successful and enduring. The federal government is anticipated to approve Maryland’s new Model Design application and implementation begins in January 2014.

Building on the Commission’s existing authority to regulate and set hospital rates across all payers including Medicare, the State is preparing to tie system‐wide hospital inpatient and outpatient payment to economic growth. Effectively, the State is instituting a plan to shift from payment based on inpatient hospital cost per admission to total hospital cost per capita. The ultimate goal is to tie total health care spending per capita to the per capita growth of the state’s economy. New health care delivery and payment models will be aligned with numerous existing initiatives to help meet the goals.

Advisory Council Recommendations

2.  Hospital Global Payment Models are the best strategy for the first phase of implementation.

The HSCRC anticipates that most hospitals will be operating under global payment models by early 2014. These models hold the most promise for meeting the revenue targets in the early years because they move away from incentives in fee‐for‐service payment that foster a greater volume of services and offer strong budget discipline. In addition, global payments provide clear and simple revenue targets with flexibility for hospitals to manage within these macro goals. In the long‐run, these models will need to evolve to ensure that the revenue in the system follows the patients.

(DISCLAIMER: This is a draft document for discussion purposes which has been prepared by consultants to the Advisory Council. The contents of this draft have not been reviewed or approved by Advisory Council members.)

Draft Report: http://www.hscrc.state.md.us/documents/md-maphs/ac-meet-2014-01-09/hscrc-advisory-council-initial-draft-report-2014-01-07.pdf

Maryland Health Services Cost Review Commission

All Payer Hospital System Modernization: Advisory Council: http://www.hscrc.state.md.us/hscrc-advisory-council.cfm

Overview of Proposed New All-Payer Model: http://www.hscrc.state.md.us/documents/md-maphs/ac-meet-2013-11-13/hscrc-overview-of-maryland-all-payer-model-proposal.pdf

Comment:

By Don McCanne, M.D.

The model for a single payer national health program, as proposed by Physicians for a National Health Program, includes placing hospitals on global budgets. Just as police and fire departments are funded by single, publicly-financed global budgets rather than being paid for each fire or crime intervention as they arise, hospitals would likewise be placed on single, publicly-financed global budgets that are adjusted based on some reasonable index of inflation. Not only does that cost less, partly by dramatically reducing administrative waste, it also improves quality by providing the hospital administration with the flexibility to improve the allocation patient care dollars, plus it slows health care inflation to a sustainable level.

Maryland is the only state that currently has an all-payer hospital rate regulation system. Under this system, all payers, including Medicare, Medicaid, CHIP, private insurers, and individuals pay the same rates for the same hospital services. This has reduced administrative complexity, made payment for hospital services more equitable, and has slowed the increases in hospital spending from one of the most expensive states down to average.

Since their all-payer system pays for services provided, incentives remain to increase volume of services. Under the new system just approved by CMS, payment will still be all-payer but will not be based on volume of services, but rather will be based on “the Medicare per capita total hospital cost growth.” In essence, that establishes “global budget” as a form of hospital financing in the United States, though it is limited to Maryland under the authority of the Innovation Center, which was created by the Affordable Care Act to test payment and service delivery models.

We certainly have many questions about the details that have not yet been revealed. It does fall short of hospital global budgets as envisioned by PNHP. For instance, this model still seems to pool funds from multiple public and private sources, whereas the PNHP model would use only public funds from a single pool funded by equitable taxes. That is a crucial difference since multiple sources leads to administrative complexity and inequities in funding.

In general though, it seems that we can celebrate this step towards a more equitable and just financing system. It won’t get us in the back door of single payer, but it will provide us with another talking point on policy – the fact that global budgets are an improvement but that we can make them even better when we mesh them in with a bona fide, comprehensive single payer system – an improved Medicare that covers everyone.

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

Centers for Medicare and Medicaid Services, January 10, 2014

On 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-payer rate-setting system for hospital services that will improve patient health and reduce costs.

Maryland operates the nation’s only all-payer hospital rate regulation system.  This system is made possible, in part, by a 36 year old Medicare waiver (codified in Section 1814(b) of the Social Security Act) that exempts Maryland from the Inpatient Prospective Payment System (IPPS) and Outpatient Prospective Payment System (OPPS) and allows Maryland to set rates for these services.  Under the waiver, all third party purchasers pay the same rate.  The State of Maryland and CMS believe that the new model test announced today will provide an opportunity for Maryland to reform its delivery system to align with the goals of delivering better health, better care, and lower cost.

Terms of the Model

Maryland’s all-payer rate setting system for hospital services presents an opportunity for Maryland and CMS to test a unique model that has the potential to inform CMS and other states.  This opportunity is available through the authority of the Innovation Center, which was created by the Affordable Care Act to test payment and service delivery models.

Under the terms of the Maryland All-Payer Model:

• Maryland will agree to permanently shift away from its current statutory waiver, which is based on Medicare payment per inpatient admission, in exchange for the new Innovation Center model based on Medicare per capita total hospital cost growth.

• This model will require Maryland to generate $330 million in Medicare savings over a five year performance period, measured by comparing Maryland’s Medicare per capita total hospital cost growth to the national Medicare per capita total hospital cost growth.

• This model will require Maryland to limit its annual all-payer per capita total hospital cost growth to 3.58%, the 10-year compound annual growth rate in per capita gross state product.

• Maryland will shift virtually all of its hospital revenue over the five year performance period into global payment models, incentivizing hospitals to work in partnership with other providers to prevent unnecessary hospitalizations and readmissions.

• Maryland will achieve a number of quality targets designed to promote better care, better health and lower costs.  Under the model, the quality of care for Maryland residents, including Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) beneficiaries will improve as measured by hospital quality and population health measures.

• If Maryland fails during the five-year performance period of the model, Maryland hospitals will transition over two years to the national Medicare payment systems.

• Before the start of the fourth year of the model, Maryland will develop a proposal for a new model based on a Medicare total per capita cost of care test to begin no later than after the end of the five year performance period.

This model will test whether an all-payer system for hospital payment that is accountable for the total hospital cost of care on a per capita basis is an effective model for advancing better care, better health and reduced costs.  CMS expects that this model will be used to engage all Maryland hospitals, as well as other care providers, in payment reform and innovation.

CMS and Maryland expect that the All-Payer Model will be successful in improving the quality of care and reducing program expenditures for Maryland residents, including Medicare, Medicaid, and CHIP beneficiaries.  Moreover, the Maryland system may serve as a model for other states interested in developing all-payer payment systems.

http://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-Sheets/2014-Fact-s…

****

Guiding Principles for Implementation of Population­-Based and Patient Centered Payment Systems: A Report from the Advisory Council to the Maryland Health Services Cost Review Commission, January 31, 2014

The State of Maryland is leading a potentially transformative effort to lower health care spending in the State while at the same time improving access to care and quality of care. Stated in terms of the “Three Part Aim,” the goal is a health care system that enhances patient care, improves health outcomes, and lowers total costs.

To achieve this goal, the State of Maryland worked closely with the Centers for Medicare and Medicaid Services (CMS) throughout 2013 to craft an innovation plan that would make Maryland a national leader achieving the Three Part Aim and permit the federal government to continue to participate in the four‐decade long all‐payer system that has proven to be both successful and enduring. The federal government is anticipated to approve Maryland’s new Model Design application and implementation begins in January 2014.

Building on the Commission’s existing authority to regulate and set hospital rates across all payers including Medicare, the State is preparing to tie system‐wide hospital inpatient and outpatient payment to economic growth. Effectively, the State is instituting a plan to shift from payment based on inpatient hospital cost per admission to total hospital cost per capita. The ultimate goal is to tie total health care spending per capita to the per capita growth of the state’s economy. New health care delivery and payment models will be aligned with numerous existing initiatives to help meet the goals.

Advisory Council Recommendations

2.  Hospital Global Payment Models are the best strategy for the first phase of implementation.

The HSCRC anticipates that most hospitals will be operating under global payment models by early 2014. These models hold the most promise for meeting the revenue targets in the early years because they move away from incentives in fee‐for‐service payment that foster a greater volume of services and offer strong budget discipline. In addition, global payments provide clear and simple revenue targets with flexibility for hospitals to manage within these macro goals. In the long‐run, these models will need to evolve to ensure that the revenue in the system follows the patients.

(DISCLAIMER: This is a draft document for discussion purposes which has been prepared by consultants to the Advisory Council. The contents of this draft have not been reviewed or approved by Advisory Council members.)

Draft Report: http://www.hscrc.state.md.us/documents/md-maphs/ac-meet-2014-01-09/hscrc…

Maryland Health Services Cost Review Commission

All Payer Hospital System Modernization: Advisory Council:http://www.hscrc.state.md.us/hscrc-advisory-council.cfm

Overview of Proposed New All-Payer Model:http://www.hscrc.state.md.us/documents/md-maphs/ac-meet-2013-11-13/hscrc…

The model for a single payer national health program, as proposed by Physicians for a National Health Program, includes placing hospitals on global budgets. Just as police and fire departments are funded by single, publicly-financed global budgets rather than being paid for each fire or crime intervention as they arise, hospitals would likewise be placed on single, publicly-financed global budgets that are adjusted based on some reasonable index of inflation. Not only does that cost less, partly by dramatically reducing administrative waste, it also improves quality by providing the hospital administration with the flexibility to improve the allocation patient care dollars, plus it slows health care inflation to a sustainable level.

Maryland is the only state that currently has an all-payer hospital rate regulation system. Under this system, all payers, including Medicare, Medicaid, CHIP, private insurers, and individuals pay the same rates for the same hospital services. This has reduced administrative complexity, made payment for hospital services more equitable, and has slowed the increases in hospital spending from one of the most expensive states down to average.

Since their all-payer system pays for services provided, incentives remain to increase volume of services. Under the new system just approved by CMS, payment will still be all-payer but will not be based on volume of services, but rather will be based on “the Medicare per capita total hospital cost growth.” In essence, that establishes “global budget” as a form of hospital financing in the United States, though it is limited to Maryland under the authority of the Innovation Center, which was created by the Affordable Care Act to test payment and service delivery models.

We certainly have many questions about the details that have not yet been revealed. It does fall short of hospital global budgets as envisioned by PNHP. For instance, this model still seems to pool funds from multiple public and private sources, whereas the PNHP model would use only public funds from a single pool funded by equitable taxes. That is a crucial difference since multiple sources leads to administrative complexity and inequities in funding.

In general though, it seems that we can celebrate this step towards a more equitable and just financing system. It won’t get us in the back door of single payer, but it will provide us with another talking point on policy – the fact that global budgets are an improvement but that we can make them even better when we mesh them in with a bona fide, comprehensive single payer system – an improved Medicare that covers everyone.