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Maryland’s bold leapfrog

Posted by John McDonough  January 12, 2014 09:02 PM

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As dust begins to settle on implementation of the Affordable Care Act (ACA) (post January 1), it is predictable that states will begin again to experiment with big new policy ideas in the health space. We can see this already with purple states such as Arkansas and Iowa seeking alternative ways to take advantage of the ACA's generous Medicaid expansion; we see it with Vermont's attempts to create its own single payer system; we see it with Massachusetts' attempt to establish an aggregate limit on health care cost increases across its whole system.

Now it's Maryland's turn, and that effort just might be the most consequential of all. This past fda.sharfstein.jpgFriday, the federal government and the state announced agreement on a new five-year Medicare waiver to re-engineer the state's hospital rate setting system that has been in place since the 1970s. The revised structure will create in its place system-wide accountability to keep costs growing no faster than the overall economy and to hyper-charge the transition from fee-for-service to global payment.

For more than 30 years, Maryland's old hospital rate setting system successfully controlled per-admission hospital costs relative to the nation, a measure now recognized as too narrow. The new structure will limit per capita expenditures for hospital services, inpatient and outpatient, and will institute new tools to improve both quality and population health outcomes. Ambitious stuff.

Click here  to get free access to a New England Journal of Medicine article written by some of the key architects of this new system, including Josh Sharfstein, MD, (right) Maryland's Secretary of Health and Mental Hygiene.

From a distance, the similarities between the new Maryland and Massachusetts cost containment models are strong -- holding all payers and hospitals accountable, moving away from fee-for-service toward global payment, and more. Up close, the differences are striking, particularly because Maryland's model includes an enforcement mechanism missing in Massachusetts. Maryland can get away with this because their prior "hospital rate setting" system also included enforceable limits, and in one way, this new structure simply changes the targets.

But there is so much more:

"The resulting changes should be visible at hospitals throughout Maryland in the form of more coordinated care, a greater emphasis on care transitions, and a renewed focus on prevention. Maryland hospitals are already actively engaged in community health planning. Early experience with global budgets in the state suggests that with the right incentives, hospitals will collaborate with public health agencies, community health organizations, long-term care providers, and others in a range of creative ways. The new payment structure will align the incentives for hospitals and the state's growing number of patient-centered medical homes to manage the health of populations. In the second stage of the plan, starting in 2019, Maryland will seek to build on this progress to control the total cost of health care."

I consider this a big deal, with reservations. Even if it succeeds in Maryland, an open question, that state has had the only continuous mandatory program to regulate hospital spending since the 1970s, and now has the only one. Their new program is an ambitious and visionary evolution of "that 70s model." All other states either abandoned (like Massachusetts) or never had such a program. All of which puts Maryland in an enviable position to lead this compelling experiment. It's possible these results will matter quite a bit. In one alternative future, we will  have robust debates about the merits of Vermont's single payer versus Maryland's all-payer upgrade versus ...

... Massachusetts' less strenuous path. Massachusetts set up its Health Policy Commission with few powers other than the right to express informed opinions. That they are doing, with credibility and smarts -- see its most recent smart report here.  Massachusetts' moment of truth will come the first time costs exceed the target growth rate. Who will act and how? The first early-skirmish moment is not far off as the Commission recently recommended substantial changes before Partners Health Care could assume control of South Shore Medical Center.

Systemic health reform in the states mostly has been on hold since the national health reform debate first got hot back in 2008. It's been bubbling and percolating since then. Maryland's new development suggests we are starting to see signs of a boil. The action and the initiative are rapidly shifting back to states.

Whatever your own perspective, you are likely to see signs that please and signs that distress you.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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About the author

John E. McDonough is a professor of practice at the Harvard School of Public Health. He is the author of the book “Inside National Health Reform”, published in 2011 by More »

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