The Maryland Model (Part 2): Understanding How Maryland’s Payment Models Work

Public/Population Health, Payers & Payment Models, Healthcare Transformation

Maryland is the only state in the country that has a waiver from the Medicare Prospective Payment System (PPS) and related regulations. The waiver allows the State to manage its healthcare costs through the evolution and implementation of the State’s unique payment model, as we discussed in the first installment of this series.  Now, we examine how Maryland payment models work.

In January 2019, the Total Cost of Care model (“TCOC”) replaced the All-Payer Model (“APM”).  TCOC places squarely on the shoulders of the hospitals the onus of cost management and quality across the continuum of care.

The All-Payer Model

The All-Payer Model was in place from January 2014 through December 2018.  This model capped hospital revenue each year based on a complex algorithm that included value-based penalties and bonuses, commonly known as “Global Budget Revenue” (“GBR”), whereby annual revenues were subject to fixed cap.[1]  Interestingly enough, hospitals’ “day-to-day” revenue was still paid based on the per-volume rates set by the Health Services Cost Review Commission (HSCRC), though the HSCRC allowed hospitals to modify their rates periodically to ensure that they would receive maximum revenue allowed under their global budget.  While the prior waiver simply limited costs per admission, the APM with its fixed revenue created an incentive to limit both volume and cost of admissions[2].

For Maryland to maintain the waiver, it had to perform well on the five-year metrics set by the State and CMS.

Maryland’s All Payer Model Results                                                                       

The Maryland Hospital Association reports the following results of the APM:

As noted, Maryland hospitals exceeded all the goals set by the State and CMS over the five years under this payment model, setting up the next stage in the evolution of Maryland’s payment models.

The Total Cost of Care Model

Not surprisingly, based on its name, the TCOC model focuses on the total cost of care for each Medicare beneficiary, rather than the more narrow per capita hospital cost of the APM.  TCOC calls attention to the health of the community as well as the individual.  It incentivizes the healthcare system to partner across the care continuum while investing in community-based care and social determinants of health.

Under the TCOC model, hospitals take on more risk than they encountered under the APM. Medicare beneficiaries can still access care in a fee-for-service provider environment, with the freedom to see providers of their choosing, while costs accrued under Medicare Parts A and B are attributed to the patients in the hospital’s catchment area and ultimately the hospital.  Currently, 1% of each hospital’s Medicare revenue is at risk for the cost category.

Under TCOC, there continue to be incentives to improve hospital quality of care.  Under this category, 7% of hospitals’ inpatient revenue, across all payers, is at risk.  The motive behind setting these metrics is to end patient harm in health facilities, reduce potentially avoidable conditions, enhance coordination across care settings and attempt to engage patients in improving their own care and experience.

It all sounds well and good.  One could make the case that the APM model was a success and that evolution into TCOC is rational and potentially inevitable. Policymakers are looking at the Maryland waiver and whether it is successful or not.  If it is successful it should and could be adopted across the country.  But not so fast.  The implementation and execution was not without controversy, challenges and pain points.  In the final installment of this series, we identify some of the features of the waiver that have been the most challenging and consider which aspects of the Maryland waiver experience could be educational as the rest of the country considers similar strategies.  Those who know and understand Maryland’s history are less likely to repeat the state’s mistakes and are more likely to be successful in pursuing innovative payment models.

 

[1] https://hscrc.maryland.gov/pages/budgets.aspx

[2] https://downloads.cms.gov/files/md-allpayer-finalevalrpt.pdf