Maryland for All
The bad news is that Medicare spending keeps going up. In 2023 it increased 8.1%. The good news is that Maryland is doing something about it.
To keep hospital costs down, Maryland established an all-payer system in 1977 where Medicare, Medicaid, and commercial insurers all paid hospitals at the same rate.1 Maryland authorities worked together with hospitals and consumer groups to come up with a fair and equitable rate structure that gave hospitals a stable source of income for the medical services they offered.
If hospitals wanted to increase their profits under an all-payer system, they had strong incentives to run their operations more efficiently to reduce expenses, which was what the state wanted in order to save money.
In 2014, Maryland introduced global budgeting, which allowed hospitals to start off their fiscal year with a predictable revenue stream. Maryland based prospective budgets on each hospital’s past years’ revenue and then adjusted those budgets for inflation. Up to 2014, hospitals relied on volume based fee-for-service payments to make more money. Under a fee-for-service arrangement, providers could boost their incomes, say, by ordering more blood tests, requiring longer hospital stays, or readmitting more patients.2
Having a global budget instead gave hospitals incentives to control costs and reduce unnecessary services. Additionally, having a stable income not linked to the volume of services made it easier for Maryland hospitals to focus more attention on coming up with reliable ways to improve patient outcomes.
To further constrain costs, Maryland added a Total Cost of Care program in 2019. The purpose of the program was to limit Part A and Part B Medicare spending, which covered both hospital and non-hospital expenditures. Under the Total Cost of Care program, hospitals ran under a global budget. Maryland encouraged hospitals to reinvest their revenues from more efficient operating practices to outside providers, who could then provide outpatient care at lower costs.
Hospitals, for instance, began coordinating their care with skilled nursing facilities and home health agencies along with primary care physicians who, in turn, followed up patients after discharge. To clarify, Maryland did not use a global budget to curtail those out-of-hospital expenses; rather, it gave hospitals incentives to work with out-of-hospitals providers as a way to reduce spending, yet still provide necessary care.
A 2022 study prepared for the Centers for Medicare and Medicaid Services (CMS) estimated that between the years 2019 – 2021, Maryland reduced hospital admissions 16.1 percent, lowered Medicare fee-for-service spending (Part A and Part B) by 2.5 percent, and increased timely follow-up after hospital discharge 2.5 percent. Altogether, CMS estimates that Maryland saved the federal government $781 million in fee-for-services spending.4
If the United States were to one day have a universal healthcare system, it could build on some of the same features Maryland is using today: a system where all payers reimburse at the same rate, a global budget, and integrated care between hospitals and out-of-hospital providers.
It is possible.
1Harold A. Cohen, PhD, Maryland’s All-Payer Hospital Payment System, Executive Summary.
2State Value & Health Associations. Toward a Global Budget: State Considerations. Washington, DC: State Value & Health Associations.
3Rotter, Jason, et al. Evaluation of the Maryland Total Cost of Care Model: Quantitative-Only Report. Washington, DC: Mathematica Policy Research, 2022.
4Mathematica Policy Research. Findings at a Glance: Maryland Total Cost of Care Model, First Two Model Years (2019–2020). Washington, DC, 2021.