Is Maryland’s all-payer model a step toward European-style health care?

State is trying an approach that controls hospital budgets, rewards quality care, aims to keep costs low for patients

Doctors at Johns Hopkins Hospital complete a kidney transplant.
Brendan Smialowski/AFP/Getty Images

The health care system in Maryland could soon look more like that of Switzerland or Germany than Virginia or Pennsylvania, and if successful, it could be a step toward a single-payer structure that could move to other states.

In what’s called an all-payer system, the state will control and budget hospital costs, cap what hospitals may charge and reward hospitals that provide quality rather than quantity of care. Only Vermont and Massachusetts have anything as radical in the works.

“We need to shift away from our near exclusive focus on treating illness and move to a balanced approach that encourages prevention and wellness,” Maryland Gov. Martin O’Malley said in a press release announcing the program in January. “Such a shift will reduce costs for families and small businesses and will simultaneously keep many Americans from dying of preventable causes.”

The experiment is proceeding in Maryland although the beginning of Maryland’s participation in the Affordable Care Act was at best inauspicious. The moment the website opened, it crashed.

On the first day only four people managed to sign up, and according to the Washington Post, incredulous officials checked to see whether they were real. They didn’t believe anyone could actually get through.

Since then, contractors have been fired, lawsuits have been filed, officials resigned, and the website has become a political football for the upcoming gubernatorial campaign.

While the state is working out all the kinks, it is quietly beginning to experiment with its system. For the past 36 years, Maryland has regulated the fees hospitals charge patients. Other states have tried and abandoned regulation for various reasons, but Maryland kept it.

Usually, hospitals negotiate fees with each health insurer individually — including the federal government. The fees are based on the services provided and vary from insurer to insurer. The more procedures, the more fees.

The fees are not the same for all 46 hospitals in the state; a hip replacement at Johns Hopkins in Baltimore does not cost the same as one at the Peninsula Regional Medical Center in Salisbury on the Eastern Shore or at Sacred Heart in Cumberland in the mountain west. And fees vary even within each hospital.

For instance, Fran Downey, then 65, a Baltimore resident, had a near-death experience in 2010 with a massive case of sepsis. She recovered. Her bill from the Greater Baltimore Medical Center, one of the city’s largest, came to $93,000, all but $25 paid by Blue Cross Blue Shield and Medicare.

The fees had been negotiated by the insurers under state regulation. The hospital was paid based on the services provided, including almost $20,000 for the intensive care unit. The patient in the next bed could have been charged a different amount.

Under the new plan, all the state’s hospitals would get an annual budget, based on what they charged the previous year, and would have to limit its total fees to that amount. All patients at each hospital would pay the same for each service.

“It is moving to a more global budget,” said Stuart Guterman, vice president for Medicare and cost control at the Commonwealth Fund.

Quality control

This already is happening in 10 rural hospitals where the plan is being tried, and under the new rules, it will spread to all the state’s hospitals, including GBMC, and the giants Johns Hopkins Medical Institutions and the University of Maryland Medical Center.

That could save the federal government as much as $330 million, Guterman said.

Under the old system, fees were matched to Medicare; they could not rise faster than Medicare fees. That posed a problem: The cost of Medicare has increased dramatically in the last few years, and the state had difficulty catching up.

Under the new plan, approved by the Centers for Medicare and Medicaid Services, a hospital’s spending would not be able to grow more than 3.58 percent a year for the next five years. The growth would be matched to how much Maryland’s economy grows.

There are goals the hospitals have to reach, including reducing the number of readmissions and hospital-acquired infections. In other words, it would be in the hospitals’ best interests to keep patients out of the hospital, and those that succeed will be able to spend more on patients who need it. Poorly performing hospitals will get their budgets cut.

A hospital’s budget will depend on several factors, such as the hospital’s location, whether the surrounding population shrinking or growing and whether the patient population shrinking or growing, according to Carmella Coyle, president and CEO of the Maryland Hospital Association.

“You will be getting a certain amount of money. That’s the amount of money you will be getting for the year. The hospital then has to monitor its resources to manage the care for those people,” she said.

It would seem counterintuitive for hospitals to agree to such a cap, but they have embraced it. They would have known, firm budgets, which pleases them, since they tend not to like budget uncertainty. Also, they already had the current regulation system to build on, he said.

“We believe it gives us one of the most egalitarian approaches to health care coverage in the United States,” Coyle said.

A national model?

If it works — if costs are contained and the quality of care improves during the five-year performance period — the state may extend the model to other aspects of the health care system, including doctors’ offices and nursing homes, effectively creating a health care system not unlike those found in Europe.

If it doesn’t work, the federal government will move it to the Medicare model, similar to other states’.

Success could also eventually lead to the government collecting the fees and distributing costs, eventually eliminating the insurance industry.

Guterman said Maryland could be following Massachusetts’ example. The first goal of what became known as “Romneycare” was an emphasis on getting as many people as possible signed up for health insurance. Now that nearly everyone in Massachusetts is covered, the state is beginning to examine health care costs.

Massachusetts’ neighbor Vermont is moving toward the launch of a single-payer system, which would be the only one of its kind in the U.S. Other states are doing creative things, Guterman said, including California and Arkansas. In Arkansas, a plan to buy private insurance for the uninsured instead of expanding Medicaid — called the private option — passed the state legislature but now is endangered by a conservative backlash. California — which has signed up almost 1 million people through its health care marketplace, Covered California — is particularly aggressive in getting the word out as people are taking advantage of lower premiums and altering the market share among insurance providers in the state.

“Nationwide we are spending almost $3 trillion in health care,” Guterman said, “so there is a lot of money to decide how to spend better.”

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