All-payer system proves lowest hospital costs in nation

While the rest of the country's average cost of a hospital stay went up by 3 percent, Maryland's average only went up 2 percent, according to a report by the Maryland Health Services Cost Review Commission released on Wednesday. Even more, Maryland's 51 hospitals had the lowest markup in the nation, that is, the price difference that hospitals charge patients from the actual costs, according to The Baltimore Sun.

How did the state do it? With an all-payer system. Maryland is the only state in the nation that has rate regulation, reports The Fiscal Times.

"The Maryland experience demonstrates that an enlightened independent public utility can be empowered to successfully stem inflationary growth in hospital spending," said John Kastor, a professor of medicine at the University of Maryland in Baltimore in the Fiscal Times article. "Other states ought to think about it."

The average cost of stay in Maryland was $10,983 in 2010, compared to the slightly higher $10,996 national average, according to The Fiscal Times. The average markup was 24.5 percent, compared to a stunning 198 percent nationwide, reports The Baltimore Sun.

Under the all-payer system in which all patients, regardless of insurance status (Medicare, Medicaid, private, and uninsured), pay the same rates at a hospital, compared to the cost-shifting payment systems that other states employ, reports Carroll County Times. If Maryland hospitals were paid under the prospective payment system in which they would be compensated based on DRGs, Stephen Ports, the acting executive director of HSCRC, estimates Maryland's Medicare costs would be $400-$600 million lower than they are now, according to the Fiscal Times article.

"I could see this happening in a number of states in the next few years," said Paul Ginsburg, the executive director of the Center for Studying Health System Change, about rate regulation in the article.

For more information:
- read The Baltimore Sun article
- read The Fiscal Times article
- read the Carroll County Times article

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*This article was amended on Monday, 9/19/11. The previous version of the article said Stephen Ports, the acting executive director of HSCRC, estimates Maryland's Medicare costs would be $400-$600 million higher than they are now, when he said they would be lowered. The article has been updated. We apologize for the error.

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