A critical look at Maryland's payment system for hospitals

A hospital.

Should Maryland's tightly-controlled payment system for acute care hospitals come to an end? At least one economist believes so.

Benedic Ippolito, a research fellow at American Enterprise Institute, argued in an opinion piece in The Baltimore Sun that the all-payer rate system in place in Maryland is far more expensive that how healthcare delivery is financed in other parts of the U.S.

The Centers for Medicare & Medicaid Services, he said, has granted a waiver for Maryland to pay hospitals higher Medicare rates. And that means the program spends $1.5 billion more a year in the state than in other states where rates are fixed at the national level, according to Ippolito, who does not make comparisons on expenditures for commercial payers.

Ippolito also did not mention that the new waiver includes putting hospitals on the spot for cost overruns. In the first year of the revamped program, Maryland hospital readmissions were cut by 4 percent, unnecessary services were cut by 6 percent, and nine out of 10 hospitals reported no central-line associated bloodstream infections. CMS said the program is expected to meet its target of cutting costs by $330 million annually.

However, Ippolito noted that the revised agreement, which requires Maryland's hospitals to cap spending growth at just under 3.6 percent a year, remains significantly higher than the current annual per capita Medicare growth of about 1 percent. “Ultimately the new agreement centers on the wrong goal: rather than working to eliminate Medicare's subsidy, it largely preserves it,” Ippolito writes.

Given the initial success of the revamped payment program, Maryland Hospital Association President Carmela Coyle said that hospitals are going to have to focus on mitigating their long-term risks in order to ensure their margins.