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Experimental Payment System Saves Maryland Hospitals $100 Million in Medicare Costs

State cuts deal with CMS to curb cost increases

Maryland hospitals collectively generated more than $100 million in Medicare savings during the first year of an experimental payment system, according to a report in the Baltimore Sun. The system is being watched by the federal government as a possible national model for reducing health care costs.

Last year, Maryland’s medical institutions signed a 5-year agreement with the Centers for Medicare & Medicaid Services (CMS). The agreement drastically changed the way hospitals in that state did business and aimed to curb costs, in part by reducing expensive hospital stays and handling more patient care at the doctor’s office.

Hospital officials — and health care advocates —contend that the new cost-cutting effort has not come at the expense of patient care.

Critics have raised concerns that hospitals, under increasing bottom-line pressure, would deny tests and other care to patients as they scrutinized spending, or that they would raise prices in other areas.

The Maryland Health Services Cost Review Commission, the panel that sets hospital rates, formed an advocacy group to monitor for potential problems with care or price increases and found none, according to Steve Ports, deputy director for policy and operations at the commission.

Maryland is the only state in the nation with a waiver from federally set Medicare rates. In a bid to reduce overall health care costs, the state has been allowed to set its own Medicare rates as well as rates charged to private insurers.

In the rest of the nation, Medicare typically reimburses hospitals at a low rate, and hospitals make up for it by charging other patients more. While Medicare may pay more in Maryland, state officials have been able to keep the rate of hospital cost increases lower than in other states.

That success in holding down a key driver of skyrocketing health care costs helped to persuade federal officials to renew and modernize the waiver, which has been in place for nearly 40 years. But the updated agreement hinged on the ability of the state’s hospitals to meet new criteria that focused on preventive care as well as on keeping costs down.

The hospitals agreed that their costs couldn’t grow faster than 3.58% in the first 5 years — the state economy’s average annual growth in the past decade. They also agreed to save Medicare at least $330 million over that 5-year period.

The new agreement radically altered Maryland’s reimbursement system. Rather than tying reimbursement to admissions, the new system gives hospitals a pool of money that will grow in tandem with the state’s economy.

CMS Deputy Administrator and Director Jonathan Blum said during a visit to Baltimore last year that the new approach could disprove the notion that quality health care must be expensive. While other programs similar to Maryland’s have shown success across the country, he said, Maryland would be the first to test the premise statewide.

The state’s hospitals were able to cut costs by better coordinating care with patients, according to Carmela Coyle, CEO of the Maryland Hospital Association. That meant making sure they had prescriptions and follow-up doctor appointments before leaving the hospital. Care coordinators also called patients after discharge to make sure they continued care.

The hospitals also have reduced the hospital readmissions rate faster than the rest of the nation and cut infections and other hospital-acquired conditions by 26%, Coyle said.

Source: Baltimore Sun; June 29, 2015.

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