In response, the state established the Health Services Cost Review Commission (HSCRC), a state agency with broad powers of hospital rate setting and public disclosure. The Maryland Hospital Association initially proposed rate regulation as a means of financing the growing levels of hospital uncompensated care. Like many other states, Maryland established its hospital rate setting system in the 1970s. Maryland Model (1971-2013): Formulation and Evolution of the All-Payer Rate Setting System The evolution of Maryland's system over decades provides a wealth of evidence and lessons learned, as described below. 8 However, success depends on the way in which rate setting is implemented, as well as regulators’ ability to enforce the rates and impose penalties for noncompliance. While the form of this waiver has evolved over time, it generally requires that the state's payment rules not exceed the amount that Medicare would have spent under its regular payment rules for hospitals.Ī study of Maryland's system has found that rate setting can be successful in controlling the rate of hospital cost increases. Because spending flows and performance metrics are publicly debated, these systems can provide better price and quality transparency to the public.Īll-payer systems, such as Maryland's, require a federal waiver in order for the state's rate setting agency to replace Medicare's payment rules with its own. When quality incentives are built into the payment rates of every payer, they apply to the full population of patients, rather than just an individual insurer's population, increasing the incentive to deliver care more efficiently and improve quality. In addition, a rate setting system can provide a platform for aligned approaches to improve the quality and equity of care. 7Ī hospital rate setting system can potentially contain costs, increase equity and reduce administrative waste by establishing payment levels and controlling the rate of growth of those payment levels over time. Such a system also adds to administrative waste and inequitable health outcomes. 6 The prevalence of price discrimination can leave smaller payers and the uninsured paying much higher prices for hospital services. Variations in market power have resulted in tremendous variation in the prices charges by private payers for similar hospital services, sometimes far exceeding the cost to provide services. 5 Moreover, in many areas of the county hospitals have achieved enormous market power, both by acquiring other hospitals but also by acquiring physician practices. 4 Annual increases in hospital spending have been identified as a major driver of medical spending, and even a modest decrease can mean annual savings of billions of dollars. 3 Moreover, hospital spending is expected to increase by 5.7 percent per year, on average, during 2020-2027-far exceeding the general rate of inflation. Hospital care (inpatient and outpatient) accounts for about one-third of national healthcare spending. What Value Problems Does Rate Setting Address? 1 (March 2015 first updated August 2017) with results from Maryland’s most recent Medicare waiver, and the state’s progress towards the Triple Aim: Improving the individual experience of care, improving population health and reducing per capita costs. This paper updates Hub Research Brief No. When every payer in the state participates-as is the case in Maryland-it is referred to as all-payer hospital rate setting. ![]() Hospital rate setting is a system in which an authority, usually a state agency, establishes uniform rates for hospital services for multiple payers. Payers can include private health insurance plans, self-insured employer plans, and uninsured individuals, and may also include public payers like Medicaid and Medicare. In most states, hospitals negotiate payment rates with each payer. 1 | May 2020 (updated from March 2015 and August 2017) Hospital Rate Setting: Successful in Maryland but Challenging to Replicate
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