Maryland All-Payer Hospital Model Reduces Costs, Lowers Readmissions

March 20, 2018

In 2014, Maryland and CMS entered a 5-year agreement employing the All-Payer Hospital Model in the state to cut costs while improving quality. According to the year 3 performance data, Maryland has met or is on track to meet all model requirements, saving hundreds of millions of dollars as it lowers hospital readmissions and steers the state away from a volume-based system.

In 2014, Maryland teamed up with CMS to rein in hospital costs while simultaneously improving quality through a 5-year all-payer model agreement. According to a new report from the Maryland Department of Health on year 3 (2016) performance data, the model is saving hundreds of millions of dollars as it lowers hospital readmissions and steers the state away from a volume-based system.

The All-Payer Hospital Model employs a payment system that holds hospitals responsible for the total cost of care on a per-capita basis and aims to enhance the quality of healthcare delivery, improve population health, and limit the growth in healthcare spending. Under the agreement, the overall rates each hospital charges for services are regulated by the state. The requirements of the agreement include:

  • All-payer per capita total hospital revenue growth must be limited to 3.58% per year
  • 5-year Medicare per beneficiary total hospital cost savings must be equal to, or exceed, $330 million
  • Total Medicare spending per beneficiary growth must fall below certain national growth rates
  • The aggregate Medicare 30-day all-cause readmission rate must be reduced to at or below the national average
  • The rate of hospital-acquired conditions (HACs) must be reduced by 30%
  • Hospital payment must transition away from volume-based payments
  • Maryland must submit a plan by the end of 2016 to move beyond hospitals and limit the growth in total hospital and non-hospital Medicare spending

Based on data from 2016, Maryland has met or is on track to meet all model requirements, according to the report. The state has seen a 1.53% average growth per capita; $586 million in cumulative Medicare savings in hospital expenditures, which is 5.5% below the national average growth rate; and $461 million in cumulative Medicare savings in total cost of care, which is 2.08% below the national average growth rate.

Although the state has not yet reached the required readmission reductions, it is on track to do so, having closed the gap of Maryland’s readmissions above the nation by 79% in 2016. Aiming to reduce the rate of HACs by 30%, Maryland produced a 44% reduction in its third year, and the state has moved 100% of hospital revenues from volume-based payments to global or population-based methods.

In December 2016, Maryland submitted a Total Cost of Care Model proposal, the “Progression Plan,” to HHS and CMS. The proposal would extend the current model to include hospitals, physicians, and other outpatient providers, according to the report. The following month, while awaiting approval for its proposal, Maryland and CMS announced a 1-year extension of the All-Payer Hospital Model, with a new expiration date of December 31, 2019.

“By the end of the performance year 3, the Maryland Model is on track to meet the targets of the All-payer Model Hospital Agreement with CMS,” concludes the report. “Provider-led delivery system transformation has continued to accelerate over time. The state aims to improve beyond these results and continue to reduce costs while improving quality of care in Maryland through the completion of the current model term, and continue under a new Total Cost of Care Model.”