Maryland’s Innovative Hospital Model Slashes Costs, Boosts Care Quality

TL/DR –

Maryland has a unique healthcare model where hospitals are paid with annual budgets set in advance, a method known as the global budget or total cost of care (TCOC) model, which encourages hospitals to provide quality care and reduce costs. The model, which has been in place since 1977, has generated $689 million in net savings to Medicare within three years and reduced total Medicare spending by an average of $292 per beneficiary per year over four years. The model also improved quality care, reduced disparities, and resulted in a decrease in hospital spending, admissions, outpatient emergency department visits and preventable admissions.

Revolutionary Hospital Budget System in Maryland

Maryland, unlike most states, uses a unique hospital funding method – annual hospital budgets are pre-established, causing a significant change in the way hospitals get paid. Compared to other states where hospitals are incentivized to earn more by delivering more services, this innovative approach could serve as a blueprint for improving hospital quality while reducing costs.

Due to the potential of Maryland’s global budget model to control costs and enhance patient care quality, it’s a topic of interest for health journalists and the federal Centers for Medicare and Medicaid Services (CMS) that urges its adoption. CMS suggests that other states use global budgets to decrease unnecessary spending by investing in primary care and minimizing needless, prolonged hospital or rehab stays.

As reported by The Baltimore Banner, hospitals in Maryland operate under the global budget system. The budgets depend on the quantity of patients served and past services rendered, and adjust based on the quality of care delivered and changes in the population served.

Budgetary Advantages

According to an April 2024 report by Mathematica, a Princeton-based consultancy, Maryland’s global budget approach has saved Medicare $689 million net over the program’s first three years (2019-2021), simultaneously enhancing the quality of care in Maryland’s hospitals.

Another term for the global budget is the total cost of care (TCOC) model. Mathematica’s report reveals that total Medicare spending for Medicare Part A/B decreased by an annual average of $292 per beneficiary, or 2.1% in the program’s first four years (2019-2022). Meanwhile, hospitals improved quality measures and reduced racial disparities.

In the TCOC model, Maryland is the sole state to employ a uniform rate-setting system to pay hospitals the same rates, whether from Medicare, Medicaid, private health insurers, or individual cash payments. The Baltimore Banner explains that global budgets incentivize hospitals to keep patients healthier and out of hospital, enabling them to retain more revenue by providing less care.

The TCOC model sets ambitious goals, aiming to reduce total per-capita Medicare fee-for-service spending, preventable hospital admissions, and hospital readmissions, in addition to improving population health and timely follow-up after acute exacerbations of chronic conditions. According to Mathematica, the model successfully reduced hospital spending by 6.1%, hospital admissions by 16.2%, outpatient emergency department visits by 5.9%, and preventable admissions by 16.8% over the program’s first four years.

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