Published on February 24, 2014
Draft Activity Based Financing Conference Metro Toronto Conference Center January 29-30, 2014 Experience with DRG-Based Payment, Other Prospective Rate Setting and Pay-forPerformance Arrangements From the State of Maryland Presented by Robert B. Murray, Global Health Payment, LLC (former Executive Director of the Maryland Rate Commission - HSCRC) RMurray@Globalhealthpayment.com 1
Overview of Presentation Draft 1. General Themes Emphasized in the Presentation 2. Background on Maryland and Factors leading to All-payer “activitybased” DRG Development 3. U.S. Health Care Financing System vs. the Maryland “All-Payer” Hospital Rate Setting System (Characteristics of Maryland’s System) 4. Steps in Development and Necessary Infrastructure/Data Systems 5. Key Rate Setting Features and Design in Maryland 6. Key Results: Strengths/Weaknesses & Lessons Learned 7. System Evolution: Use of Pay-for-Performance Mechanisms to promote Quality/Efficiency 8. System Evolution: Maryland realized that “activity-based” systems do not impose the desired level of “accountability” on providers 9. Summary/Conclusions 2
Major Themes of Presentation Draft • In general, the Maryland payment experience illustrates the benefits of a “rule-based” payment structure with the use of consistent and clearly defined incentives and targets • This, along with the ability to evolve the Rate System over time, have been Maryland’s two Key Success Factors • However, equally important lessons from Maryland (and any other DRG-based system) come from the weaknesses of the System and the major mistakes made along the way • The ultimate goal of any payment systems should be to adopt incentive based arrangements that provide the highest level of accountability for the cost and quality of care provided 3
Draft Background on the Maryland Hospital Rate Setting System 4
Experimental Hospital Payment Systems One very successful All-Payer Global Budget Demonstration: Rochester NY 1980-89 Draft Other Experimental Rate Setting States in 1970s & 80s MASS 1984 NY 1989 NJ 1980 Also, Medicare (the US Public insurance program For the elderly) adopted a DRG-based payment system In 1983 (Inpatient Prospective Payment System or “IPPS”). GLOBAL HEALTH PAYMENT, LLC Maryland 1976 5
Background on Maryland State of Maryland Draft Baltimore City Washington DC • 6.1 Million people • Two major Metro areas • 14% of population > age 64 • 2nd highest income per capita • 46 acute care hospitals • 3 Large Teaching Hospitals, 30 Multispecialty Urban, Suburban & 13 Rural Hospitals • $15 billion in hospital revenue = $90 bill RMB (37% of total Maryland health spending) • 700,000 discharges per year • Second highest number of Physicians per Capita in US
Factors Leading to Creation of the Hospital Payment System Draft • In the early 1970s most “payers” (private insurance and public programs like Medicare/Medicaid) paid hospitals on the basis of “reported costs” • Historical Cost-based Payment provided no incentive for efficiency • Maryland costs/case were 25% above the U.S. and growing faster • Cost-based Payment also didn’t finance care to uninsured patients • Hospitals serving large number of uninsured, were financially distressed (on the verge of bankruptcy) • In general, Hospitals supportive of the development of a consistent payment approach across all payers (stability, predictability, consistency) • Maryland Developed a Consistent, Rule-based Approach to Payment 7
Maryland Stands in Contrast to the US System of Financing Hospital Care US Healthcare System Pluralistic (fragmented) Financing System in the United States Inconsistent payment methods and incentives applied Over 2,000 private insurers Medicare Medicaid Private Payer 1 Private Payer 2 Draft Private Payer 3 Few incentives for cost control or improved quality Prices very high and not related to the cost or quality Poor resource allocation & high administrative costs All-Payer Systems Consistent Platform of Payments and Incentives Applies to both public and private payers (All-Payers) All-payer Case Based System H H H H H H Establishes a platform of more Rational & Consistent Prices Places downward pressure on and costs, H H One implication of a fragmented Payment System: Hospitals have most of the Market Power Improves resource allocations and provides incentives for improved quality 8
Characteristics of the Maryland Hospital Payment System Draft • Governed by an Independent Governmental Commission • Broad legal authority (both federal and state levels) to collect data and set hospital rates • 7 Commissioners and a profession staff of 30 individuals • Authority applies to facility services and not physician services • Data Driven: Heavy focus on development of Cost and Clinical Coding data infrastructures (use of fines for late/inaccurate reporting & audits to ensure data quality) • Emphasis on equity in setting rates (across all payers) • Mechanisms to pay for care to the Uninsured 9
Characteristics of the Maryland Hospital Payment System Draft • Use of Prospective Financial Incentives • Heavy emphasis on the “Compliance” function (enforce rates) • Evolution over time to use of different structures: Per Case (DRGs); Per Outpatient Visit (APGs); Various efficiency-based and quality-based P4P mechanisms; Eventual use of Admission-All Cause Readmission Episodes (most hospitals) An increased emphasis on the use of Prospective Global Budgets • So Maryland is a “Hybrid” System – with a gradual de-emphasis on pure DRG-Payment Incentives toward Global Budget Incentives • Eventual focus on the goals of Population-based payment and Population-based health 10
Draft Major Components Maryland’s Rate System Data, Systems and Infrastructure 11
Draft Initial Focus on Development of Significant Cost Accounting and Clinical Coding Data Infrastructures • Two major Infrastructure Development Efforts Initially ① Development of a Uniform Accounting and Reporting System (UARS) for reporting volume and cost data ② Development of a Case Mix and Clinical Coding System for reporting Patient-Level clinical and demographic data • The UARS Prescribed the Format for Reporting Cost data to the HSCRC • The Clinical Data Reporting System used ICD-9 diagnoses and procedure (and other data) as the basis for DRG assignment • Both Systems were then Linked to Provide the Basis for DRG Relative Weight Development GLOBAL HEALTH PAYMENT, LLC 12
Goals of the Cost Data Collection Activity Draft • Prescribe a manner and format for accounting for and reporting inpatient, outpatient, ancillary direct and indirect costs • Definition of output and volume measures • Allow for continuous updating of the Rate Setting System and monitor volume and cost performance • Compile data in a format so that it could be used by hospital management to evaluate their performance relative to other peer hospitals • Provide transparence and allow bench-marking by the HSCRC • Establish DRG weights that are reflective of relative resource use (i.e., Allow for Pricing Accuracy and more efficient allocation of resources) 13
Draft Goals of Cost Data Collection Activity R. Busse, et al, DRG’s in Europe. European Observatory on Health Systems and Policies, 2011 14
Draft Generic Cost Accounting System 1 - Uniform Chart of Accounts 2 – Allocate to Departments 3 – Overhead Allocation/ Step-down 4 – Linking costs by service to individual patient services 5 – Establish DRG Relative Weights 15
Purpose and Goals of Data Collection Activity Draft • Need to Measure Variations in illness of patients from hospital to hospital • Need to to relate patient characteristics (& the characteristics of their illness) to the type/amount of hospital resources they consume • This in turn provides the ability to define a more consolidated Output Measure from the hospital production process adjusted for patient illness • Each DRG is a type of product produced by the hospital • When you have a product and an expected resource use for each type of product (each type of Case) you can establish a price for that product • DRGs are also valuable tools (original purpose) to manage their patients (clinically and operationally) • Later - use in quality of care assessments & Pay for Performance (P4P) 16
Case Mix Data Elements Collected (1) Medicare Provider Number. (2) Medical Record Number. (3) Admission Date. (4) Discharge Date (5) Record Type (6) Admission Hour (7) Nature of Admission. Draft (8) Source of Admission (9) Admission from the Emergency Room. (10) Date of Birth. (11) Sex. (12) Filler. For Race variables (13) Ethnicity. (14) Marital Status (15) Area of Residence (county) (17) Primary Health Plan Payer (Medicare, Medicaid, Commercial, HMO, Champus etc.) (18) Secondary Health Plan Payer (19) Census Tract (20) Disposition of the Patient (21) Alternative Rate Case Identifier. (22) Expected Primary Payer (23) Secondary Payer (24) Attending Physician (25) Operating Physician (26) Major Hospital Service & Special Care Unit Stay. (27) Type of Daily Hospital Service (28) Psychiatric Days of Service. (16) Residence Zip Code (29) Readmission (w/in 31 days) GLOBAL HEALTH PAYMENT, LLC 17
Case Mix Data Elements Collected (30) Medical/Surgical Intensive Care Days. (31) Coronary Care Days. (32) Burn Care Days. (33) Neonatal Intensive Care Days. (34) Pediatric Intensive Care Days. (35) Shock Trauma Days. (36) Other Special Care Days (includes Definitive Observations, Oncology, Intensive Care, and Distinct Rehabilitation Unit Days). (37) Birth Weight. (41) Principal Diagnosis. (42) Other Diagnosis 1-30 (56) External Cause of Injury Code (“E-Code”). (58) Principal Procedure and Date. (59) Other Procedure 1 and Date Draft (74) Patient Revenue Data. (74.1-10a) Revenue Code (UB-04 Codes). (74.1-10b) Rate Center Code (ICU, Med/ Surg., Peds, Psych, OR, Radiology, Blood, Lab, ER, etc.) (74.1-10c) Units of Service (days, RVUs, Minutes, etc.) (74.1-10d) Total Charges (75) Diagnosis Present on Admission. (76) Provider Specific Admission Source (Hospital ID Number) (77) Provider Specific Discharge Disposition (97) Patient Account Number (99) Enterprise Master Patient Identifier GLOBAL HEALTH PAYMENT, LLC 18
Case Mix Production Schedules Draft GLOBAL HEALTH PAYMENT, LLC 19
Draft Commission DRG Weights and other Information GLOBAL HEALTH PAYMENT, LLC 20
Draft Rate Setting System Key Characteristics and Components 21
Draft Key Structural Features of any Rate Setting System Feature Discussion 1. The Rate Base Base from which the rates of the system are derived. The most common Rate Base for hospital rate setting systems are a hospital’s actual cost or aggregate payments under an existing rate system during a previous year (the Base Year 2. Adjustments to the Rate Base Generally two forms of adjustments – a) to standardize for differences in relative efficiency of a target hospital or b) potential increases in the Rate Base to seed fund certain initiatives 3. Trend Factor Or Inflation Factor - Applied to the Rate Base to adjust this base forward to the first and subsequent rate years 4. Basis of Payment (Structure of Payment) Maryland Adaptation Defines the fundamental rate structure and thus the incentives applied in the payment model (e.g., per case, PMPM). We will seek incentives that will reduce costs and unnecessary services 22
Draft Key Structural Features of any Rate Setting System Feature (continued) Discussion 5. Volume Adjustments Also influences the incentives facing a provider. Applied to reflect the fixed and variable nature of a hospital cost structure 6. Compliance The enforcement of any limits placed on the hospital by the rate setting system imposed 7. Reinsurance Can be applied to a provider in a payment system to ensure that the financial risk assumed is reasonable and manageable 8. Prospectivity Maryland Adaptation Is the feature whereby the rate system imposes limits on payment in advance but allows the participating hospital(s) to keep all (or most) of any gains and absorb all (or most) of any deficits incurred (i.e. the hospital will not be “ratcheted” down) 23
Draft Key Structural Features of any Rate Setting System Feature Discussion Maryland Adaptation 1. The Rate Base Base from which the rates of the system are derived. The most common Rate Base for hospital rate setting systems are a hospital’s actual cost or aggregate payments under an existing rate system during a previous year (the Base Year Used Historical Costs (with some exceptions) to establish hospitals’ Rate Base for DRGs 2. Adjustments to the Rate Base Generally two forms of adjustments – a) to standardize for differences in relative efficiency of a target hospital or b) potential increases in the Rate Base to seed fund certain initiatives No initial adjustments to Rate Base but Adjusted over time 3. Trend Factor Or Inflation Factor - Applied to the Rate Base to adjust this base forward to the first and subsequent rate years Index of hospitals’ input cost inflation & other adjustments 4. Basis of Payment (Structure of Payment) Defines the fundamental rate structure and thus the incentives applied in the payment model (e.g., per case, PMPM). We will seek incentives that will reduce costs and unnecessary services Initially, unit rates, later per case DRGs, Episodes of care and Global Budgets 24
Draft Key Structural Features of any Rate Setting System Feature (continued) Discussion Maryland Adaptation 5. Volume Adjustments Also influences the incentives facing a provider. Applied to reflect the fixed and variable nature of a hospital cost structure Developed a Volume Adjustment System to “capture the marginal revenues” associated with Volume increases 6. Compliance The enforcement of any limits placed on the hospital by the rate setting system imposed Robust Compliance Mechanism with “Hard” enforcement year end 7. Reinsurance Can be applied to a provider in a payment system to ensure that the financial risk assumed is reasonable and manageable Used of Outlier Payments and limited use of Aggregate Stop Loss 8. Prospectivity Maryland’s system has “efficiency adjustments” relative to cost standards but otherwise is fully Prospective – meaning it never “rebases hospitals” to actual cost Is the feature whereby the rate system imposes limits on payment in advance but allows the participating hospital(s) to keep all (or most) of any gains and absorb all (or most) of any deficits incurred (i.e. the hospital will not be “ratcheted” down) 25
Basis of Payment and Transfer Risk Draft Level of financial (insurance) risk Financial Risk Spectrum Hospitals gradually assume increased Levels of “financial risk” More bundled episode pmt transfers risk from insurer to provider -> Hospitals Assume more Financial Risk As payment bundle broadens Degree of bundling 9 J Ambulatory Care Manage, Vol. 32 No. 3 pp 241-251. Averill, et. al. 26
• Draft Importance of Maintaining a Volume Adjustment for an “Activity-Based” The Original Maryland DRG-based System System included a 50% Variable Cost adjustment for incremental volume growth • This meant that hospitals experiencing service volume increases (either inpatient or outpatient) only retained 50 cents on the dollar on the margin • This was included to provide disincentives for hospitals to increase volumes unnecessarily to increase profitability Admission Growth Maryland vs. US 5.00% 4.00% 3.00% 2.00% US Adm % MD Adm % 1.00% 0.00% -1.00% -2.00% -3.00% -4.00% 01 02 03 04 05 06 07 08 09 10 • The Volume Adjustment was largely removed in the 1990s. When Managed Volume Adjustment was Re-imposed in Care retreated, hospital volumes in 2009 over strong protests from Hospitals Maryland rose rapidly 27
Draft Results Strengths and Weaknesses (1976-2011) 28
General Favorable Results Draft • Equity in payment across all payers along with Consistency of incentives to hospitals and Predictability in revenues • Mechanism to fund care to uninsured patients (extra provision built into the rates of all payers to fund) • Strong incentives to control cost per case and ability to limit growth in cost per case over time (HSCRC limits the annual update of hospital charge per case) • Better resource allocation DRG price = cost resource use and as a result far less variation in cost per DRG • Lower administrative costs (standardized pricing) 29
Draft More Equitable Pricing in Maryland • Maryland Hospital Regulation created consistent payment levels across all Payers (public and private) Having many different P4P funding “silos” dilutes effectiveness Maryland’s Imposes a “Uniform Markup” Of regulated Charge Over Approved Costs and Every payer pays The Charges Set by the HSCRC • Also, a mechanism to fund case provided to uninsured patients in the state (Maryland 17% uninsured) 30
Draft DRG system Controlled Growth in Cost Per Case • Lowest Rate of Cost per Case Growth of any State 1976-2011 • • 1976: Maryland Cost per case was 25% ABOVE the US average 2011: Maryland Hospital cost per case 3% BELOW the US average • Estimated $45 billion savings to the State over the period 1976-2011 “Bending the Curve”:Growth in Hospital Costs per case (MD vs. US) Indexed Rate of Growth HSCRC set Approved Charge per Case Then Controls Trend Factor This applies to All Payers 9.00 8.00 US hospital cost growth per case (all-payers) 7.00 6.00 5.00 4.00 3.00 2.00 Maryland hospital slower Cost growth per Case 1.00 0.00 76 80 84 88 92 96 '00 '04 31
Draft Maryland has less Cost Variation Average Cost per Discharge U.S., MARYLAND, and NEW JERSEY, 2008 $11,000 $10,000 New Jersey U.S. Maryland $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 Top 75th Percentile Low 25th Percentile Median U.S. $9,565 $5,936 $7,436 MD $8,561 $6,330 $7,325 NJ $10,369 $7,552 $8,483 Source: AHRQ Health Care Cost and Utilization Project (HCUP) National Inpatient Sample and State Databases. Specialty hospitals are excluded.
Draft Weaknesses of Per Case Payment Systems • Physicians not included (incentives not aligned) • Highly complex system and costly to implement • Issues with DRG Creep (Induced Coding dynamic) particularly when switched to a Severity-Adjusted DRG grouper • No incentives for High Cost Hospitals to move down to an Efficient Standard • No incentives for Quality • Gave up system of Volume Controls –huge increases in “activity” – Hospitals, quickly realize they can increase profits by greatly expanding services, paying doctors to increase billings (admissions, tests, diagnostic tests and outpatient services) • As volumes increased, Maryland’s costs per Capita rose rapidly, and overall accountability for cost eroded 33
The Effect of Up-coding: Maryland Hospitals Draft • Three hospitals in Maryland were experimentally placed on a SeverityAdjusted DRG grouper (All Patient Refined – DRGs) in the early 2000s • By 2005 they had nearly doubled the average number of reported secondary diagnoses on their inpatient claim forms • This resulted in an increase in measured case mix of more than 10% adding over $100 million to their combined inpatient rate bases • A similar impact was witnessed when the APR-DRG grouper was extended to all acute general hospitals– the case mix of rural hospitals increased by 16.89% and urban hospitals case mix increased by 13.9% 34
Evolution in Payment Reform – Move to Prospective Payment Models to Increase “Accountability” Draft Increasing levels of aggregation of services under fixed payment Increasing incentives to improve efficiency and eliminate waste Historical Cost-Based Budgeting Cost-Based Payment or LineItem Historical Budget approaches provide little or no incentive for containing costs Fixed Payment per Unit of Service Prospective Unit Rate Systems set a fixed rate for an individual service (a rate per day or a rate per service) Hospitals held As a result, subaccountable for entities are not held their cost per unit accountable for of service efficiency and effectiveness Hospitals provided more Units! Fixed Payment per Case (DRGs) Prospective per case systems using DRGs - set fixed rates per type of case based Held Hospitals accountable for their cost per Inpatient Case Hospital did more cases and no limits on Outpatient vol. 35
Draft System Evolution: Development of (P4P) Incentives for Improved Quality/Efficiency 36
P4P: Relative Efficiency Draft • Core payment system provided incentives for improved efficiency per case (at existing level relative to others) • HSCRC had ability to introduce new payment mechanisms • In addition to core payment system – use of an annual P4P benchmarking analysis (“Screens”) • Ranks hospitals’ Case-mix adjusted cost per case • Each hospital receives additional rewards or penalties based on relative position vs. Peer Group Average • Revenue neutral basis system wide
P4 Efficiency Screen Draft Revenue Neutral “Scaling” $27,519,000 on the Basis of Case Mix adjusted Cost per Case Worst Performing H ospital Name Southern Maryland Hospital Chester River Hospital Doctors Community Hospital Johns Hopkins Hospital Memorial of Cumberland Harford Memorial Hospital : : : State-wide Avg. : : : Frederick Memorial Hospital Memorial Hospital at Easton Calvert Memorial Hospital Washington County Hospital Fort Washington Union of Cecil Dorchester General $27.5 million “scaled” from here Position Above/Below State A v g. 7.91% 6.23% 5.86% 5.35% 4.65% 4.52% : : : : : : : : : 0.00% : : : -4.93% -5.13% -6.06% -6.18% -6.57% -8.07% -11.86% Best Performing – lowest adjusted cost/case R ank Perc entile Adjustment 1 0% -1.50% 2 2% -1.35% 3 3% -1.17% 4 3% -1.12% 5 4% -1.07% 6 4% -1.05% D olla r I mpa c t ($2,360,295) ($400,075) ($1,344,352) ($9,414,111) ($1,802,459) ($650,226) : : : : : : : : : : : : : : : : : : : : : : : : 40 41 42 43 44 45 46 87% 89% 91% 93% 96% 98% 100% 0.791% 0.830% 0.855% 0.897% 0.910% 1.140% 1.500% $1,332,482 $799,235 $526,285 $1,426,287 $345,357 $763,107 $452,449 46 hospitals included in analysis To Here
Gradual use of P4P Methods around QualityDraft Diagnosis Data can be used to measure Quality: • Phase I: Maryland Hospital Acquired Conditions 2009 • 49 Potentially Preventable Complication Categories • Payment Incentives linked to relative hospital performance on risk-adjusted rates of complications (not present on admission) • Maryland experienced Substantial Reductions in Infection and Complication rates Experienced a 15% decline in Hospital Acquired Conditions with savings >$105 million • Phase II: Maryland Hospital All-Cause Readmission Rates (Hospital Improvement & Hospital Rank) • Phase III: Working toward establishing a Balanced Portfolio of Quality-Related Measures Linked in to • • • • 30 day Mortality Preventable Events (ER visits, Ancillary Use) Ambulatory Care Sensitive Conditions Patient Satisfaction and Patient Safety Payment Incentives 39
Draft System Evolution: New Basis of Payment Prospective Global Budgets 40
• Maryland Realized that Hard Prospective Draft Budgets Created Greater Accountability for Hospitals Maryland: Comprehensive System with Consistent Incentives • 100% Prospective System so Payments are Predictable and Hospitals keep savings if they lower costs • DRG system controlled growth in Per Case Costs well • Hospitals responded by doing more cases and providing more Outpatient Services than necessary • Use of Volume Adjustment to reduce incentive to increase cases • However the best system to impose “Accountability” is a Prospective Budget Based System • Maryland still has some DRG payment (with Volume Controls) but now moving to Global Budgets for each hospital 41
Evolution in Payment Reform – Move to Prospective Payment Models to Increase “Accountability” Draft Increasing levels of aggregation of services under fixed payment Increasing incentives to improve efficiency and eliminate waste Historical Cost-Based Budgeting Cost-Based Payment or LineItem Historical Budget approaches provide little or no incentive for containing costs Fixed Payment per Unit of Service Prospective Unit Rate Systems set a fixed rate for an individual service (a rate per day or a rate per service) Hospitals held As a result, subaccountable for entities are not held their cost per unit accountable for of service efficiency and effectiveness Hospitals provided more Units! Fixed Payment per Case (DRGs) P4P & Fixed Payment per Episode Fixed Budget for a Population Prospective per case systems using DRGs - set fixed rates per type of case based Prospective fixed payment can apply to larger “bundles” of services such as an Episode of care Prospective Budget associated with a population provides guaranteed amount of funds for a year Held Hospitals accountable for their cost per Inpatient Case Providers held accountable for costs of care to a patient over a period of time (i.e. Admission and Readmissions over 30 days) These are HARD budgets strictly enforced Hospital did more cases and no limits on Outpatient vol. Also increasing levels of accountability at the Sub-entity level Hospital keep any “savings” but held Accountable for their costs 42
Draft Real Life Example: State of Maryland, USA – Transitioning Of Hospitals from DRG-based Payment to Global Budgets $783 Mill. W. Maryland HS $291m Isolated Service Area Budgets can also be established for a given region – provides hospitals incentives to share services and work together Garret Co. $42m Wash. Co. 148,000 residents; $250 million budget Population-based Global Budget Systems implemented for largely rural and isolated hospitals serving discrete communities Carroll Co.$202m Washington DC Union of Cecil $128m Mem. Easton $160m Calvert $118m McCready $19m
Example of a Hard Prospective Budget for an Draft Isolated Hospital serving a Discrete Community • Washington County Hospital • Sole Community Hospital located in a rural area of Maryland • Separated by distance and mountain ranges • Serves 148,000 population in Washington County • Limited “in-migration” from other parts of the State • Hospital also Subject to Strong Incentives to maintain Or improve Quality Through P4P scaling Budget in Prior year = $250,000,000 Estimated Cost Inflation Trend Adjustments: Base Year Rev. $ 250 Million Base Year Costs $ 250 million Profit % Margin $ 0 million 0.00% X Estimated Demographic Changes 2.50% 1.50% 1.025 X 1.015 Performance Year Budget = Performance Year Cost Costs Reduced by Elimination of Unnecessary Admissions/ Readmissions $260 Million $255 Million $5 Million 1.92% In future Years – hospital invested in heavily in Primary Care Infrastructure in the Community Substantial reductions in unnecessary admissions/readmissions and improved efficiency 44
Step 2: Set Prospective Budgets for Hospitals with Well-Defined Primary Service Areas Extending Global Budgets To Suburban Hospitals Draft
Step 4: Require Patients to Select Primary Care Physicians and Build Draft Hospital Budgets based on PCPs Affiliated with each Hospital in Urban Areas Baltimore City Hospitals Including Johns Hopkins and other Large Hospitals Washington DC Area Later: Urban Cap Structures Applicable to 10-15 Urban facilities
Summary of Maryland Experience Draft • Maryland’s regulated system has been successful because • It is based on well developed data systems • It is structured to address market failures in the health care financing system • It is designed to be fair and promote equity • And address other public policy goals (i.e., finance care to the uninsured) • It has been flexible and has the ability to evolve • The Maryland Experience reflects an evolution of Payment Principles and Incentives over time • Gradually increasing the level of risk and accountability applied to hospitals • With stronger emphasis on population-based financing to promote population-based health care delivery 47
Draft Maryland Experience: There is a Trade off between “Activity” and “Accountability” line-item Historical Budget systems lead to • Cost-based payment and uncontrolled cost increases did not create needed “accountability” • Prospective Payment Systems DRG systems implemented in Maryland (and in U.S. for Medicare) improved accountability per case • Per Case Systems did spur increased “activity” • But as a Fee-for-Service system it created incentives for the provision of unnecessary services Marginal Rev > Marginal Cost for each new Service Has lead to provision of unnecessary/marginal services • In Response – Maryland has gradually changed its payment incentives – shifting more risk to hospitals and increasing their accountability • Accompanied by Strong P4P incentives re: Quality & Access • Now – primary focus on Budget Based systems (but use of elaborate cost and DRG-based data underneath) 48
Draft Thank you 49
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