Paying hospitals to keep people out of hospitals? It works In Maryland

Saturdays at Mercy Medical Center used to be perversely lucrative. The dialysis clinic across the street was closed on weekends.

That meant the downtown Baltimore hospital would see patients with failing kidneys who should have gone to the dialysis center. So Mercy admitted them, collecting as much as $30,000 for treatment that typically costs hundreds of dollars.

"That's how the system worked," said Mercy CEO Thomas Mullen. Instead of finding less expensive alternatives, he said, "our financial people were saying, 'We need to admit them.'"

Maryland's ambitious hospital-payment overhaul, put in place in 2014, has changed such crass calculations, which are still business as usual for most of American health care. A modification of a long-standing state regulation that would be hard to replicate elsewhere, the system is nevertheless attracting national attention, analysts say.

As soon as Mercy started being penalized rather than rewarded for such avoidable admissions, it persuaded the dialysis facility to open on weekends, saving government insurance programs and other payers close to $1 million annually.

In the four years since Maryland implemented a statewide system of pushing hospitals to lower admissions, such savings are adding up to hundreds of millions of dollars for the taxpayers, employers and others who ultimately pay the bills, a new report shows.

Maryland essentially pays hospitals to keep people out of the hospital. Analysts often describe the change as the most far-reaching attempt in the nation to control the medical costs driving up insurance premiums and government spending.

Like a giant health maintenance organization, the state caps hospitals' revenue each year, letting them keep the difference if they reduce inpatient and outpatient treatment while maintaining care quality. Such "global budgets," which have attracted rare, bipartisan support during a time of rancor over health care, are supposed to make hospitals work harder to keep patients healthy outside their walls.

Saturdays at Mercy Medical Center used to be perversely lucrative. The dialysis clinic across the street was closed on weekends.

That meant the downtown Baltimore hospital would see patients with failing kidneys who should have gone to the dialysis center. So Mercy admitted them, collecting as much as $30,000 for treatment that typically costs hundreds of dollars.

"That's how the system worked," said Mercy CEO Thomas Mullen. Instead of finding less expensive alternatives, he said, "our financial people were saying, 'We need to admit them.'"

Maryland's ambitious hospital-payment overhaul, put in place in 2014, has changed such crass calculations, which are still business as usual for most of American health care. A modification of a long-standing state regulation that would be hard to replicate elsewhere, the system is nevertheless attracting national attention, analysts say.

As soon as Mercy started being penalized rather than rewarded for such avoidable admissions, it persuaded the dialysis facility to open on weekends, saving government insurance programs and other payers close to $1 million annually.

In the four years since Maryland implemented a statewide system of pushing hospitals to lower admissions, such savings are adding up to hundreds of millions of dollars for the taxpayers, employers and others who ultimately pay the bills, a new report shows.

Maryland essentially pays hospitals to keep people out of the hospital. Analysts often describe the change as the most far-reaching attempt in the nation to control the medical costs driving up insurance premiums and government spending.

Like a giant health maintenance organization, the state caps hospitals' revenue each year, letting them keep the difference if they reduce inpatient and outpatient treatment while maintaining care quality. Such "global budgets," which have attracted rare, bipartisan support during a time of rancor over health care, are supposed to make hospitals work harder to keep patients healthy outside their walls.

Maryland's system, which evolved from a decades-old effort to oversee hospitals as if they were public utilities, regulates all hospital payments by every private and government insurer. That makes it radically different from piecemeal attempts to lasso health spending, such as creating accountable care organizations, which seek savings among smaller groups of patients.

From the program's launch in 2014 through 2016, per capita hospital spending by all insurers grew by less than 2 percent a year in Maryland. That's below the economic growth rate, according to new results from the state's hospital regulator and the federal Department of Health and Human Services.

Keeping hospital spending below economic growth -- defined four years ago as 3.58 percent annually -- is a key goal for the program and something that rarely happened.

Counting The Savings

The state plan saved the Medicare program for seniors and the disabled about half a billion dollars over three years and achieved "substantial reductions in hospitalization and especially improvements in quality of care," said a Medicare spokesman.

In the three years measured so far, he added, "the state has already exceeded the required performance for the full five years of the model."

As high costs for hospital care have been growing more slowly nationwide, Maryland hospital costs over that period rose even less.

"It looks like it has very strong results," said John McDonough, a Harvard health policy professor who helped craft the federal Affordable Care Act.

What Maryland is doing, he said, "is pretty bold and it's pretty thoughtfully done and has generated a huge amount of interest around the country."

Comprehensive results through 2016 are the most recent available from Maryland and HHS, although savings continued last year, Maryland officials said. Independent researchers found mixed results for savings in the earlier years of Maryland's system.

Maryland's global budgets saved Medicare $293 million -- 1.8 percent of total Medicare spending -- in 2014 and 2015, research firm RTI International reported in August.

A separate paper from a team led by Eric Roberts at the University of Pittsburgh found that Maryland's program in those years couldn't be clearly credited for reducing hospital use.

The system's advocates say several years of results are needed to show it's working.

"These are not fake savings," said Joseph Antos, an economist at the conservative-leaning American Enterprise Institute who sits on Maryland's hospital-payment commission. "It didn't happen instantaneously. It's taken this number of years to achieve the kinds of savings that you see" for 2016 and beyond.

Even boosters such as Joshua Sharfstein, the former Maryland health secretary who got approval for global budgets from the Obama administration, say the system is far from perfect or finalized.

"There is a range of responses. Some hospitals have been able to do more than others," said Sharfstein, now an associate dean at the Johns Hopkins Bloomberg School of Public Health in Baltimore. "Change in health care is notoriously slow."

Hospitals have lagged in delivering primary, preventive care to people with chronic conditions such as asthma, diabetes and heart failure, especially in low-income neighborhoods.

Maryland's system does little to control soaring costs of drugs or nursing home care, doctors' office treatments and other care not connected to hospitals, although policymakers are working on proposals to do both.

Even so, "what Maryland has done is just so far ahead of many of these other models" to try to control costs, said Dan D'Orazio, a management consultant who has worked with hospitals across the country. One Maryland hospital CEO told him: "This has fundamentally changed how we wake up and do business every day," D'Orazio said.

Seeing A Difference

At Mercy, described by policymakers as more aggressive than many hospitals in watching costs, about a third of the patients now leave the hospital with medications in hand, said Dr. Wilma Rowe, the hospital's chief medical officer. That bypasses the tendency for patients to skip a follow-up pharmacy visit and risk landing back in the emergency room.

A statewide data network notifies Mercy and other hospitals when one of their patients ends up in an emergency room somewhere else. That helps coordinate care.

Greater Baltimore Medical Center, north of the city, has hired dozens of primary care doctors to track around 1,000 people with diabetes -- staying in touch, advising on diets and keeping them on insulin so they avoid the hospital.

Often clinicians visit elderly patients' homes to prevent what might turn into an ambulance call and admission, said the hospital's CEO, Dr. John Chessare.

Before global budgets, "I'd look at the waiting room in the [emergency department], and if it wasn't full I'd get scared," he said.

Now he worries it might be full of people who could be better treated elsewhere -- including Gilchrist, a GBMC affiliate delivering hospice care for those at the end of life.

These days, he said, "we consider it a defect if someone with chronic disease dies in the hospital."

Maryland's system, which evolved from a decades-old effort to oversee hospitals as if they were public utilities, regulates all hospital payments by every private and government insurer. That makes it radically different from piecemeal attempts to lasso health spending, such as creating accountable care organizations, which seek savings among smaller groups of patients.

From the program's launch in 2014 through 2016, per capita hospital spending by all insurers grew by less than 2 percent a year in Maryland. That's below the economic growth rate, according to new results from the state's hospital regulator and the federal Department of Health and Human Services.

Keeping hospital spending below economic growth -- defined four years ago as 3.58 percent annually -- is a key goal for the program and something that rarely happened.