Maryland’s Experiment with Global Budget Revenue

In 2014, Maryland phased out a Medicare fee-for-service payment system in favor of a Global Budget Revenue system. In the other forty-nine states, hospitals are paid using fee-for-service, which results in a hospital prioritizing volume and filling beds instead of quality. The Global Budget Revenue system was created to address this problem.

Under the Global Budget Revenue system, hospitals receive a fixed sum payment for all Medicare patients for the year. Any money not spent on healthcare can be kept as profit, which reverses the incentives for hospitals. Instead of incentivizing hospitals to see as many patients as possible, hospitals are now incentivized to increase the quality of their care and reduce preventable illnesses.

Since the implementation of the Global Budget Revenue system, Maryland has seen improved medical quality through a decrease in preventable illnesses.  The thirty day readmission rate, once a problem for Maryland, has decreased 5.28 percent, resulting in patients receiving the care they need the first time around. In addition, Hospital Acquired Conditions have decreased by 35.66 percent under the new payment reimbursement system[1].

Patients have not only received better quality care, but also improved preventative care. Hospitals are now incentivized to hire care coordinators and make sure patients follow through on the prescribed treatments, which has led to an uptick in community centered doctor offices and a shift in focus back to patients. By focusing on prevention, these Maryland hospital systems solve patients’ needs before they need hospital care.

Through community investment such as advising community members on how to eat healthier and supporting local walking clubs, hospital outreach raises goodwill for the hospital while decreasing preventable illnesses and increases profit for the hospital. Hospitals were incentivized to increase community health because of the Global Budget Revenue system. Take for example the Anne Arundel Medical Center, which opened up a one-doctor clinic inside an apartment complex that tended to frequent the emergency department room. This clinic was able to increase more preventative care, saw up to 20 patients a day, and was able to make house calls to get to the root of certain medical issues by offering lifestyle advice. As a result of this new clinic, 911 calls fell 13 percent and emergency department visits dropped 8 percent in the first year alone, saving the hospital tens of thousands and improving overall community health[2].

While the rest of the country has increasing health costs, the Global Budget Revenue system managed to decrease Medicare costs. According to the New England Journal of Medicine, in its first year, the new system managed $116 million dollars in savings, and is required to have aggregate savings of at least $330 million dollars by the fifth year of the program. In addition, hospital per capita revenue growth has been below the Center for Medicare and Medicaid Innovation (CMMI) requirement. The CMMI mandated revenue capped at a growth rate of 3.58 percent, a number which Maryland has been able to meet with flying colors.

Other states should follow Maryland’s example of altering their payment model to align patient medical outcomes with payment reimbursement. Fee-for-Service is severely flawed in that it promotes volume-based treatment, which leads to reduced quality and increased readmission rates at the taxpayer expense. By being innovative in approaches to healthcare payment, states can get people the care they deserve at prices they can afford.

[1] http://www.hscrc.state.md.us/documents/Legal-Legislative/Reports/HSCRC-Biannual-Report-All-Payer-Model-2015-10-22.pdf

[2] http://www.modernhealthcare.com/article/20141206/MAGAZINE/312069983