Little America saves $100M; can Big America do it too?

Little America SavesThe first year of a 5-year agreement between Maryland and the Centers for Medicare and Medicaid Services has yielded over $100 million in savings for the state’s hospitals. The experiment involves some radical changes concerning the way hospitals handle business in order to reduce spending, for example by cutting costly hospital stays and providing increased patient care at the physician’s office. “Hospitals at the blink of an eye really changed their systems into something that hasn't been broadly tested before,” CEO of the Maryland Hospital Association Carmela Coyle said, “and we are pleased with the first year results.” The federal government hopes the new payment system can be eventually adopted nationwide. Guess they got off on the right foot choosing a state known as Little America as their microcosm; the question is whether the outcome can be repeated in the macrocosm that is the remaining 49 states.

The Old Line State is the only one in the U.S. with a waiver from federally-set Medicare rates. The rest of the country sees hospitals being reimbursed by Medicare at a low rate; in turn, hospitals compensate by charging other patients more. Maryland received a reprieve from this model and been allowed to establish its own rates – including rates charged to private insurance firms. On the one hand Medicare may pay more in the Free State, but on the other hand, state officials have managed to keep the hospital cost increase rate lower than in other states – to the point that federal officials were convinced to update the 40 year old waver, as long as the hospitals pledge keep their costs from growing more than 3.58% in the first five years, and save Medicare a minimum of $330 million while they’re at it. According to Coyle, the first year savings – calculated by the Maryland Hospital Association – meet the predetermined goals and then some.

Under the new system, hospitals are allotted a pool of money that grows at the same pace as the state’s economy, as opposed to tying reimbursements to admissions. Speaking of which, the hospitals have decreased readmissions at a faster rate than the rest of the country, as well as reduced hospital-acquire infections by 26%. Additionally, improved care coordination – including ensuring patients had prescriptions and follow-up appointments before they left the hospital, and calling patients after discharge to ensure they continued care – also helped to curtail expenditure. “We begin to look at not just the clinical barriers to health, but the non-clinical barriers as well,” said Coyle. “Sometimes what is preventing someone from doing well is the lack of transportation to be able to get to their doctor's appointments.”

Opponents of the system claim that cost-cutting measures may lead hospitals to deny tests and other care and/or increase prices in other areas. However, CMS Deputy Administrator and Director Jonathan Blum is confident that the new model could help to negate the belief that expensive healthcare is good healthcare. Deputy director for policy and operations at the Maryland Health Services Cost Review Commission Steve Ports supported this view. The commission created an advocacy task force to watch for care problems or price increases. “We are keeping our eye out and have not heard any complaints,” Vinnie DeMarco, head of the advocacy group, said. “The first year has been a wonderful success for patients and for population health in general,” Ports added.  CEO of the Maryland State Medical Society Gene Ransom agreed, but also warned about the potential sophomore slump. “The first years of savings might be the easiest,” he said. “Anybody who works on budgets knows the first half comes easy, but the second half you have to cut into real meat. We have a lot of work and learning to do as we continue to change.”


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