It shouldn’t come as a surprise that any city in Maryland shows up as an outlier when it comes to Medicare payments to hospitals. Hospitals there have operated outside the typical payment paradigm for decades.
Maryland hospitals participate in an aggressive global budgeting system in which their total revenue is fixed, a model that’s been shown to lower volumes and mortality rates, said Bob Atlas, CEO of the Maryland Hospital Association.
In exchange for shouldering the risk of fixed revenue, Medicare and Medicaid reimburse Maryland hospitals at higher rates than in other states. As of this year, those programs pay just 7.7% less than commercial payers—a much smaller differential than in other states, Atlas said.
“That’s the bargain that’s been struck: Hospitals can get more per-unit revenue from Medicare and Medicaid in return for taking on substantial risk,” Atlas said. “We’re seen as a model for the nation.”
Like in other states, the rates Medicare pays are adjusted based on a number of factors, perhaps the biggest one being extra money for training interns and residents. Baltimore has two prominent academic medical centers: Johns Hopkins Health System and the University of Maryland Medical System.
Johns Hopkins has a large teaching program with upward of 800 interns and residents, and the cost of that is embedded into its Medicare base rates, said Ed Beranek, Johns Hopkins’ vice president of revenue management and reimbursement.
“So essentially all payers or all patients coming to our hospital have a portion built into their charges that helps pay for the teaching of those interns and residents,” he said.
In states other than Maryland, Medicare is the only entity that reimburses for graduate medical education. In Maryland, commercial payers and Medicaid contribute their fair share of that cost, Beranek said.
The University of Maryland’s and Johns Hopkins’ hospitals also tend to draw higher-acuity patients with more complex conditions, which also drives up the cost.
The University of Maryland Medical Center has a shock-trauma subhospital that treats people with serious injuries, Atlas said, and also has a helipad on its roof.
“So you get the idea of the level of capability that’s present there,” Atlas said.
Roughly 20% of Johns Hopkins’ patients come from outside of Maryland, Beranek said. That includes domestic and international patients, who often come specifically for specialty programs in pediatrics or organ transplantation, he said.
“They drive a very high case mix index and bring a high level of cost with them,” Beranek said.
Baltimore’s high socio-economic risk factors are another driver of hospitals’ higher per-patient Medicare revenue. About one-third of Baltimore households earn less than $25,000, according to a
2017 community health assessment performed by the city of Baltimore. The report also noted a high concentration of vacant buildings in certain areas, as well as lead paint exposure—conditions that have been connected to poor health outcomes. About one-quarter of the city’s residents lived in food deserts in 2015, the report found.
Tradition of price-setting
Maryland’s all-payer rate-setting system for hospitals has been in place in various forms for about 40 years, and the program has grown increasingly ambitious. A state commission sets the prices that commercial health insurers and government programs pay hospitals for services. Beginning in 2019, hospitals entered a new agreement where they will take on partial risk for the total cost of care for all Medicare fee-for-service beneficiaries statewide.
In other states, hospitals often raise their rates on commercial payers and self-pay patients to make up for lower government reimbursement. That doesn’t happen in Maryland, Beranek said.
Maryland’s system makes it so that independent hospitals can thrive, too. In Boston, Partners HealthCare gets higher rates from commercial payers than community hospitals because of its strong market power, said Dr. John Chessare, CEO of the Greater Baltimore Medical Center. In Maryland, by comparison, market share doesn’t matter as much because hospitals don’t negotiate prices with payers.
“In other states, if you’re a single hospital or a safety-net provider, you don’t have any clout with the payers,” Chessare said. “In Maryland, Greater Baltimore Medical Center is a single-hospital true system of care through the eyes of the patient. We don’t have to negotiate rates. The rate commission tells Blue Cross and Cigna and Aetna what to pay us.”
He added that the rate-setting system also contributes to Maryland hospitals’ generally strong financial positions and balance sheets. Indeed, most of the few dozen hospitals in the Baltimore area have posted strong operating results in recent years.
But Atlas and others say it’s also working well for patients. Readmissions in the state dropped nearly 22% from 2013 to 2017, compared with 5.7% nationwide in that time, according to the hospital association. The percentage of Maryland Medicare beneficiaries who died within 30 days of admission dropped 12.2% from 2013 to 2017, compared with a drop of 6.4% nationwide, the report found.
Maryland had the nation’s second-lowest healthcare spending in the country in 2017, according to a Health Care Cost Institute analysis based on 40 million insurance claims. “What might look like high Medicare costs per discharge ought to be considered in light of the fact that we have much lower hospital costs for private payers and the people they insure,” Atlas said.
Charlottesville, Va., metro area
REIMBURSEMENT PER MEDICARE DAY: $3,512
POPULATION: 232,000
MEDIAN AGE: 38.4
MEDIAN HOUSEHOLD INCOME: $71,052
BELOW POVERTY LINE: 13.9%
Sources: U.S. Census Bureau, 2018 core-based statistical area data; Modern Healthcare Metrics
