Maryland's Global Hospital Budgets — Preliminary Results from an All-Payer Model

On January 1, 2014, the Centers for Medicare and Medicaid Services (CMS) Innovation Center and the state of Maryland launched the Maryland AllPayer Model,1 under which CMS and Maryland agreed that all health care payers, including Medicare, would pay the same rates for inpatient and outpatient hospital services. This rate setting eliminated cost shifting among payers, equitably distributed the costs of uncompensated care and medical education, and limited the growth of peradmission costs.2 It also meant, however, that Medicare paid higher rates for hospital services in Maryland than under the national payment program.

As part of the agreement, Maryland pledged to achieve substantial cost savings and quality improvements by moving its hospital-reimbursement system away from traditional fee-for-service payments. The state established a new hospital global budget payment program in which all payers in aggregate pay hospitals a fixed annual amount for inpatient and outpatient services, adjusted for quality and irrespective of hospital utilization. The premise behind hospital global budgets is simple: providing fixed, predictable revenue allows hospitals to focus on value rather than volume and rewards them for investing in population health improvement. The Maryland model requires the state to move almost all hospital revenue into valuebased payment arrangements, such as global budgets, over a 5-year period.