A correction has been added to this story, correcting the transposition of the name of
Ezekiel Emmanuel.
Do what Maryland did.
That was one of the prescriptions health policy guru Dr. Ezekiel Emanuel of the University of Pennsylvania offered for rising health care costs at the annual conference of the Massachusetts Association of Health Plans in November.
In Maryland, the state sets all hospital rates. Few people are more familiar with how that regulatory process originated there and how it has worked than Dr. Josh Sharfstein, one of the architects of the system. He currently serves as the vice dean for public health practice and community engagement at Johns Hopkins Bloomberg School of Public Health, and he joined John McDonough of the T.H. Chan School of Public Health at Harvard and Paul Hattis of the Lown Institute on The Codcast.
Sharfstein clearly prefers the Maryland regulatory approach, but he said its long history of state rate setting is fairly unique. “It’s hard to snap your fingers and turn another state into Maryland,” he said.
The most unique aspect of the Maryland system is that the rates established by the state apply to all payers — commercial, Medicaid, and Medicare. In Massachusetts, by contrast, commercial rates are set through negotiations between insurers and health care providers while Medicare and Medicaid rates are set by the federal government. Medicare and Medicaid rates tend to be lower than commercial rates, so many providers in Massachusetts use commercial customers to cross-subsidize their government work for the elderly, poor, and disabled.
Sharfstein said the Maryland system worked fairly smoothly until some of the smaller, more rural hospitals saw their patient volumes decline. Since they were paid based on the number of procedures or services they provided, their income dropped and so did their quality.
The state responded by setting global budgets for the rural hospitals. Instead of being paid for each service they provided, they received payment to cover all of their allowed costs. Sharfstein said the decision was fateful, because it triggered a reaction at the hospitals.
“The hospitals started doing things differently,” he said. “They started asking how can we keep people from coming into the hospital.”
In 2014, Maryland expanded the so-called global rate-setting approach to every hospital in the state. Sharfstein, who helped orchestrate the new approach, said it worked beautifully. For the first five years, he said, the state met all of its benchmarks in terms of reducing costs, increasing quality, and lowering the number of preventable admissions.
“There are not that many models in health that achieve their goals, were proposed by a Democratic governor [Martin O’Malley] and approved by a Democratic president [Barack Obama], re-proposed by a Republican governor [Larry Hogan] and re-approved by a Republican president [Donald Trump], and really maintain an enormous amount of public support,” Sharfstein said. “People in Maryland feel a lot of pride about the way the health care system is working.”
Hattis asked how academic medical centers fare under such a rate-setting system. “John Hopkins has thrived under global budgets,” said Sharfstein.
McDonough sounded skeptical that Massachusetts could move to a Maryland-style system. He said when he served as a member of the Massachusetts House the state’s system of rate setting was riven by “political conflict and gamesmanship” and the situation became so bad that it was abolished in 1991.
Sharfstein said Maryland has had 40 years of experience with hospital regulation. Over that time, he said, a sense of trust has developed that all players will be treated fairly. That may not be the case in other states, he said.
“There are some hospitals that have done pretty well under fee for service and giving up a little bit of control to an outside entity is not at the top of their agenda, frankly,” he said. “They’re going to be pretty resistant and they’re going to use every political tool that they have to avoid some kind of restraint on their revenue growth.”
He added: “It’s hard to invent 40 years of history and trust in another state.”