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Dome - Testing Change

Dome November 2012

Testing Change

Date: November 16, 2012


Ronald R. Peterson
Ronald R. Peterson, president of The Johns Hopkins Hospital and Health System and executive vice president of Johns Hopkins Medicine

In past columns and other forums, you have heard me discuss the external financial pressures that could force Johns Hopkins Medicine to change how we conduct business, especially in improving health care and lowering delivery costs. These run the gamut, from provisions in the federal Affordable Care Act to budget sequestration, resulting in reduction of funding in several federal agencies, including National Institutes of Health, Department of Defense and Medicare.

Now I want to bring to your attention a challenge that is closer to home: the potential loss of Maryland’s Medicare waiver and the ultimate dismantling of our All-Payer System for reimbursing hospitals for their services—a process that could begin as early as next year.

Let me provide you with some history. In 1977, the federal government granted Maryland a unique Medicare waiver.  This waiver exempted Maryland from federal Medicare payment rules and established the framework for the state to allow the Maryland Health Services Cost Review Commission to set rates for all payers—governmental, commercial and self-pay.

The All-Payer System not only kept hospital costs per admission in check for years, but also improved patient access and prevented clustering of poor patients in certain hospitals. It made budget planning for individual hospitals easier because each knows what kind of revenue can be expected in the coming year.

In my experience, it is an eminently fair system that has worked very well through the years.

The requirement for continuing this waiver has been that the cost per admission for Medicare patients stays below the national average. However, in recent years costs have risen sharply, and the gap between the cost performance of Maryland hospitals compared with the national average has all but vanished.

One reason is that as we have been mandated to move more care to outpatient settings, hospitals are left with longer-stay admissions and sicker patients, which are more costly.

If we lose the Medicare waiver, the All-Payer System will be disassembled over a three-year period and, during that time, state hospitals will lose around $1.6 billion in Medicare and Medicaid payments. With the four Maryland hospitals in our health system accounting for nearly 20 percent of the state’s hospital revenue base, we could stand to lose about $300 million in federal payments.

The hospital community, state government and private payers agree that Maryland needs to preserve the waiver. Fortunately, the Centers for Medicare and Medicaid Services (CMS) views this interest as an opportunity to turn the state into a national model for delivering high-quality and less costly care to Medicare patients as well as to all others.

CMS has provided guidance around four principles it would like us to achieve in obtaining a new Medicare waiver: demonstrating patient-centered care, accountability for total cost of care, transformative care, and a new method for measuring performance. The latter most likely would mean moving away from looking at cost per hospital admission to looking at total cost of caring for Medicare patients—inpatient, outpatient and ultimately outside of hospital costs as well.

These principles are consistent with things we are already doing. For example, Hopkins recently was awarded a $20 million challenge grant from CMS Innovations. These funds created The Johns Hopkins Community Health Partnership to find ways of providing improved, less costly care to patients in communities surrounding The Johns Hopkins Hospital and Johns Hopkins Bayview Medical Center.

Leaders in Maryland’s health care field, a group that includes our own John Colmers, vice president of Health Care Transformation and Strategic Planning, have been working on a document outlining how we can modernize the Medicare waiver test. It will likely be presented to CMS by the end of November.

This is the right direction in which to go. As a society we have to curtail the unsustainable growth in health care costs, and as health care leaders, we need to take more responsibility for doing something about that.

Now, my next responsibility is to do everything possible to enable our new dean, Dr. Paul Rothman, to succeed.

Ronald R. Peterson
President, The Johns Hopkins Hospital
and Health System

EVP, Johns Hopkins Medicine

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