Maryland’s Medicare Waiver

Date: January 7, 2015

The Medicare waiver, along with the Affordable Care Act, encourages prevention and early treatment.

Maryland has long been in the vanguard of health care reform. Its original Medicare waiver, instituted in 1977, made Maryland an all-payer state, meaning that all third-party payers—whether Medicare, Medicaid or private insurers—paid the same rate for the same services. In other states, Medicare reimbursed physicians and health systems at a discount compared with private insurers, creating cost-shifting, the practice of charging more to some payers—for example, private insurance companies—to make up for losses incurred by accepting discounted reimbursements from others.

Researchers estimate that Maryland consumers and insurers saved $45 billion over the term of the original waiver, because Maryland hospitals had the lowest rate of cost growth of any state. Medicare reimbursement rates were also higher under the waiver than under federal rules, bringing in about $1 billion annually in additional Medicare funds to Maryland hospitals. The Johns Hopkins Health System received about 25 percent of all Medicare reimbursements in the state.

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Under the new waiver, which took effect Jan. 1, 2014, Maryland remains an all-payer state. But the new waiver updates the old waiver in important ways. Under the old waiver, hospitals were paid based on admissions: More admissions equaled more revenue. Under the new waiver, hospitals have a global revenue budget that they cannot exceed. If admissions grow beyond a specific target, the amount paid per admission drops, preventing the hospital from exceeding its revenue goal.

Like the Affordable Care Act  of 2010, the new waiver is meant to rein in health spending while encouraging the delivery of better care, with a particular emphasis on preventive care that keeps patients healthy and out of the hospital. If successful, the new waiver will save Medicare $330 million over five years and may serve as a model for the nation.

What will determine success? The percentage of Medicare patients readmitted to Maryland hospitals within 30 days of discharge, a standard quality measure, must drop to at least the national average, from 20.5 percent to 18.5 percent. Maryland hospitals’ annual per capita costs must grow at a rate no greater than 3.58 percent, and the incidence of 65 preventable conditions in the state must drop by 30 percent over the five years of the new waiver.