Medicare Waiver

Date: March 1, 2014

How do you simultaneously improve patient health and the quality of health care while lowering health care costs?

If you’re the state of Maryland, you propose a new update to a special federal waiver that allows the state to set the rates that patients and insurers pay hospitals. The update, approved in January, ties the growth in hospital budgets to the state economy and rewards hospitals for keeping people healthy instead of paying them by the number of patients they admit.

“It means we will do our very best to provide preventive care to keep patients as well as possible and out of the hospital for as long as possible,” says Ronald R. Peterson, president of The Johns Hopkins Hospital and Health System and executive vice president of Johns Hopkins Medicine. “When patients are admitted, it means that we make sure their course of care is done as efficiently as possible, and at the same time, we continue to provide a very good experience for patients.”

Under the 36-year-old waiver, all patients pay essentially the same rate for services at a given hospital, whether they have Medicare, Medicaid, private insurance or are uninsured. It’s a “waiver,” because in most states, Medicare sets the rates for its patients, and hospitals set their own rates. In Maryland, a special commission sets rates for everyone. This payment structure will stay the same in the new system.

What’s different now is how hospitals receive payment. Previously, hospitals were paid based on how many patients they admitted and how long they stayed. The new system, supported by both hospitals and insurers, gives hospitals a budget within which they must live and is designed to reward better health outcomes at lower costs.

Over time, Maryland’s experience could offer a model to other states reviewing their approaches to health care financing, says a recent article in the New England Journal of Medicine. John Colmers, vice president for health care transformation and strategic planning for Johns Hopkins Medicine and chairman of the rate-setting Health Services Cost Review Commission, was one of the authors.

The new system means that hospitals will:      

• Increase their efforts to keep patients healthy after discharge so they don’t need to return to the hospital;        
• Increase efforts to lower the number of patients who get new illnesses while in the hospital; and     
• Provide the most appropriate care at the lowest cost.

Cost controls are more important than ever, says senior adviser Stuart Erdman, former senior director of finance for the Johns Hopkins Health System. Managers will be trained to ask employees about how processes and procedures can be more efficient. Can a clinic change its hours to better match patient demand, for example?

Patients will now go to the setting where they can receive the most appropriate level of care. The sickest and most health-compromised patients will always need what The Johns Hopkins Hospital provides, but the health system’s other sites serve many patients just as well, Erdman says. That could mean expanding services at ambulatory sites like White Marsh and Green Spring, for example.

The Johns Hopkins Hospital already uses many approaches that make patient care both efficient and high quality, Peterson says. Among them:

• The Community Health Partnership, known as J-CHiP, and the Johns Hopkins Health System Readmission Task Force, look at how patients are cared for before and after they’re seen at the hospital.
• The Choosing Wisely program encourages physicians and nurses to select only those tests necessary for an individual patient.
• The Epic electronic medical record system puts patients’ full health histories at the fingertips of health care providers, both inside and outside the hospital.

Other examples include improvements in the teamwork and communication needed to move patients from the operating room to recovery to their hospital rooms as swiftly and safely as possible.

—Rachel Wallach

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Key Things to  Know about the Medicare Waiver

1. The update changes how hospitals get paid. They used to get paid per patient admission; now they have budgets within which they must live.

2. Hospitals will focus more on preventive care.

3. Hospitals will be responsible for improvements in coordination of care, including better communication and sharing responsibility for patients, both within the hospital and with community providers.

4. Hospitals will need to provide more thoughtful use of the costliest kinds of care.

5. Hospitals will be part of a more integrated system where they provide complex care when necessary. More of a patient’s health needs will be taken care of outside of the hospital.