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Managing Big Change in Maryland

Dean Rothman

As of April, millions of previously uninsured Americans had picked up coverage as a result of the Affordable Care Act. While the new insurance exchanges have garnered major attention, health reform entails much more than expanding access to care. Around the country, policy leaders are testing ways to rein in health care costs while simultaneously ensuring a greater focus on quality and prevention.

One such experiment in Maryland—an overhaul of the hospital-payment system—has huge implications for Johns Hopkins Medicine.

Rates at Maryland hospitals are set by a state agency known as the Health Service Cost Review Commission, or HSCRC. Since 1977, Medicare has waived the payment rules it uses in the rest of the country and paid Maryland hospitals according to HSCRC rates. This waiver helped make care more affordable for everyone and funded important public goods like medical education and treatment for the uninsured.

The main shortcoming of the old system, however, was its focus on per-admission inpatient costs. The fee-for-service model offered no real incentives to keep people well. The more patients we admitted and outpatient procedures we performed, the more we were reimbursed (as long as cost increases stayed below a certain threshold).

Maryland’s new all-payer model, approved in January, moves us closer to a “population health” system. It sets a global budget for hospital spending (both in- and outpatient) in the state. The HSCRC then will establish budgets for individual hospitals and hospital systems based on the number of patients served and the complexity of cases seen. The hospital is responsible for staying within that budget.

The new model puts the focus squarely on quality, efficiency, and coordinating care—in and out of the hospital. It creates incentives for reducing duplication, readmissions, and preventable conditions. And it doesn’t just apply to Medicare users: All the patients at a given hospital will be charged the same amount for the same service, regardless of their insurance plan.

Of course, a change this radical will pose challenges for a large system like Johns Hopkins. The shift in emphasis from volume to value will require us to think very differently about where and how we treat. The onus is now on us to provide the right care, at the right time, at the right place. Fortunately, we saw these changes coming and have been preparing assiduously. The key will be managing our resources effectively, and our five-year strategic plan lays the groundwork for accomplishing that.

For example, we are investing in new outpatient facilities to complement our large primary care network. We recently established an accountable care organization (ACO) to provide tightly coordinated care for Medicare patients. We are striving to improve efficiency by weeding out wasteful procedures and formalizing protocols across the entire JHM system. The work we are doing to ensure safety, enhance communication, and prevent medical errors will translate into shorter hospital stays and fewer readmissions. And because non-Maryland revenue will not count against our budget, we are looking at ways to boost out-of-state and international volumes.

Clearly we are not starting from scratch. The challenge will not be building the components but pulling them together in harmony. The new all-payer test period gives us five years to roll out strategic changes, and we expect market forces will compel other academic health centers around the country to follow. We hope to show them how it’s done right here in Maryland.

Read more from Dr. Rothman.