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The Maryland All-Payor Hospital Rate Setting System

The Maryland All-Payor Hospital Rate Setting System. Presentation for the Brazilian National Supplementary Health Agency – (ANS) Health Care Regulation. November 8, 2006. Presented by Robert Murray, Executive Director, Health Services Cost Review Commission

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The Maryland All-Payor Hospital Rate Setting System

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  1. The Maryland All-Payor Hospital Rate Setting System Presentation for the Brazilian National Supplementary Health Agency – (ANS) Health Care Regulation November 8, 2006 Presented by Robert Murray, Executive Director, Health Services Cost Review Commission 4160 Patterson Ave. Baltimore, Maryland 21204 USA email: bmurray@hscrc.state.md.us

  2. Overview of Presentation • General Regulatory Structure in Maryland • Case Study and Description of Maryland “All-Payer” Hospital Regulatory Model • Basic Characteristics and Features of Model • Relevance for other Developed Nations • Summary Comments

  3. Health Regulatory Approachin Maryland (Agencies)

  4. Regulatory Model – Key Points • Maryland Model is not an “American Model” • U.S. Philosophy – Heavy Ideological Reliance on Market Mechanisms • The U.S. Health Care System has many “Market Failures” • Maryland Model tries to Correct for “Market Failure” to achieve Policy Goals

  5. Overview of Maryland HealthRegulatory Agencies HSCRC Hospital Regulation Governor of Maryland Maryland Insurance Administration Department of Health Maryland Health Care Commission Health Services Cost Review Commission Regulates Core Health Functions: Medicaid Program Public Health Licensing/Certification Regulates Insurance: Life Health Auto Regulates: Cert. Of Need Report Cards Small Group Insurance Regulates: Rates/Costs Of Acute care Hospitals

  6. Hospital Regulation • Health Services Cost Review Commission (HSCRC) Regulates the Hospital Market • HSCRC Has Six Primary Objectives • Control Cost Growth • Improve Access to Care • Improve Equity in Payment and Care • Improve Quality of Care • Provide Financial Stability for Hospital Market • Increase Transparency and Accountability

  7. Maryland Hospital Rate Setting System - Case Study

  8. Maryland in the U.S. New York State of Maryland Washington DC

  9. Maryland Case StudyMaryland Demographics/Characteristics • Demographics • 5.5 million population (12% are elderly: age +64) • High per capita Income (3rd highest State in US) • Types of Hospital Facilities in Maryland • 47 Acute Care Hospitals (46 are non-profit) • 1,000 bed teaching, 300 bed general & 30 bed rural hospitals • Specialty Hospitals (Psychiatric, Rehab/Chronic care) • Size of Hospital Industry in Maryland • $10 billion in Revenue per Year (70% inpatient, 30% outpatient) • Hospital Spending is 37% of total Health Care Spending • Over 700,000 admissions each year

  10. Maryland Case Study Health Services Cost Review Commission (HSCRC) • HSCRC Established 1971 • Started Setting Hospital Rates 1974 • Became “All-Payer” by including both Private and Public Payers (Medicare/Medicaid) in 1977 • Six Health Policy Objectives: • Constrain Hospital Costs /Keep Hospital Care Affordable • Improve Access for those without Insurance • Create a Fair and Equitable Payment System and System of Care • Include Financial Incentives to Improve Quality of Care • Promote Financial Stability • Require Accountabilityand Transparency

  11. Maryland Case StudyGeneral Commission Characteristics • Politically and Legally Independent Commission • Seven Volunteer Commissioners (appointed) • Well-Defined Jurisdiction (hospitals) • Broad Legal Mandate • Data Collection • Hospital Rate Setting • Emphasis on Public Deliberations & Disclosure • Responsive to Maryland Issues/Problems

  12. Maryland Case StudyGeneral Commission Characteristics • Small Regulatory Infrastructure • Budget of $4 million/year to Regulate $10 billion Hospital Industry • Research & Methodology; Rate Setting; Accounting & Compliance; Legal Departments • Staff of 28 Economists, Accountants, Statisticians, & Computer Programmers • Methods are Data Intensive & Formula Driven

  13. Maryland Case StudyEconomic Rationale • Market Competition can be a Powerful & Productive Force • Some Markets (Health Care) do not have all the Characteristics of “Functional” Competition • Regulation in Maryland tries to Correct for Market Failure and Provide for the Following: • Ensure Access to a Vital Public Service • Create Consistent Payment Incentives • Promote Efficiency and Quality • Promote more Efficient Allocation of Resources Across Services • Allow for Accountability but also Autonomy of Decision Making

  14. Maryland Case StudyOperational Characteristics • Well-Developed Data Infrastructure (publicly available) • Cost & Financial Data • Case Mix Data • Wage and Revenue/Volume data • Rates & Efficiency Standards Built up from Actual Data • Rate Methods – Prospective (not cost-based) • Individual Rate Schedules for each hospital • Each (Public or Private) Hospital’s Rates apply to All-Payers (Public & Private)

  15. Maryland Case Study Regulatory Approach • Use of Financial Incentives instead of Administrative Sanctions • Rates set Prospectively and Updated each year • Hospitals “at risk” to meet HSCRC Efficiency Standards • Not held “at risk” for Issues Beyond their Control • Sophisticated “adjustment” mechanisms to account for Differences among Hospitals

  16. Maryland Case StudyAchievements/Results • Lowest Rate of Growth in Hospital Costs 1976 -2005 • Best Access to Care for Uninsured (finance over $800 million of uncompensated care per year) • Most Equitable Hospital Payment System in U.S. (lowest “mark-up” & no “cost-shifting allowed) • Only “All-Payor” Pay for Performance (P4P) Quality Improvement Project in U.S. • Most Stable Financial System (hospital bond ratings) • Highest Level of Transparency & Accountability

  17. Hospital Cost per Admission Maryland vs. U.S. Percent Maryland Above/Below US Maryland Started 25% ABOVE the US in Cost/Admission Maryland is now 4% below the US In Cost/Admission 2005 Best Cost Containment of any State Source: American Hospital Association Annual Statistics

  18. Maryland Case StudyIndexed Rates of Growth (Maryland vs. U.S.) U.S. Hospital Cost Growth Savings Maryland Hospital Cost Growth Lowest Rate of Growth of Any State Source: Med-Pac: AHA annual survey and Maryland rate setting commission.

  19. Maryland Case Study Access to Care • Transitioned 3 Public Hospitals to Profitable “Community” Hospitals • No more Hospitals of “Last Resort” & No Patient “Dumping” • No “two-tiered” System of Medical Care • Uncompensated Care Financed Equitably • Universal Access to “Life Saving Care” in Maryland

  20. Maryland Case Study Equity and Fairness • Rates Set to Reflect Reasonable Cost (Uniform Mark-up) • HSCRC Prohibits “Cost-Shifting” • Rates at each Facility are the same for All-Payers (Public or Private) • All Payers Share Equitably in Cost of Uncompensated Care and Medical Education • Hospital Managers Respond to Uniform Financial Incentives (across all payers)

  21. Maryland Case StudyMarkup of charges over costs, MD and US Over 150% U.S. Hospital Mark-ups Charge over Cost Maryland Mark-ups 18% Lowest Mark-ups of Any State Note: Maryland data cover regulated services (inpatient and outpatient care). Source: Med-Pac: AHA annual survey and Maryland rate setting commission.

  22. Maryland Case StudyEquity and Prohibition on Cost-Shifting Situation in other States Situation in Maryland Published Charge US Hospital Maryland Hospital $1500 charge per day What They Pay All-Payer State: pay same rate 100-200% Mark-Up 18% Mark-Up Hospital Cost $500 cost per day Short Falls in Payment And Maryland Costs are Lower on average Uninsured Medicare HMO Medicare HMO UCC Provision Medicaid Small Private Insurance Large HMO Small Private Insurance Large HMO Medicaid PUBLIC PAYERS PRIVATE PAYERS PUBLIC PAYERS PRIVATE PAYERS

  23. Maryland Case Study Quality Of Care • Rate Stability means Managers can focus on Cost and Quality of care • Maryland Hospitals known for Clinical Excellence • Johns Hopkins Hospital voted the Best U.S. Hospital past 10 Years • Hospital Performance Guide – Publishes Hospital Performance on Quality Measures • HSCRC “Pay for Performance” project – Only “All-Payor” P4P in U.S. (incentives for higher quality)

  24. Maryland Case StudyP4P Process (“Quality”) Measures • Acute Myocardial Infarction • Pneumonia • Heart Failure • Surgical Infection Preventions • Patient Safety – ICU-related care • More Measures (outcomes) later…..

  25. Maryland Case Study Accountability • All Deliberations held in Public • All HSCRC Hospital Data Publicly Available • Inpatient & Outpatient Charges posted on Web • Hospital Report Card Evaluates Hospitals on Quality Process Measures on Web • Annual Financial Disclosure on Hospital Performance

  26. The Rate Setting Model:Lessons Learned/Key Success Factors

  27. Maryland Case Study Lessons Learned • Availability and Accuracy of Data Highly Important • Financial Incentives will influence Medical and Managerial Decision-Making • Need to Establish Clear & Reasonable Goals/targets • Phase-in these Goals & Targets over Time • Hospitals “at-risk” for Achieving these Goals • Need to Adjust for factors beyond Hospital’s control • Macro-level regulation – allows for a high level of Autonomy of Decision Making by Hospital Managers

  28. Maryland Case Study Key Success Factors of System • Use Financial Incentives to Influence Medical Practice • Use Formula-based Methods and Focuses on Outliers • Focuse on Cost Control and not Profit Control • Prohibit Cost-shifting • Support Hospitals’ Social Mission and Access Goals • Responsive to Local Issues & Unique Circumstances • Adopt of a “Long-term” Perspective (avoid disruption)

  29. Maryland Case StudyWeaknesses • System hasn’t controlled Volumes well • Currently few Incentives for Quality Improvement (but new P4P system will address this) • Outpatient Regulation is More Difficult (working on new Outpatient Control system) • Possibility for “Regulatory Failure” or “Capture” • Focus is only on Hospitals and not on other Providers or Health Sectors

  30. Maryland Case StudyStrengths • Promotes Micro Efficiency at Hospital • Allocates Revenues well by Hospital & by Service • Fair, Equitable and Consistent Payment Incentives • Controls Cost per Case Growth well • Can fulfill on Pledge of Universal Access • Blends Public and Private Sectors Well (Hospitals and Payers) • Incentives to Rationalize Capacity Issues

  31. The Rate Setting Model:Applicability for Other Countries

  32. Maryland Case StudyApplicability for Other Countries • Works Well under Different Financing Structures • Consistent payment Incentives promotes Efficiency and Equity • Helps Integrate Public and Private Systems • Payment System a Good Tool to Promote Quality • ** Allocates Revenues very Effectively! ** • Helps fulfill on Goal of “Universal Access” • Can Work To Reduce Excess Capacity

  33. Relevance for Other CountriesApplicability to Different Financing Systems Considerations • No inter-payer equity issues • Less worried about cross-subsidies • Facilities can charge existing rates • Allocations of revenue by hospital • and service controlled by rate agency • 5. Eventual linking of hospital revenue • allocations to Regional Limits Centralized Financing System by Region $ $ Budget Pressures Rate Agency - Responsible for allocating revenues to facilities based on relative resource use with adjustments for case mix and other differences. - Rationalizes hospital revenue & provides management with data other tools to allocate revenues by service - Eventual reconciliation of facility & service revenues to overall expenditure limits $ Region 1 Region 3 Region 2 Structure of payment is less important H H H H H H H H Cost Pressures

  34. Relevance for Other CountriesApplicability to Different Financing Systems Considerations Pluralistic (fragmented) Financing System • Fragmented Payment System may • require uniform payment rates to • preserve inter-payer equity and • avoid hospital cross-subsidization • of services Public Payer 1 Public Payer 2 Private Payer 1 Private Payer 2 Budget Pressures Rate Agency Responsible for establishing Uniform All-Payer payment levels and approved revenue Allocations based on Reasonable relative resource Use by service and by facility All-Payer Unit Rates H H H H H H H H Cost Pressures

  35. Maryland Case StudySummary Comments • Not an “American Model” • Macro-Regulation to Address Market Failure • Modest Regulatory Infrastructure • Clear Policy Goals and Efficiency Targets • Some Success in Achieving Original Goals • Focus on Quality of Care Currently • Directly Applicable to Other Countries and Financing Structures

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