Few people know it, but Maryland’s hospital revenue model is being turned on its head, and the ramifications of the change will be felt throughout the healthcare landscape. The changes will affect not only hospitals and healthcare providers but also patients and employers, who will have more options for quality medical care at lower costs.
For employers, in particular, now is the time to tune in and start learning about the changes — and the potential cost savings and improved treatment options they will bring.
Where did the changes come from, and what do they entail? Here, I give you the first in a series of blog posts that explores the new revenue model as it unfolds, and keeps you informed on what you need to know to make smart choices for your employees (and for yourself and your family).
What prompted the changes?
The changes stem from major shifts in Medicare and Medicaid payments. A January 1, 2014, agreement between the state and the Centers for Medicare and Medicaid Services (CMS) requires Maryland hospitals to, among other things, reduce Medicare hospital spending by $330 million and reduce readmissions and hospital-acquired infection rates.
In return, hospitals will receive per-capita, lump-sum Medicare and Medicaid payments. So instead of billing CMS for each service it provides to a Medicare and Medicaid patient, a hospital will receive an overall payment based on the health of the population in the community it serves. If a hospital can meet the goals laid out in the agreement, it gets to keep and reinvest whatever money is left over; if the hospital falls short, it may face the possibility of running a deficit that may impact the financial stability of the institution.
Not just Medicare and Medicaid
Though the CMS agreement affects only Medicare and Medicaid patients, the changes will make their way through the entire healthcare system in Maryland. Why? Creating two separate treatment and revenue models just isn’t cost-efficient or feasible. Medicare and Medicaid payments account for about 36 percent of national health expenditures. And as of March 2014, Medicaid and Children’s Health Insurance Program (CHIP) enrollment have expanded under healthcare reform by 7.7 percent nationally and 21 percent in Maryland. Hospitals can’t afford to walk away from the Medicare and Medicaid revenue — and need to create a model and infrastructure that works for the whole healthcare system.
How, exactly, will healthcare change?
Right now, hospitals generate revenue based on the services they render and the number of patients they admit. The new model will change that entirely.
Under the new plan, hospitals will be incentivized to lower their admissions and readmissions rates, lower their infection rates, build strong community partners that provide quality care, and improve health outcomes. Hospitals that perform well will reap rewards, while those that do not will face increasing pressure to improve outcomes.
What specific changes are in the works? Some include partnering with other healthcare providers (such as independent physicians and community health clinics) and making a joint effort to reduce spending on hospital services through patient education, care management programs for patients with chronic illnesses, and preventive healthcare services to patients (or populations) in need.
Put simply, the plan is for hospitals to produce better results at a lower cost. If it succeeds, the state will be touted as a national model of hospital finance reform, and will move forward with the project’s second phase. Under development now, the second phase focuses on enhancing the patient experience, improving “population health” (or the health outcomes of whole populations), and continuing to cut back on the costs of care.
Impact on patients and employers
In the past, Maryland’s agreement with CMS has inadvertently rewarded the state’s high number of readmissions. And with generally flat rates across the state, hospitals had little incentive to compete based on quality of care or outcomes. Now, the focus will be on cutting readmissions, improving outcomes, and expanding community-based healthcare services.
The changes, if successful, could eventually lead to better offerings for individual patients and for employer-based health plans.
- For patients, a hospital that has shown it has a lower hospital-acquired infection rate than the competition will undoubtedly be an attractive option. In order to cut down on readmissions, hospitals will have to partner more closely with primary care doctors, nursing homes, local health departments, and other community health providers. For patients, that should mean more thorough follow-up care after a hospital visit and clearer lines of communication, for instance, between the family doctor and the heart surgeon.
- For employers, the new system could mean a chance to evaluate the performance and outcomes of hospitals and health networks, and to choose the ones that best serve their employees and improve outcomes, while lowering overall healthcare costs. If an employer, for instance, incentivizes employees to choose a hospital or health network with proven results (i.e., lower infection and readmission rates), then the cost of healthcare coverage for both the employee and employer would be less expensive.
Under this model, employers offer employees the option to choose from three provider networks at the time of service:
- “Centers of Excellence,” which have proven track records of providing high quality care and outcomes. With this option, employees incur the lowest out-of-pocket costs when seeking care.
- Carrier-based preferred provider networks, which offer patient discounts on provider fees.
- Non-participating providers that charge the highest rates, and employees incur the highest out-of-pocket expenses.
Right now, hospitals are scrambling to figure out how to adapt to the changes — and looking for ways to partner with employers to create options that work.
The time is ripe, then, for employers to start learning about the changes. Maryland’s new hospital revenue model may still be in the early stages, but changes happen quickly, and employers will do well to keep an eye on the situation over the coming months and years so they might be among the first to benefit as the new healthcare landscape takes shape.
To learn more about potential partnerships between hospitals and other employers (including some pilot partnerships already in the works), stay tuned for my next blog post. And feel free to contact me at fstrueber@psafinancial.com to discuss how the new hospital revenue agreement could affect your business’s healthcare plan.
