The Maryland All Payer Hospital Rate Setting System Experience

Transcription

1 The Maryland All Payer Hospital Rate Setting System Experience Presentation for Legislative Joint Interim Task Force on Health Care Cost Review Robert B Murray Global Health Payment LLP Former Executive Director, HSCRC December 15, 2017 Presented by Robert Murray, President of Global Health Payment, LLP. RMurray@GlobalHealthPayment.com 1

2 Introduction and General Overview Background and Rationale for Hospital Rate Setting in Maryland Startup Period and Early Experience ( ) move to DRGs and Volume Adjustments Negotiated Medicare Waiver: Purpose and Implications System Experience and Policy Responses to Problems/Issues Some Data on Maryland vs. Oregon Health Expenditures Medicare Waiver Test Erosion and Negotiation of New Model Demonstration Waiver New Model Characteristics and Requirements New Model Performance Cost New Model Performance Quality Implications of Rate Setting (new and old models) for all Parties Summary and Conclusions (Pros/Cons of Rate Setting) 2

3 Payment System Basics Bundling of services increases Capitation Cost-based payment Hospital not at-risk Services the hospital is at risk for across these different Bases of Payment 3

4 Payment System Basics (continued) Bundling of services increases Capitation Strength of cost containment incentives increases Provider more risk Payer less risk Services the hospital is at risk for across these different Bases of Payment 4

5 Overview and Background of the Maryland Hospital Rate Setting System In 1960s Medicare, Medicaid and Private Payers paid hospitals in the U.S. on the basis of their reported costs (i.e., retrospective cost-based payment system) This type of system proved to be highly inflationary (did not provide a constraint on hospital expense growth) and in Maryland hospital costs rose rapidly during this period The State Medicaid program was facing significant deficits Also, hospitals in urban areas that served poor patients experienced high levels of Uncompensated In response. Hospitals that served large numbers of indigent patients were facing significant financial problems. These and other factors lead to the formation of a coalition of parties (Maryland Hospital Association, business and labor) that strongly supported the initial legislation (Blue Cross was strongly against rate setting) 5

6 HSCRC Key Features Founding Legislative Goals to correct for major problems: 1) Control rapid cost growth 2) Improve access to care 3) Make an equitable system 4) Provide accountability and transparency 5) Ensure financial stability and predictability for hospitals and patients Based on a Public Utility Model of Regulation Authority to set hospital rates for hospital facility charges only Politically and Legally Independent over the years Language in law and regulation statute very general, provided the HSCRC with considerable flexibility Key steps: 1971 statute passed; 1972 hired staff; created the Uniform Accounting and Reporting System & began period of data collection and developed rate setting methodologies; began setting rates in 1974; completed setting rates for all 50+ hospital 1977 (5-6 years to initially implement) During this period HSCRC was challenged in court five times 6

7 Maryland Characteristics Maryland population 6.6 million people High per capita income Large inner city poor populations in Baltimore City Urban, suburban and rural areas (two large cities Baltimore and borders Washington DC) 52 Acute Care hospitals ranging from 15 1,000 beds (49 are rate regulated) and about 650,000 admissions 8 rural; 6 rural/suburban; 20 suburban and 15 urban hospitals Two large Academic Teaching Hospitals Five Hospital/Health Systems (covering 30 of the 48 total hospitals) Maryland hospital $16 billion of inpatient and outpatient revenues Inpatient/outpatient split is approximately 60%/40% (however, the spilt is was 80% inpatient and 20% outpatient in the 1970s) 7

8 Maryland Characteristics (continued) One Dominant Commercial Insurer: CareFirst Blue Cross of Maryland (4-5 million lives in the DMV area with 60% market share and 70% of CareFirst business is for self-funded plans) United, Aetna and Kaiser make up the rest of the Commercial market 12 Hospital-based MSSP ACOs and 9 Physician-affiliated MSSP ACOs CareFirst also operates a large Incentive-Based Primary Care Medical Home model (80% of PCPs participate) for its commercial population CareFirst PCMH was also extended to 40,000 Medicare beneficiaries Maryland has very low Medicare Advantage Penetration (relative to Oregon which is quite high) Maryland Medicaid enrollment 2014: 1.1 million 88% under a managed care approach with 9 MCOs 8

9 HSCRC General Results (dated but generally still valid to 2011) Maryland experienced 2 nd lowest rate of growth in hospital cost per case of any state: : Maryland cost per case was 25% ABOVE the US average 2006: Maryland hospital cost per case was 4% BELOW the US average Rate system created better access to hospital care of any state Maryland has no public governmental hospitals Hospitals in the State provide in excess of $800 million of unpaid or uncompensated care this is financed through the rate system There as been no patient-dumping in Maryland The system is also the most equitable system of hospital payment of the USA because the system prohibits cost-shifting It has provided relative financial stability for Maryland hospitals Also provides public accountability and transparency of costs and charges (payment levels) 9

10 Index Indexed Rates of Growth Hospital Cost per Case (Maryland vs. U.S.) Over this Period Cost per Capita rose more rapidly because hospital admissions started to increase rapidly Savings U.S. Hospital Cost per case Growth Maryland Hospital Cost per case Growth Second Lowest Rate of Growth in Cost per Case of Any State Source: AHA annual statistics and Maryland HSCRC 10

11 Maryland vs. Oregon Comparative Statistics Data recently released by CMS on national spending allows for cross state comparisons on health spending by payer through 2014 Table 1 Table 2 11

12 Maryland vs. Oregon Comparative Statistics (continued) Data recently released by CMS on national spending allows for cross state comparisons on health spending by payer Table 3 Table 3 shows that Maryland has relative high per capita spending, particularly for Medicare and Medicaid. The high governmental spending per capita are driven by the very high payments Maryland hospitals receive from both Medicare and Medicaid under the State s Medicare Waiver. It is estimated that governmental payers pay Maryland hospitals approximately $2.3 billion more than they would in the absence of Maryland s Medicare Waiver. This is why retention of the Waiver has always been of paramount importance to the state. 12

13 Overview of Maryland Health Regulatory Agencies Governor of Maryland Reports directly to the Governor Maryland Insurance Administration Department of Health Maryland Health Care Commission Health Services Cost Review Commission Regulates Insurance: Life Health Auto Regulates Core Health Functions: Medicaid Program Public Health Licensing/Certification Regulates: Cert. Of Need Report Cards Small Group Insurance Regulates: Rates/Costs Of Acute care Hospitals 13

14 HSCRC Agency Characteristics 7 Volunteer Commissioners (including a chairperson) appointed by Governor Serve 4 year Staggered Terms (max. of 8 years) Variety of health care backgrounds appointed to serve the public interest Agency Operating budget of $7.0 million per year (Old Model) and approximately $13 million (New Model) Fulltime Staff: 28 FTEs (Old Model), 40 FTEs (New Model) Economists, Statisticians; Accountants; Legal Staff; clerical Commission also hires consultants for analytic work and data vendor to assist with data collection Old Model: Rate Setting and Methodology Divisions New Model: Rate Setting, Methodology, Population Health and Consumer Engagement Divisions 14

15 Organization Chart Old Model Legal Rate Setting Research & Methodology Hospital Rate Setting Model - Theory and Methods 15

16 Extensive Data Requirements 1. Uniform Cost Data by service (direct and indirect) used to set rate standards by peer group similar to Medicare Cost Reports 2. Case mix or Patient data (Diagnosis & ICD-10 data) used to adjust hospital rates for differences in patient illness 3. Volume and Revenue for rate compliance checks 4. Inflation Factors of input costs - for annual inflation adjustments to hospitals 5. Other data (wage and salary survey, trustee disclosure, data on managed care arrangements) 6. Financial Statements to monitor financial operation 7. New Model required the collection of a number of other data elements (Quality data, in-state/out-of-state cost data, U.S. Medicare payment data) 16

17 Initial Rate Setting was a Unit Rate System HSCRC collected hospital Cost data and volume data by cost center HSCRC s Accounting and Reporting system defined some cost centers Unit rates were based on the reported Costs by Center divided by the reported units of service Examples are: Daily care areas such as Medical/Surgical: set a rate per day in the Medical/Surgical ward. Operating Room: set a rate per minute of OR time Clinic: set a rate per visit ED: set a rate per visit Radiology: set a rate per Relative Value Unit (RVU) 17

18 Payments based on Unit Rates and Services Rendered to Each Patient Center Approved Rate Unit Units of Service Medical/Surgical Unit Intensive Care Unit Admission Operating Room Radiology Pulmonary Blood Lab Physical Therapy Cost of Drugs Sold Medical Supplies Total Charge per case $500 $1,000 $100 $15 $20 $3.00 $15 $2.00 $16 $1,200 $2,100 Per day Per day Per case Per minute RVU RVU RVU RVU RVU Invoice cost Invoice cost X X X X X X X X X X X = $2,500 = 2,000 = 100 = 2,250 = 500 = 30 = 75 = 50 = 80 = 1,200 = 2,100 $10,885 18

19 Initial Unit Rate System (continued) For the most part Hospitals unit rates approved by the HSCRC were based on their reported cost per unit except in extreme cases Note: While the most effective rate setting systems are Prospective in nature (i.e., Medicare PPS), it is best to start with hospital historical cost for viability and stability purposes Hospitals were required to bill for services based on these approved unit rates Payers were required to pay these unit rates charged by hospitals The HSCRC inflated each hospital s unit rates annually (so the Commission controlled the rate of growth of these prices per unit) In response to this type of system hospitals greatly increased the number of services provided (i.e., number of tests, minutes in the OR, visits and days in Med./Surg. ward) 19

20 Economics of Incentives for Hospitals to Increase Volumes As noted, under the Unit Rate Setting system hospital had financial incentives to increase their volumes of service This is due to the nature of hospital fixed and variable cost proportions HSCRC realized that for most medium to large hospitals, hospital costs are about 50% fixed and 50% variable on average (this of course varies by service but this 50/50 relationship was a finding of the HSCRC) The economics of this situation meant that hospitals could increase their profitability by increasing admissions, visits and ancillary services Assuming hospital costs were 50% variable with volume (on average) for each new dollar of hospital service, the hospital would realize a 50 cent gain (i.e., 50% of the hospital cost was already fixed, so for each new service the hospital would receive 50 cents on the dollar ($100 cents less the 50 cents in variable cost to produce the service) Because of this general dynamic, hospitals have large incentives under a unit rate system (or a per case payment system) to increase hospital volumes 20

21 Transition to use of Diagnostic Related Groups (DRGs) Payment & the use of a Volume Adjustment System (VAS) To address the weaknesses of the unit rate setting system the HSCRC was the first system to adopt the use of DRGs in 1976 DRGs transfer financial risk to hospitals and create strong incentives to manage cost and resource use per case Outpatient services were still under the unit rate payment system (although later the HSCRC did adopt a per Visit Payment System) However, with per case payment hospitals still have an incentive to increase the number of cases they treat Hospitals in Maryland pursued strategies to purchase physician practices and build new facilities to attract patient volume In response the HSCRC created its Volume Adjustment System which allowed hospitals only to retain revenue (associated with new volume) related to their Variable Costs 21

22 HSCRC move to DRG based Payment and the Use of a Volume Adjustment System (VAS) - continued Under the VAS any increase in volume a hospital was only allowed to retain 50 cents on the dollar commensurate with its variable costs on average The HSCRC had the ability to adjust a hospital s rates to remove revenues in excess of hospital variable costs The VAS neutralized hospital incentives to increase volumes unnecessarily The combination of these two systems (DRG payment and the VAS) allowed the HSCRC created a system of very successful cost control Maryland had average hospital costs per case that were 25% above the U.S. average in 1976, but by 1992 they were more than 12% below the U.S. Volume growth during this period was equal to population growth 22

23 With the Negotiation of the Maryland Medicare Waiver the System became All Payer Maryland also finalized negotiations with Medicare on the Maryland Medicare Waiver which went into place in 1977 The Waiver meant that Medicare and Medicaid both waived their right to subject Maryland hospitals to their payment systems Medicare and Medicaid instead pay Maryland hospitals on the basis of the rates set by the HSCRC Maryland was the first state to establish a Medicare Waiver The state keeps the waiver as long as it passed a financial test (Old System: per case growth test/new System: per capita growth tests) New York, Massachusetts, New Jersey, Washington also negotiated Medicare Waivers but lost or gave them up in the 1980s & early 1990s Hospitals in Rochester and the Finger Lakes New York also operated under a separate Medicare Waiver

24 Characteristics and Benefits of the Waiver Allows for inter-payer Equity & Virtually Eliminates Cost Shifting All payers (including Medicare and Medicaid) pay on the basis of HSCRC rates No cost shifting and no excessive charging to uninsured Equitably Finances Uncompensated Care in the System Medicare pays for its fair share of hospital cost including Uncompensated care and medical education costs Allows the State to address Hospital Issues Locally Examples of Local Issues addressed Provides for a Predictable and Stable Financial Environment Original Waiver was a Demonstration Waiver and could be terminated at the discretion of Medicare Maryland Successfully placed the Waiver and the Waiver Test in federal statute (section 1814b of the Social Security Act) in

25 Additional Payment by Medicare/Medicaid to Maryland Hospitals under the Waiver The Waiver Test negotiated with the Medicare Agency and placed into federal statute was a cumulative rate of growth test that compared Maryland growth in Medicare payment per case to that of the U.S. As long as Medicare payments per inpatient case in Maryland grew more slowly than in the rest of the U.S., Maryland could keep its Waiver Otherwise, it would take an act of Congress to remove the Waiver The Base Year selected for the Test was 1980 a time when Maryland Medicare payments per case were 30% higher than Medicare payment nationally (see Chart on the next slide) This meant that Maryland could retain this large surplus payment from Medicare (and Medicaid) as long as it just grew incrementally more slowly than U.S. payment per case 25

26 Dynamics/Implications of Maryland s Waiver Test As shown below, Maryland started about 30% higher in Medicare payment per case. This Waiver Test structure meant that Maryland could retain this large surplus payment from Medicare (and Medicaid) as long as it just grew incrementally more slowly than U.S. over time. The Value of this extra payment grew over time such that in 2014 it was estimated that Maryland receives $2.3 billion in additional governmental payment The threat of losing this extra payment has galvanized support for Rate Setting in the State over the years This is also not an arrangement that any other State could negotiate with CMS 26

27 Performance and Key Events Starting in 1989 the HSCRC gradually phased out its Volume Adjustment System 1997 Balanced Budget Act nationally put pressure on Medicare payment growth per case (under the Medicare Waiver Test) HSCRC had to respond to keep the Waiver and began a period of very low Inflation Updates to Hospital Rates With the Rise of HMOs the HSCRC felt comfortable eliminating its VAS in exchange for lower annual updates starting in 2001 Eventually, as Managed Care became less dominant Volumes began to increase rapidly in Maryland Low hospital rate updates and the elimination of the VAS caused hospitals to dramatically increase both IP and OP Volumes Increased volumes eroded overall cost effectiveness of the System per capita costs rose more rapidly 27

28 Yearly Equivalent Admissions Volume Trends pre- and post Elimination of the Volume Adjustment System 13,500 12,500 11,500 10,500 9,500 8,500 Inpatient Admissions Volume trend before Elimination of the Volume Adjustment System 0.8% volume growth close to population growth Large Jump in Admissions 2.4% per year 7,500 VAS removed Fiscal Year From: Kalman et al. Removing a Constraint on Hospital Utilization: A Natural Experiment in Maryland Available at: removing-a-constraint-on-hospital-utilization-a-natural-experiment-in-maryland#sthash.cbsvjcrt.dpuf 28

29 Policy Responses : Move to more Bundled and Fixed Payment Systems In response to dramatic increases in hospital volumes staff recommended a series of payment policy changes to: Reinstated the Volume Adjustment System (industry opposition) Develop more bundled payment structures (bundling of admission/readmissions) Implemented Global Budgets for 10 isolated rural hospitals with patient populations that were naturally mapped to these facilities The HSCRC also believed (based on earlier experience with Global Budgets) that these payment arrangements were more supportive of the goals of Population-based health (treating communities effectively) see Rochester Hospital Experimental Payment Program

30 Policy Responses : Move to more Bundled and Fixed Payment Systems (continued) HSCRC also implemented several Quality P4P Programs to ensure quality did not erode under these new payment methods Implications of Global Budgets for rural hospitals ( TPR arrangements) Strong incentives to control volume and reduce costs Provided financial stability and predictability and facilitated a Populationhealth orientation and initiatives Placed smaller hospitals at considerable risk (should volumes spike) Implication of move to Bundled and Fixed Payment Structures: These policy and payment changes caused payments per case to rise more rapidly This threatened failure on Maryland s per case Medicare waiver test Maryland argued it was being penalized for doing the right thing under the old test 30

31 Policy Responses : Quality of Care Initiatives These Quality programs provided incremental incentives (both penalties or rewards) for hospitals to maintain or improve quality Programs implemented in part due to concerns that hospitals might skim on quality of care under the incentives of more fixed payment mechanisms Quality-Based Reimbursement (QBR) Started in 2008 prior to Medicare s Value Based Purchasing initiative Measured performance on use of Process Measures correlated with higher quality Later incorporated patient safety measures, mortality measures and patient satisfaction Maryland Hospital Acquired Conditions (MHAC)s Implemented in 2009 prior to Medicare HAC program Much broader than the Medicare HAC program (incentivized performance on 64 different Potentially Preventable Conditions ) Readmission Programs In 2011, HSCRC implemented a bundled admission-readmission payment program In lieu of this bundled payment structure, the HSCRC later implemented an incremental incentive program for hospitals to reduce Readmission rates 31

32 ACA passage, Health Reform, Increased Emphasis on Population Health & Negotiations with CMS/CMMI for a New Waiver With the passage of the ACA in 2010 and the formation of the Center for Medicare/Medicaid Innovation (CMMI) it appeared CMS would be receptive to new Payment Approaches As noted, the HSCRC s move to more Fixed Payment mechanisms was resulting in reduced volume growth and more of a focus on the goals of the CMS Three Part Aim And lower admission rates translated into higher average cost per admission This put increasing pressure on the per case Medicare Waiver Test Also, in 2010 the State legislature imposed a 3% Medicaid Assessment on hospital rates (a provider tax ) to help fund a budget deficit These factors contributed to rapid erosion of Maryland s performance on its per case Medicare Waiver Test 32

33 ACA passage, Health Reform, Increased Emphasis on Population Health & Negotiations with CMS for New Waiver HSCRC Argument was that the State was moving toward a Population Health-based System but being penalized by the Per case Waiver Test for doing the right thing. Impetus for for these policy changes and the renegotiation of the Medicare Waiver came from the HSCRC staff Department of Health, MHA and Other parties supportive of moving to a New Model Dynamic that lead to the New Model: Maryland on the verge of failing the per case Waiver Test CMS wanted the Maryland Waiver out of federal statute CMS wanted to experiment with Maryland s unique All Payer system to achieve the goals of the Three Part Aim Thus, CMS and HSCRC successfully negotiated a new Demonstration Waiver in 2013 for implemented beginning in CY 2014 for five years (CY14 CY18) 33

34 New Model Characteristics and Requirements CMS agreed to a New Demonstration Model/Waiver (old statutory Waiver was abandoned) Under the New Model Maryland required to: Hold all payer per resident hospital growth below 3.58% per year (equals 10 year average all payer hospital growth ) expected to be below State GSP growth per capita Generate at least $330 million in Medicare per capita hospital savings over 5 years Not experience Medicare Total Cost of Care Growth (total Part A and Part B Medicare expenditures both hospital and non hospital per Medicare beneficiary) greater than U.S. Total Cost of Care (TCOC) growth nationally Move all Maryland hospitals to a Population-based payment method by 2017 HSCRC also required to reduce Medicare Readmission rate to U.S. average (MD quite high) Required reduction in HACs of at least 30% over 5 years Improvements in QBR measures over 5 years commensurate with U.S. performance in the Medicare VBP program 34

35 What Qualifies as Population-Based Payment Population-based payment was defined as either: 1) is directly population-based, such as tying hospitals reimbursement to the projected services of a specific population or specific residents, or 2) establishes a fixed global budget for hospitals for services unconnected to assignment of a specific population but is related to historical trends, the hospital service area, and residents served through the implementation of innovative care models. Maryland was required to shift more than 90% of system revenue under Population-based payments by year 4 of the New Model Other than for the isolated rural hospitals, the HSCRC was not able to attribute Medicare beneficiaries to individual hospitals However, the HSCRC moved quickly to create fixed Global Budgets for the remaining 38 Maryland hospitals Even hospitals in suburban and urban areas, with overlapping service areas received an overall fixed Global Budget 35

36 Pilot Global Budget Mechanics State of Maryland Washington Co. Hospital $250 million In Base Year Revenues Located in an isolated part of the State Serves 148,000 residents Limited in-migration from other areas Effective a shadow cap of $1,700 pmpm Global Budget Example Base Year Budget Base Year Revenue$250.0m$259.2m3.7% Base Year Expenses$245.0m$251m2.4% Input Cost Index Operating Margin $5.0 m$8.2 EstimatedPopulation Cost Inflation Growth & Performance TrendAging inyear CountyActual Adjustments: 2.50%1.15% % Change X Area Demographics Enforced Cap = $259.2 m Operating Margin % 2.00% 3.16% Hospital costs increased by about 2.4% but hospital successfully eliminated unnecessary admissions, readmissions, imaging and other outpatient services Elimination of waste is now a source of financial sustainability for the hospital and efforts to 36 improve care and coordinate with care management initiatives are rewarded

37 New System Performance - Cost All hospital were forced onto Global Budgets by mid-2014 Hospitals were given significant additional infrastructure adjustments (i.e., additional funds for enhanced care management initiatives) added to their revenue to assist with transition to population health In year 1 (2014) Maryland had favorable performance (very important first year trend was below U.S. Trend) 2015 and 2016 HSCRC added more Infrastructure funding to rates Maryland per capita Medicare growth performance was less favorable CY (and Maryland TCOC growth was very mixed) However hospital profitability increased significantly (particularly on rate regulated services) Year CY 2013 CY 2014 CY 2015 CY 2016 CY 2017 Regulated Margin 5.51% 7.43% 8.37% 8.54% 7.09% Total Operating Margin 1.32% 3.06% 3.65% 3.32% 3.37% Regulated margins pertain to rate regulated services. Unregulated losses (the difference between regulated margin and total operating margins) are primarily associated with hospital owned physicians, hospital-based 37 physicians and subsidies to other physicians

38 New System Performance Cost (continued) HSCRC easily passed the All Payer test (note again the 3.58% per capita growth limit was developed during a period with high general inflation) HSCRC is meeting the $330 million in Medicare Hospital savings requirement but not a big margin (criticism from payers that HSCRC is viewing this requirement as a target and not a floor) TCOC performance has been mixed (2014 MD under US, 2015 MD over, 2016 MD under, 2017 MD appears to be over and 2018 may be over U.S as well.) so concern high degree of concern Maryland will have to file a Corrective Action Plan if it fails the TCOC Test and failure to correct could result in Termination This is a concern because Phase II requires Maryland generate actual savings for Medicare on TCOC 38

39 New System Performance Quality Programs Readmissions: Requirement that Medicare Readmission rate decline to be at or below U.S. average by 2018 Maryland was very high but on track to meet that target by 2018 Hospital Acquired Condition program: Maryland experienced huge drops in frequency of HACs in excess of 47% in first three years, well above targeted five year drop of 30% Quality Based Reimbursement program: experienced mixed results Some improvement in patient safety and clinical care measures, however, patient satisfaction levels remain poor relative to U.S. averages Large concern about high and increasing ED wait times and Red/Yellow alert status at Maryland EDs 39

40 Impact on Hospitals, Private Payers and Medicaid Hospitals remain largely supportive over time and currently (fear of loss of Waiver keeps support in place) Hospital profit margins have remained strong Some disappointment that hospitals have not reduced utilization by as much as was expected Private payers have benefited greatly by presence of Medicare Waiver (premiums in Maryland are lower as a result) The State supports the system but Medicaid program pays hospitals considerably more they would in the absence of the Waiver Legislature passed a 3% Medicaid Provider Tax 2010 to plug budget hole Again, potential for loss of $2.3 billion in governmental funding continues to keep support for the Waiver and rate setting strong Hospitals would have to cost-shift to Private Payers to cover shortfall Commercial Premiums would increase by over 10% Maryland would lose its mechanism for cost control and funding of UC 40

41 Other System Challenges Fixed Global Budgets are highly rigid they don t adjust adequately for shifts in patient and referral volume across hospitals HSCRC Implemented a Market Shift Adjustment (MSA) Methodology that proved inadequate, was highly unstable and not popular with hospitals Also, increasing concern with the growing complexity of other HSCRC policies especially related to Quality Programs When rate setting programs become too complex hospitals find it harder to respond to the financial incentives Other Rate Setting Systems failed due to increased complexity and rigidity (New Jersey and New York) Concerns regarding new Administration s support of the continuation of the Waiver (CMS could save over $10 billion by eliminating the Waiver) 41

42 Other System Challenges (continued) Phase II of the New Model will require a stronger focus on controlling Medicare TCOC growth vs. the US TCOC growth for Medicare HSCRC has designed and started to implement models to help hospitals control Medicare TCOC growth Care Redesign Amendment and related programs (two programs discussed thus far along with Waivers from Medicare fraud & abuse laws Stark laws etc.) Maryland Primary Care Program (similar to CMMI s CPC+) Medicare Performance Adjustment attempts to place individual hospitals at risk for the Medicare TCOC of their attributed beneficiaries Anticipated Long Term Care Program (not yet developed) Concern that these programs are virtual, untested and lacking in incentives Desire of current HSCRC leadership to feature an existing and successful program the CareFirst PCMH (primary care focused) program which has operated successfully in the state for 6 years for a Commercial population 42

43 Phase II Status All expect CMS to approve a Phase II Extension of the current Demonstration waiver by January/February 2018 (Phase II would be apply to two 5-year periods : and ) Focus of Phase II will be on control Medicare TCOC growth in Maryland vs. U.S. TCOC growth Maryland must generate at least $1 billion of savings for Medicare vs. TCOC growth nationally over the first five years ( ) All Payer annual limitation of growth no more than 3.58% remains in place (not a difficult constraint) Quality program goals have not been re-established Maryland must also identify several Population-based quality goals that it will meet (not specified currently) 43

44 Summary and Conclusions Maryland Model can t be duplicated entirely because CMS would not allow a similar Medicare Waiver arrangement (where Medicare pays 30% higher) Oregon might be able to negotiate a Medicare Waiver but it would need to start out with existing payer differentials (i.e., Medicare and Medical payment levels would be far below Commercial payment levels) in place This was discussed in Vermont and there was hope that as an All- Payer system saved money it would allow for a narrowing of these payment differentials over time (it would take a long time) Difficult to estimate receptivity of current administration to supporting state-based regulatory Demonstrations CMS Administrator is in favor of Block Grants for Medicaid Maryland s argument to Trump administration was the Maryland Waiver was akin to a Block Grant to the state for Medicare 44

45 Pros and Cons of Hospital Rate Setting Advantages of Adopting a Hospital Rate Setting Approach Well developed and flexible rate setting systems experienced success in the 1970s and 1980s Potential to control over 36 to 38% of health care spend and achieve other goals (i.e., improve the equity, access and overall stability and transparency of the system) Could provide a starting point for broader control of TCOC increases for Medicare initially and potentially all payers Elements of rate setting could be implemented on a regional basis (Rochester/Fingerlakes NY all payer global budgets were highly successful and Pennsylvania is attempting global budgets for rural hospitals) Vermont is attempting to implement hospital Global Budgets under a State-wide ACO approach 45

46 Pros and Cons of Rate Setting (continued) Negatives of Adopting a Hospital Rate Setting Approach Enormous Effort (garnering of necessary intellectual capital and the development of a viable and effective regulatory infrastructure is very tricky) no guarantee of success as evidenced by other state s experience Even systems that were successfully implemented with a Medicare Waiver, failed (NY, Mass, NJ and Washington) Concerns about ability to negotiate a Medicare Waiver with the current federal Administration Hospital care is a shrinking proportion of health care spend concern of encouraging further out-migration of care from regulated hospital to unregulated non-hospital providers Absence of programs with proven track record of controlling TCOC (expect perhaps Primary Care focused initiatives with robust shared savings program and care management support) 46

47 Thank You! 47