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Maryland’s early success with its all-payer hospital care model indicates the state is accomplishing its goal of eventually establishing payment mechanisms that connect all healthcare providers through value-based care models.

Under the program, all payers, including Medicare, pay the same rates for inpatient and outpatient hospital services. Early results are positive for the five-year program, which began in coordination with the Centers for Medicare & Medicaid Services on Jan. 1, 2014. Maryland has already saved Medicare an estimated $116 million, which means the state is more than a third towards achieving its goal of saving Medicare $330 million by 2019.

The results, published in a November article in the New England Journal of Medicine, show Maryland has limited annual growth per capita hospital costs for all payers to more than two percentage points below the agreed-on rate.

That costs were contained despite the expansion of health insurance and Medicaid via the Affordable Care Act is a credit to the tenets of the system. Those tenets are simple – fee-for-service is replaced with global budgeting, or a set amount of money for each hospital for the entire year of patient care. What’s leftover is kept by the hospital. It’s designed to promote prevention rather than excessive diagnoses and treatments.

The all-payer program is likely to become a model that other states will seek to replicate. It’s an idyllic representation of where healthcare in this country is heading –- global budgets providing fixed revenue that rewards hospitals for investing in population health management programs.

Maryland got off to a fast start. By July 1, 2014, earlier than required, Maryland hospitals had agreed to move more than 90 percent of the state’s aggregate hospital revenue into global budgets. Maryland committed to improve quality care before the all-payer program even began, managing to reduce the rate of preventable conditions by 26 percent between 2013 and 2014, according to the state’s Health Services Cost Review Commission (HSCRC).

Maryland was a natural choice for CMS to attempt such a large-scale, innovative payment scheme. Since 1977, the HSCRC has set rates for all payers, including Medicare and Medicaid. Keeping the system in place has been largely contingent on keeping price growth in check, but the system started to show cracks in recent years and Medicare’s continued participation was in question.

Rather than checking out, Maryland went all in with the all-payer system and a pledge to save Medicare millions over the life of the program. By all indications, the program is working. Expect at its end in 2019 for Maryland to have a full-time all-payer system in place that covers all provider settings.

Other states should take note. Those in regional areas like the Pacific Northwest that have embraced population health management programs would be logical candidates to team with CMS. Based on Maryland’s experience so far, why wouldn’t they?

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