New Reimbursement System Saved Medicare $100 Million in First Year

An alternative way of paying hospitals for care is saving Maryland millions of dollars while providing patients with high quality care.

Hospitals in the state of Maryland have generated over $100 million in Medicare savings over the past year as a direct result of the alternative system for paying hospitals for the care received by Medicaid patients. The new system was created in partnership with the U.S. Centers for Medicare and Medicaid Services (CMS) and the state’s medical institutions, and initial results show that it is successfully curbing costs, while maintaining high service levels.

Maryland was the first state in the country to implement this type of system statewide. It no longer ties payment to hospital admissions. Instead, the new system pays hospitals a lump sum of money to cover all Medicaid services provided to patients. This payment will grow in tandem with the state’s economy (3.58 percent in the first five years), essentially requiring the hospitals to keep their costs from growing too fast. Maryland hospitals also agreed to save Medicare at least $330 million over that five-year period as part of the deal with CMS.

According to the Maryland Hospital Association, a one year evaluation of this experimental system found that hospitals are readmitting patients less often, with the rate dropping faster than any other state in the entire country. In addition, over this same time period, infections and other hospital-acquired conditions declined by 26 percent. Maryland Hospital Association CEO Carmela Coyle credited the addressing factors outside of treatment such as better communication and coordination with patients as being key factors in reducing costs.

Hospital officials and healthcare advocates alike report that savings have not come at the expense of the care patients receive. The Maryland Citizens Health Initiative, a consumer health advocacy group has held community forums and other outreach events with consumers to monitor patient care and reports that they haven’t heard any complaints.

Thus far, the new payment system has been incredibly successful and shows potential as a model for other states. Maryland legislators should use the success it has produced as motivation to pursue innovative solutions that challenges the status quo. A prime example is the state’s budget process; which limits both legislators’ ability to govern and the public’s ability to understand the state’s finances.