Setting hospital rates to control costs and boost quality: The Maryland experience

Health Affairs

Volumn 28, Issue 5, 2009, Pages 1395-1405

  Murray, Robert ^a  

^a Maryland Health Services Cost Review Commission   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ARTICLE; COST CONTROL; ECONOMIC ASPECT; HEALTH CARE COST; HEALTH CARE QUALITY; HEALTH CARE SYSTEM; HOSPITAL CARE; HOSPITAL CHARGE; HOSPITALIZATION COST; REIMBURSEMENT; UNITED STATES;

COST CONTROL; HOSPITAL CHARGES; HOSPITAL COSTS; MARYLAND; MODELS, ORGANIZATIONAL; QUALITY ASSURANCE, HEALTH CARE; RATE SETTING AND REVIEW;

EID: 70349208813     PISSN: 02782715     EISSN: 15445208     Source Type: Journal    
DOI: 10.1377/hlthaff.28.5.1395     Document Type: Article

References (28)

1. McDonough JE. Interest, ideas, and deregulation: the fate of hospital rate setting. Ann Arbor (MI): University of Michigan Press; 1997.
2. Maryland Health Services Cost Review Commission. Overview of databases [Internet]. Baltimore (MD): HSCRC; [cited 2009 Jun 23]. Available from: http://www.hscrc.state.md.us/caseMixData-databases.cfm
3. Cohen HA. Maryland's all-payor hospital payment system [Internet]. Baltimore (MD): HSCRC; 1995 [cited 2009 Jun 23]. Available from: http://www.hscrc.state.md.us/pdr-generalInfo.cfm
4. A summary of the key regulatory mechanisms established by the HSCRC to address the issue of market failure is available at http://www.hscrc.state.md. us/aboutHSCRC.cfm
5. Since the HSCRC began setting rates, seven hospitals have closed, and two have gone through bankruptcy.
6. Throughout the history of the HSCRC, its staff has routinely convened workgroups including representatives from hospitals, private payers, and governmental payers to assist it in the development and refinement of HSCRC targets, methodologies, and hospital performance standards.
7. In a prospective payment system, payment levels for providers are established at the beginning of the year and are in effect for the entire year. Providers have stronger incentives to reduce costs in the face of these fixed payment levels.
8. APR-DRGs and APGs are products of 3M Health Information Systems.
9. McDonough JE. Tracking the demise of state hospital rate setting. Health Aff (Millwood). 1997;16(1):142-149
10. American Hospital Association. Hospital statistics. Data from annual statistical volumes: 1976-2007. Chicago (IL): AHA; various years.
11. This analysis calculates the indexed cumulative rate of growth of reported hospital cost per equivalent in-patient admission (EIPA - a proxy statistic measuring both inpatient and outpatient volume) for both Maryland and the United States.
12. The calculation of Maryland's saved expenditures and hypothetical U.S. savings are based on increases in hospital cost per EIPA in Maryland versus the United States in 1976-2006. Available from: http://www.hscrc.state.md.us/pdr- publications.cfm
13. See the HSCRC Web site: http://www.hscrc.state.md.us/hdr-rates.cfm.
14. Dobson A, Davanzo J, Sen N. The cost-shift payment "hydraulic": foundation, history, and implications. Health Aff (Millwood). 2006;25(1):22-33.
15. New Jersey Commission on Rationalizing Health Care Resources. Final report. Reinhardt UE (chairman). Trenton (NJ): Department of Health and Senior Services; 2008 Jan 24 [cited 2009 Aug 4]. p. 83-106. Available from: http://www.nj.gov/health/rhc/finalreport/documents/entire-finalreport.pdf
16. Anderson GF. From "soak the rich" to "soak the poor": recent trends in hospital pricing. Health Aff (Millwood). 2007;26(3):780-789
17. Per an analysis of 2003 Medicare Hospital Cost Reports performed by the Medicare Payment Assessment Commission (MedPAC) for a presentation titled: Case study on Maryland hospital rate setting. 2005. A transcript of the discussions regarding this report is available online at http://www.medpac.gov/transcripts/ 0905-allcombined-transc.pdf.
18. Moody's Investor Services. Public finance ratings for fiscal year 2006. New York (NY): Moody's Investor Services; 2006. Based on an analysis of this report, Maryland had 72 percent of its hospitals rated "investment grade" (33 of 46 nonprofit hospitals) compared with 19 percent rated "investment grade" nationally (560 of 2,919 nonprofit hospitals).
19. The lower profit levels reflect lower risk to hospitals in Maryland.
20. Riley WA, Schneckenburger WA. The Maryland experience and a practical proposal to expand existing models in ambulatory primary care. JAMA. 1991;266(8):1118-22. The authors note that the rate-setting system "succeeded because it has carefully balanced the varied interests of the whole community in an open and equitable manner."
21. Centers for Medicare and Medicaid Services. Final rule for the hospital inpatient prospective payment system and 2007 fiscal year rates. Fed Reg. 2006 August 18;71(160):47870-48351.
22. Severity-adjusted DRGs were developed to increase DRG systems' ability to clinically categorize and explain variations in resource use for treating patients based on their relative illness severity (presence of secondary diagnoses). Case-mix relative weights (used as the basis for developing payment for different APR-DRGs) can be calculated in a variety of ways, using industrywide charges or costs. Hospital-Specific Relative Value Weights (HSRVs) are calculated with an adjustment to neutralize for interhospital differences in the charge or cost levels that would otherwise distort the weights.
23. Atkinson G, Murray R. The use of ambulatory patient groups for regulation of hospital ambulatory surgery revenue in Maryland. J Ambul Care Manage. 2008;31(1):17-23.
24. The HSCRC places hospitals at financial risk for their relative performance on process measures by withholding 0.5 percent of the approved fiscal year 2010 hospital update of 1.8 percent and differentially scaling this amount based on relative performance. Hospitals that perform well on this ranking (that is, perform all of the identified beneficial processes of care) may receive an update of 2.05 percent, and hospitals that perform poorly may receive an update of 1.55 percent. A similar mechanism of rewarding and penalizing hospitals' performance is contemplated for complication rates and readmission rates.
25. HSCRC methodologies in Phases II and III use the Potentially Preventable Complications (PPCs) and Potentially Preventable Readmissions (PPRs) developed by 3M Health Information Systems.
26. Fisher ES, Bynum J, Skinner J. The policy implications of variations in Medicare spending growth [Internet]. Hanover (NH): Dartmouth College; 2008 Feb 27 [cited 2009 Jun 23]. Available from: http://www.dartmouthatlas.org/atlases/ Policy-Implications-Brief-022709.pdf
27. Dartmouth Institute. Tracking the care of patients with severe chronic illness: The Dartmouth atlas of health care 2008 [Internet]. Hanover (NH): Dartmouth College; 2008 [cited 2009 Jun 23]. Available from: http://www.dartmouth.edu/~jskinner/documents/2008-Chronic-Care-Atlas.pdf
28. Ginsburg PB, Grossman JM. When the price isn't right: how inadvertent payment incentives drive medical care. Health Aff (Millwood). 2005;24:w376-84.