Mid-Atlantic Health Law TOPICS

A version of this article was published in The Daily Record on November 21, 2013.

On October 11, 2013, Maryland's Health Services Cost Review Commission (HSCRC) submitted an updated application to the Centers for Medicare and Medicaid Services (CMS), which, if accepted by CMS, would change the test under which Maryland hospitals could retain their waiver from the Medicare payment system.

Over the last 30 years, Medicare has paid Maryland hospitals at the rates set by the HSCRC, as opposed to the rates set by Medicare. Historically, to maintain that waiver, the rates charged to all hospital patients must generally be the same (all-payor), and the amount Medicare pays for inpatient services per admission in Maryland must not grow faster than Medicare payments for such services are growing elsewhere in the country.

A. The New Test

The updated application maintains the all-payor system, but replaces the inpatient per admission growth test with two new growth tests. The first requires the aggregate amount Medicare pays for Marylanders covered by Medicare for both inpatient and outpatient hospital services to grow at least $330 Million less than the amount Medicare would have spent if Maryland's cost were growing at the rate of national Medicare per capita total hospital cost growth, over the next five years.

The second test requires Maryland to limit its annual all-payor per capita inpatient and outpatient cost growth to 3.58% per year.

Moreover, before the start of the fourth year of the new model, Maryland must develop a proposal to extend the model beyond five years. If the model is not extended after Year 5, or if the model is terminated early because Maryland fails to meet the above-described tests, then Maryland will transition to the national Medicare payment system.

B. Rate Times Volume

For Maryland to meet the new tests, Maryland must recognize that total Medicare costs and total all-payor costs are a function of the rate being charged multiplied by the volume of services being provided. This is quite different than the existing test which is only concerned with the rate charged per admission, but not concerned with the volume of admissions.

Accordingly, not only does the HSCRC have to continue to set rates, as it has done for 30 years, but those rates will now have to vary considerably in light of the volume of services, something Maryland has only dabbled in for the last 30 years.

In this regard, the updated application proposes a specific method by which the HSCRC will control volume. Specifically, the updated application states that by Year 2, 50%, by Year 3, 60%, by Year 4, 70%, and by Year 5, 80%, of hospital revenue will be capped.

In other words, hospitals will be allowed to charge patients on an a la carte basis based on the services received by those patients, provided that at the end of the year, a particular hospital's total revenue may not exceed a particular cap, regardless of how many patients are seen, regardless of the number of admissions, and regardless of the volume of services received.

Moreover, hospital revenue not covered under such global caps will be subject to a volume adjustment system whereby the price being charged will be reduced considerably if volume increases.

C. Quality Concerns

How this will work in practice remains to be seen, since neither the HSCRC nor Medicare wants the tests to be met by hospitals denying care, overly limiting the services they provide or inappropriately encouraging patients to be treated elsewhere.

In any case, the updated application also contains a commitment to reduce Medicare readmissions to the national Medicare rate of readmissions over five years, and to reduce potentially preventable hospital acquired conditions for all payors by an annual aggregate reduction of 6.89% over five years, for a cumulative reduction of 30%.

D. Timing

The HSCRC is hopeful that CMS will approve the updated application in a timely manner so that the HSCRC can begin implementation on January 1, 2014.