The Maryland AllPayor Hospital Rate Setting System

1
The Maryland All-Payor Hospital Rate Setting
System
Presentation for the Brazilian National
Supplementary Health Agency (ANS) Health Care
Regulation
November 8, 2006
Presented by Robert Murray, Executive Director,
Health Services Cost Review Commission 4160
Patterson Ave. Baltimore, Maryland 21204 USA
email bmurray_at_hscrc.state.md.us
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Overview of Presentation

• General Regulatory Structure in Maryland
• Case Study and Description of Maryland
  All-Payer Hospital Regulatory Model
• Basic Characteristics and Features of Model
• Relevance for other Developed Nations
• Summary Comments

3
Health Regulatory Approachin Maryland (Agencies)
4
Regulatory Model Key Points

• Maryland Model is not an American Model
• U.S. Philosophy Heavy Ideological Reliance on
  Market Mechanisms
• The U.S. Health Care System has many Market
  Failures
• Maryland Model tries to Correct for Market
  Failure to achieve Policy Goals

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

• Health Services Cost Review Commission (HSCRC)
  Regulates the Hospital Market
• HSCRC Has Six Primary Objectives
• Control Cost Growth
• Improve Access to Care
• Improve Equity in Payment and Care
• Improve Quality of Care
• Provide Financial Stability for Hospital Market
• Increase Transparency and Accountability

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Maryland Hospital Rate Setting System - Case Study
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Maryland in the U.S.
New York
State of Maryland
Washington DC
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Maryland Case StudyMaryland Demographics/Characte
ristics

• Demographics
• 5.5 million population (12 are elderly age 64)
• High per capita Income (3rd highest State in US)
• Types of Hospital Facilities in Maryland
• 47 Acute Care Hospitals (46 are non-profit)
• 1,000 bed teaching, 300 bed general 30 bed
  rural hospitals
• Specialty Hospitals (Psychiatric, Rehab/Chronic
  care)
• Size of Hospital Industry in Maryland
• 10 billion in Revenue per Year (70 inpatient,
  30 outpatient)
• Hospital Spending is 37 of total Health Care
  Spending
• Over 700,000 admissions each year

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Maryland Case Study Health Services Cost Review
Commission (HSCRC)

• HSCRC Established 1971
• Started Setting Hospital Rates 1974
• Became All-Payer by including both Private and
  Public Payers (Medicare/Medicaid) in 1977
• Six Health Policy Objectives
• Constrain Hospital Costs /Keep Hospital Care
  Affordable
• Improve Access for those without Insurance
• Create a Fair and Equitable Payment System and
  System of Care
• Include Financial Incentives to Improve Quality
  of Care
• Promote Financial Stability
• Require Accountability and Transparency

11
Maryland Case StudyGeneral Commission
Characteristics

• Politically and Legally Independent Commission
• Seven Volunteer Commissioners (appointed)
• Well-Defined Jurisdiction (hospitals)
• Broad Legal Mandate
• Data Collection
• Hospital Rate Setting
• Emphasis on Public Deliberations Disclosure
• Responsive to Maryland Issues/Problems

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Maryland Case StudyGeneral Commission
Characteristics

• Small Regulatory Infrastructure
• Budget of 4 million/year to Regulate 10 billion
  Hospital Industry
• Research Methodology Rate Setting Accounting
  Compliance Legal Departments
• Staff of 28 Economists, Accountants,
  Statisticians, Computer Programmers
• Methods are Data Intensive Formula Driven

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Maryland Case StudyEconomic Rationale

• Market Competition can be a Powerful Productive
  Force
• Some Markets (Health Care) do not have all the
  Characteristics of Functional Competition
• Regulation in Maryland tries to Correct for
  Market Failure and Provide for the Following
• Ensure Access to a Vital Public Service
• Create Consistent Payment Incentives
• Promote Efficiency and Quality
• Promote more Efficient Allocation of Resources
  Across Services
• Allow for Accountability but also Autonomy of
  Decision Making

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Maryland Case StudyOperational Characteristics

• Well-Developed Data Infrastructure (publicly
  available)
• Cost Financial Data
• Case Mix Data
• Wage and Revenue/Volume data
• Rates Efficiency Standards Built up from Actual
  Data
• Rate Methods Prospective (not cost-based)
• Individual Rate Schedules for each hospital
• Each (Public or Private) Hospitals Rates apply
  to All-Payers (Public Private)

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Maryland Case Study Regulatory Approach

• Use of Financial Incentives instead of
  Administrative Sanctions
• Rates set Prospectively and Updated each year
• Hospitals at risk to meet HSCRC Efficiency
  Standards
• Not held at risk for Issues Beyond their
  Control
• Sophisticated adjustment mechanisms to account
  for Differences among Hospitals

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Maryland Case StudyAchievements/Results

• Lowest Rate of Growth in Hospital Costs 1976
  -2005
• Best Access to Care for Uninsured (finance over
  800 million of uncompensated care per year)
• Most Equitable Hospital Payment System in U.S.
  (lowest mark-up no cost-shifting allowed)
• Only All-Payor Pay for Performance (P4P)
  Quality Improvement Project in U.S.
• Most Stable Financial System (hospital bond
  ratings)
• Highest Level of Transparency Accountability

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Hospital Cost per Admission Maryland vs. U.S.
Percent Maryland Above/Below US
Maryland Started 25 ABOVE the US in
Cost/Admission
Maryland is now 4 below the US In Cost/Admission
2005
Best Cost Containment of any State
Source American Hospital Association Annual
Statistics
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Maryland Case StudyIndexed Rates of Growth
(Maryland vs. U.S.)
U.S. Hospital Cost Growth
Savings
Maryland Hospital Cost Growth
Lowest Rate of Growth of Any State
Source Med-Pac AHA annual survey and Maryland
rate setting commission.
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Maryland Case Study Access to Care

• Transitioned 3 Public Hospitals to Profitable
  Community Hospitals
• No more Hospitals of Last Resort No Patient
  Dumping
• No two-tiered System of Medical Care
• Uncompensated Care Financed Equitably
• Universal Access to Life Saving Care in
  Maryland

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Maryland Case Study Equity and Fairness

• Rates Set to Reflect Reasonable Cost (Uniform
  Mark-up)
• HSCRC Prohibits Cost-Shifting
• Rates at each Facility are the same for
  All-Payers (Public or Private)
• All Payers Share Equitably in Cost of
  Uncompensated Care and Medical Education
• Hospital Managers Respond to Uniform Financial
  Incentives (across all payers)

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Maryland Case StudyMarkup of charges over costs,
MD and US
Over 150
U.S. Hospital Mark-ups Charge over Cost
Maryland Mark-ups
18
Lowest Mark-ups of Any State
Note Maryland data cover regulated services
(inpatient and outpatient care). Source Med-Pac
AHA annual survey and Maryland rate setting
commission.
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Maryland Case StudyEquity and Prohibition on
Cost-Shifting
Situation in other States
Situation in Maryland
Published Charge
US Hospital
Maryland Hospital
1500 charge per day
What They Pay
All-Payer State pay same rate
100-200 Mark-Up
18 Mark-Up
Hospital Cost
500 cost per day
Short Falls in Payment
And Maryland Costs are Lower on average
Uninsured
Medicare
HMO
HMO
Medicare
UCC Provision
Medicaid
Small Private Insurance
Large HMO
Small Private Insurance
Large HMO
Medicaid
PUBLIC PAYERS
PRIVATE PAYERS
PRIVATE PAYERS
PUBLIC PAYERS
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Maryland Case Study Quality Of Care

• Rate Stability means Managers can focus on Cost
  and Quality of care
• Maryland Hospitals known for Clinical Excellence
• Johns Hopkins Hospital voted the Best U.S.
  Hospital past 10 Years
• Hospital Performance Guide Publishes Hospital
  Performance on Quality Measures
• HSCRC Pay for Performance project Only
  All-Payor P4P in U.S. (incentives for higher
  quality)

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Maryland Case Study P4P Process (Quality)
Measures

• Acute Myocardial Infarction
• Pneumonia
• Heart Failure
• Surgical Infection Preventions
• Patient Safety ICU-related care
• More Measures (outcomes) later..

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Maryland Case Study Accountability

• All Deliberations held in Public
• All HSCRC Hospital Data Publicly Available
• Inpatient Outpatient Charges posted on Web
• Hospital Report Card Evaluates Hospitals on
  Quality Process Measures on Web
• Annual Financial Disclosure on Hospital
  Performance

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The Rate Setting ModelLessons Learned/Key
Success Factors
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Maryland Case Study Lessons Learned

• Availability and Accuracy of Data Highly
  Important
• Financial Incentives will influence Medical and
  Managerial Decision-Making
• Need to Establish Clear Reasonable
  Goals/targets
• Phase-in these Goals Targets over Time
• Hospitals at-risk for Achieving these Goals
• Need to Adjust for factors beyond Hospitals
  control
• Macro-level regulation allows for a high level
  of Autonomy of Decision Making by Hospital
  Managers

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Maryland Case Study Key Success Factors of System

• Use Financial Incentives to Influence Medical
  Practice
• Use Formula-based Methods and Focuses on Outliers
• Focuse on Cost Control and not Profit Control
• Prohibit Cost-shifting
• Support Hospitals Social Mission and Access
  Goals
• Responsive to Local Issues Unique Circumstances
• Adopt of a Long-term Perspective (avoid
  disruption)

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Maryland Case StudyWeaknesses

• System hasnt controlled Volumes well
• Currently few Incentives for Quality Improvement
  (but new P4P system will address this)
• Outpatient Regulation is More Difficult (working
  on new Outpatient Control system)
• Possibility for Regulatory Failure or Capture
• Focus is only on Hospitals and not on other
  Providers or Health Sectors

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Maryland Case StudyStrengths

• Promotes Micro Efficiency at Hospital
• Allocates Revenues well by Hospital by Service
• Fair, Equitable and Consistent Payment Incentives
• Controls Cost per Case Growth well
• Can fulfill on Pledge of Universal Access
• Blends Public and Private Sectors Well (Hospitals
  and Payers)
• Incentives to Rationalize Capacity Issues

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The Rate Setting ModelApplicability for Other
Countries
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Maryland Case StudyApplicability for Other
Countries

• Works Well under Different Financing Structures
• Consistent payment Incentives promotes Efficiency
  and Equity
• Helps Integrate Public and Private Systems
• Payment System a Good Tool to Promote Quality
• Allocates Revenues very Effectively!
• Helps fulfill on Goal of Universal Access
• Can Work To Reduce Excess Capacity

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Relevance for Other CountriesApplicability to
Different Financing Systems
Considerations

• No inter-payer equity issues
• Less worried about cross-subsidies
• Facilities can charge existing rates
• Allocations of revenue by hospital
• and service controlled by rate agency
• 5. Eventual linking of hospital revenue
• allocations to Regional Limits

Centralized Financing System by Region


Rate Agency - Responsible for allocating
revenues to facilities based on relative
resource use with adjustments for case mix and
other differences. - Rationalizes hospital
revenue provides management with data other
tools to allocate revenues by service - Eventual
reconciliation of facility service revenues to
overall expenditure limits
Budget Pressures

Region 1
Region 3
Region 2
Structure of payment is less important
H
H
H
H
H
H
H
H
Cost Pressures
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Relevance for Other CountriesApplicability to
Different Financing Systems
Considerations
Pluralistic (fragmented) Financing System

• Fragmented Payment System may
• require uniform payment rates to
• preserve inter-payer equity and
• avoid hospital cross-subsidization
• of services

Public Payer 1
Public Payer 2
Private Payer 1
Private Payer 2
Budget Pressures
Rate Agency Responsible for establishing Uniform
All-Payer payment levels and approved revenue
Allocations based on Reasonable relative
resource Use by service and by facility
All-Payer Unit Rates
H
H
H
H
H
H
H
H
Cost Pressures
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Maryland Case StudySummary Comments

• Not an American Model
• Macro-Regulation to Address Market Failure
• Modest Regulatory Infrastructure
• Clear Policy Goals and Efficiency Targets
• Some Success in Achieving Original Goals
• Focus on Quality of Care Currently
• Directly Applicable to Other Countries and
  Financing Structures