Matching Revenue Flows with the Population’s Needs: The Experience in Maryland John M. Colmers

1. Matching Revenue Flows with the Population’s Needs: The Experience in Maryland John M. Colmers VP, Health Care Transformation and Strategic Planning, Johns Hopkins Medicine Chairman, HSCRC

2. HSCRC – 30,000 ft. • Independent Commission created in 1971 – 7 members, 31 FTE staff • Broad statutory authority and flexible tools • Costs are reasonable • Rates are reasonably related to costs • Rates are set equitably without undue discrimination • Authority to experiment with alternative methods • Includes provision for uncompensated care in rates • Medicare waiver granted July 1, 1977 as demonstration • It’s what makes the system “all-payer” • Waiver test • Rate of increase in Medicare payment/admission from 1/1/81. • Must remain all payer • Significant transparency for payers, providers, and patients • Hospital rates are regulated, not physician rates • Lowest “markup” in the US

3. Basic Components of HSCRC Rate System • Departmental Unit Rates • Hospitals have departmental unit rates that are established by the Commission and are reflective of the relative cost of services through rate realignment • Hospitals must charge Commission approved rates to all payers– significant penalties • Only variation from rates are cost justified differentials • Cost Per Case Constraint • Inpatient CPC • Each hospital is constrained to case-mix/severity adjusted $/case • Outpatient CPV • Hospitals are held to adjusted cost/visit standard • Reasonableness of Charges – Charge per Case Comparison • Overall comparison among all hospitals • Identifies high cost hospitals for greater scrutiny • Accounts for factors • Regulate costs not profits • Relies on accurate and timely financial and case mix information

4. Bending the Cost Curve • Lowest Rate of Cost Growth of any State 1976-2009 • From 25% ABOVE the US average in ‘76 to 3% BELOW the US average (1) • 2009: Maryland Hospital cost per case estimated $45 billion savings to the State over the period 1976-2009 “Bending the Curve” Growth in Hospital Costs per Case (MD vs. US) Indexed Rate of Growth Had Maryland grown at the more rapid US rate – hospital expenditures would have been $45 billion higher US hospital cost growth Maryland hospital slower cost growth • Had the US grown at the slower Maryland rate of growth – hospital spending would have been $2.0 trillion lower • Only caveat to this performance is savings is all “Per Case” Note (1): Medpac identified a “most efficient” cohort of hospitals nationally with high quality scores – that are 9 -11% below average US cost per adjusted admission

5. Effect of Payer Inequity

6. Mark Up and Cost Shifting • Lowest markup and charges in US • These are “charges” but payment levels follow closely US Hospital markups MD Hospital markups Source: American Hospital Association statistics 1980 - 2009

7. Rate Innovations • Total Patient Revenue • Admission/Readmissions • Bundling - Alternative Rate Applications • Quality Payment Mechanisms • Process measures • 21 Quality Based Reimbursement (QBR) measures • $7.1 million for FY2012 • Outcome measures • Measured by 49 Maryland Hospital Acquired Conditions (MHACs) • e.g. UTI, septicemia • $13.3 million for FY2012 • System Redesigns • Response to CMMI solicitations

8. Why Maryland? • Role of hospital trustees • Political support, non-political process • Focus on cost, less on price manipulation • Broad authority has allowed system to evolve over time • Waiver/demonstration authority is critical