SC&H Group Blog: "Expertise Beyond the Numbers"

Maryland’s Rate-Setting System for Hospitals Receives Major Overhaul

For the last several decades, Maryland has had a unique rate-setting system for hospital services. Normally, in other states, hospitals negotiate with each health insurance company individually, which can lead to a wide variety in rates. But in Maryland, the state sets the prices that hospitals charge patients, leading all customers to pay the same price.

However, this system does not allow prices in Maryland to grow faster than the prices set by the Medicare program. In addition, as the cost of health care has risen rapidly in recent years, the state has strained under the pressure.

In addition, the system’s incentives do not have prevention and patients’ overall well being in mind. The best way for a Maryland hospital to make money with this system is to provide the highest amount of services, whether that care made patients healthier or not. This can lead to high re-admittance rates and sometimes even unnecessary procedures.

Fortunately, to help modernize this system, the federal government just announced a new initiative in Maryland that is designed to stop reimbursing hospitals on a fee-for-service basis and put more focus on prevention and quality of care.

The new system hopes to end this by capping total spending. Maryland will limit how much money hospitals take in and over the next five years, it will try to keep hospital charges from growing faster than the average growth rate of Maryland’s economy, saving Medicare $330 million.

“Under the new plan, hospitals will do better financially as they provide high-quality care and help keep communities healthier, rather than being rewarded solely on the number of patients they treat,” said Dr. Joshua Sharfstein, Maryland’s health secretary, in a recent Associated Press article.

If the new system does succeed in decreasing hospital costs and improving the health of patients in Maryland, other states will likely follow suit.

“It reflects a paradigm shift in the way that the healthcare system relates to public health,” Sharfstein said. “Hospitals, doctors, nursing homes and many community health partners will all share in the same goal of improving health and controlling costs.”

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