The COVID-19 pandemic provides a brutal reminder of how health systems operate on small margins and are financially dependent on steady monthly revenue. Deprived of many elective surgeries, which account for about 50% of a typical hospital's revenue, medical centers have been clamoring for additional help from Washington.
In that regard it is instructive to ask how hospitals are faring in Maryland, which is unique among states with its widespread use of global hospital budgets. The short answer is very well. An analogy might be made to holders of annuities during stock market slides: their decision to lock in a steady stream of income suddenly looks brilliant.
Maryland health systems have not only managed to remain stable throughout the pandemic, but open shuttered facilities to handle a surge in patients.
This may be due in part to the state's unique approach to hospital financing. For years the state has employed global hospital budgets, starting with several rural hospitals in 2010 and expanding across the state in 2014. Under this approach, rather than paying hospitals for each additional admission, they receive annual budgets based on historical service volume and operating costs. In 2019, the state doubled down on this approach, partnering with the Center for Medicare and Medicaid Innovation to establish the Total Cost of Care Model, which expands the program to incentivize coordination across more types of providers and creates stronger incentives for cost containment.
These global budgets—which include all patients, regardless of their insurance—were designed to improve quality of care and reduce spending. Under more normal circumstances, the idea was that severing the tie between revenue and patient volume could improve value by creating incentives to actually keep patients out of the hospital. But in these trying times, another—perhaps unintended—benefit has become clear. As revenue from elective care dried up, these global budgets have protected Maryland facilities by providing a continuous flow of funding based not just on coronavirus admissions, but on what they would have otherwise earned from elective procedures. Even more, the program provides flexibility to increase hospital budgets if needed for circumstances beyond the hospitals' control—for example, the costs of an abundance of coronavirus patients.
This flexibility can alleviate concerns—such as whether hospitals paid under global budgets might skimp on providing needed care—that have plagued managed-care payment models for years.
Maryland has long been in the forefront of payment reform. It established all-payer rate setting 40 years ago, again with cost control in mind. That ability to set payments statewide has allowed it to respond the current unprecedented circumstances. On April 1, Maryland announced it was raising rates on all patients to offset losses caused by unoccupied beds and unpaid coronavirus admissions. The Maryland Health Services Cost Review Commission took this action to ensure the viability of all health systems in the state, from urban to rural, and maintain level access for patients with other serious medical needs.
The financial recession many U.S. healthcare providers are facing as a result of COVID-19 underscores the fragility our nation's health system, and the need for systematic change as opposed to short-term financial solutions. The model that Maryland global budgets provide in terms of financial stability keeps the primary focus of a pandemic on saving the lives of patients. In the wake of this crisis, other states should weigh the consideration of a global budget system in partnership with CMMI and other payers. It may bend the cost curve in good times, and deliver the revenue that can help bend the infection curve in periods of pandemic.
