Hospital Payment Reform: Experimental Program Highlights Need for Improvement

In an effort to reduce costs, an experimental program in Maryland aimed to control hospital use and spending by giving hospitals a fixed yearly budget and shifting services away from costly hospital-based care, according to studies published in JAMA Internal Medicine and Health Affairs.

Although the program was designed to cut down on costs, the payment model did not reduce hospital use or spending as the researchers had anticipated. The program focused on moving toward less expensive primary, preventive, and outpatient services to reduce spending while ensuring optimal health outcomes.

Two separate studies in Health Affairs and JAMA Internal Medicine examined each phase of the program’s implementation: the first among rural hospitals and the second among remaining hospitals in the state. Eight rural hospitals entered the program in 2010 before the second wave was implemented in 2014.

Finding alternatives to the current payment model is crucial to alleviating the health care spending problem, the researchers noted. By paying hospitals a fixed global budget rather than paying per patient admission, the researchers hoped that it would deter unnecessary admissions and provide better care outside of the hospital. According to the study, hospitals that saved money by reducing admissions would keep the savings and if they exceeded the budget, they would absorb the resulting costs.

In the first study, published in Health Affairs, the authors looked at patterns of use and spending among Medicare beneficiaries served by rural Maryland hospitals with global budgets and compared this to patterns among patients served by a group of nonparticipating hospitals.

By 2013, 3 years after the program began, the authors found no changes in acute hospital use or price-standardized hospital spending among beneficiaries served by the hospital compared with the within-state control group.

In the study published by JAMA Internal Medicine, the authors evaluated the first 2 years of the second phase of the program: a statewide rollout including larger hospitals serving urban and suburban areas. The authors found no evidence of reductions in hospital use or increases in primary care visits associated with the global budget program.

According to the authors, the disappointing results may be due to complicated administrative logistics. Additionally, the program only changed the way hospitals are paid, while payments to individual physicians were kept out of budget and remained on a fee-for-service basis, the authors noted.

“If the physician is not on board, the hospital doesn’t have much control about the day-to-day decisions about how care is delivered,” Ateev Mehrota, MD, MPH, associate professor of health care policy and medicine at Harvard Medical School, said in a press release. A possible solution would be to tweak the program to include physicians, the authors added.

The new payment strategy may have saved money for the state and Medicare, but any savings that did occur did not come from changing the care that patients received, but rather from changes to hospital prices, the authors stated.

Despite the program’s shortcomings, the researchers are working to improve the model by incorporating physicians. In the meantime, they noted that Pennsylvania is also implementing a global budget model for rural hospitals.

“Evaluating these different programs in different contexts will help policymakers better understand which payment systems work best,” Dr Mehrota concluded.

References

Giving Hospitals a Yearly Budget [news release]. Harvard’s website. https://hms.harvard.edu/news/payment-reform-fix. Accessed April 3, 2018.

Roberts ET, Hatfield LA, McWilliams JM, et al. Changes in hospital utilization three years into Maryland’s global budget program for rural hospitals. Health Affairs. Published April 2018.

https://doi.org/10.1377/hlthaff.2018.0112