Can We Save Maryland’s Healthcare System From Being a Victim of Its Own Success?

As the Baltimore Sun recently wrote in an editorial, Maryland’s 35-year-old status as the only state in the country with a commission empowered to set hospital reimbursement rates across the board is in danger of becoming a victim of its own success.

The federal waiver gives Maryland the power to set rates, in exchange for which Maryland is required to keep the average cost of hospital stays from rising faster than the national average. As several Maryland news outlets have reported, the exact strategies that Maryland has used to keep costs from rising slower than in other states are now endangering Maryland’s autonomy from federal rules.

As the Sun described this “Catch 22,”:

One way the state has managed to restrain rising hospital costs has been to encourage physicians and health providers to focus on preventive care and outpatient treatment that allows patients to avoid extended hospital stays, which are now needed only for the most serious cases. So do the math: Fewer people are staying in hospitals, but they’re much sicker so they remain there longer. As a result, the average cost of a hospital stay — the figure the government uses to calculate Maryland’s eligibility for a waiver — has increased.

Much of the state’s healthcare infrastructure, including hospitals and insurance companies, in addition to the very state regulators whose job it is to oversee this system, are pushing hard to re-write the way that figure is calculated to take into account the overall cost of healthcare, not just the cost of hospital stays.

Changing the way the government is calculating the cost of healthcare makes sense. After all, contrary to 35 years ago when the rule was written, the country’s healthcare system today is far less centered around hospitals. In Maryland as in other states, the overall cost of healthcare must take into account the dozens and hundreds of individual specialists who provide care outside of a hospital setting, most of them in a private group or practice setting: the internists, the orthopaedic surgeons, the physical therapists, and yes, the emergency medicine docs like those at MEP.

One of the problems, as the Sun points out, is that dividing up reimbursements in a system as diffuse and decentralized as ours is exceedingly difficult. Maryland’s cost review commission, writes the Sun, “will need some new tools in its arsenal, including new ways of bundling payments to physicians with the payments made to hospitals…” Essentially, someone needs to come up with a rational way for a dozen or a hundred different physician specialists to divvy up the same reimbursement pot. “Figuring out how to do all that will be a challenge,” the Sun writes in a moment of notable understatement.

In fact, the diffuse and decentralized nature of healthcare in United States is one reason we think figuring out a way to split one reimbursement a hundred ways may be the wrong approach. One likely result of such a system would be further consolidation of smaller group practices into larger hospitals or healthcare systems in which everyone, specialists included, are directly employed by the hospital.

Recent history has shown that large, established institutions rarely provide the innovation necessary to solve complex and difficult problems. And healthcare in America has an awful lot of complex and difficult problems that need solving. As an emergency physician group which has proven that our practice model actually results in a better run, more efficient hospital emergency department, we don’t think that encouraging consolidation like what is suggested is a good idea. And, we know a couple thousand private physicians groups across the country that would likely agree with us.

An alternative would be to allow what has worked in many other states and in many other industries: gainsharing. In a typical gainsharing arrangement, physicians groups like ours are incentivized to assist the hospital in achieving cost-savings. In fact, MEP is already helping our partner hospitals achieve cost savings. We do this because we believe in being a good partner to the hospitals with whom we work. But the conditions of Maryland’s Medicare waiver don’t allow us to experiment with a program that could actually provide financial incentives for us to do this.

We think the correct approach is one that allows for a hybrid approach. In other words, continue experimenting with how to divvy up reimbursements for specific, easy-to-track types of patient populations and procedures. Meanwhile, allow physician groups greater flexibility, and the ability to innovate and experiment with gainsharing arrangements with the hospitals they serve. That will help encourage not consolidation, but partnership. The result will be better care at a lower cost. Isn’t that the holy grail for which we all search?