Maryland is paying hospitals to keep patients out — and it's saving the state millions

To lower hospital admissions, Maryland implemented a statewide hospital-payment overhaul that pays hospitals to keep patients out — an effort that has saved hundreds of millions of dollars since its 2014 launch, according to Kaiser Health News.

Under the system, the state caps hospitals' revenue each year, allowing them to keep the difference if they reduce inpatient and outpatient treatment while maintaining care quality levels. These "global budgets" intend to make hospitals work harder at keeping patients healthy outside their facilities.

Although analysts often describe the change as a far-reaching attempt that would be hard to replicate, Maryland has saved hundreds of millions of dollars for the taxpayers, employers and others who pay hospital bills, according to a recent report from Maryland's Health Services Cost Review Commission and the Maryland Department of Health released March 16.

For example, in Baltimore, since dialysis clinics are not open on weekends, Baltimore-based Mercy Medical Center would admit patients with failing kidneys who should have been seen at a dialysis center. The hospital collected as much as $30,000 for treatments that usually costs hundreds of dollars.

"That's how the system worked," said Mercy President and CEO Thomas Mullen. Rather than finding cheaper alternatives, "our financial people were saying, 'We need to admit them,'" Mr. Mullen said.

When Mercy started being penalized as opposed to being rewarded for avoidable admissions, it persuaded the dialysis facility to open on weekends, saving roughly $1 million annually in Maryland's healthcare spending.

Maryland's system developed from an effort to oversee hospitals as if they were public utilities. The system regulates hospital payments by every private and government insurer. From the program's 2014 launch through 2016, per capita hospital spending by all insurers grew by less than 2 percent a year in Maryland.

The state plan saved the Medicare program for elderly and disabled patients roughly half a billion dollars over three years and achieved "substantial reductions in hospitalization and especially improvements in quality of care," a Medicare spokesperson told Kaiser Health News.

"These are not fake savings," said Joseph Antos, PhD, an economist at the American Enterprise Institute who sits on Maryland's hospital-payment commission. "It didn't happen instantaneously. It's taken this number of years to achieve the kinds of savings that you see" for 2016 and beyond.

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