When Elisabeth Rosenthal, MD, editor-in-chief of Kaiser Health News, underwent intensive physical therapy and received several neurological tests after a head injury, the bills that came back were mostly reasonable, she said Oct. 26 in Kaiser Health News.
Why were they reasonable? Because she lives in Washington, D.C., and received her treatment in Maryland, the one state that controls what hospitals charge for services and that has a global cap and budget for each hospital. It's a rarity in the U.S., but common in other countries, such as Germany. She said this method may be tough to sell in other places, but could help rural and urban hospitals struggling financially.
Here are five things to know:
1. Through the Maryland system, an independent state commission of healthcare experts appointed by the governor tells the hospitals what they can charge. They have a little bit of wiggle room, but every insurer reimburses the hospitals at the same rate through a system called "all-payer rate setting."
2. The system also has a global cap and budget for each Maryland hospital. Hospitals are given a set amount of money for the whole year for patient care, and the per-capita cost can only increase in small increments annually.
3. Studies show that the method kept costs down and saved $365 million for Medicare in 2019 and $1 billion over the previous four years. It also encourages better outpatient care to keep patients out of hospitals.
4. It may be difficult to sell this method in other states because of the power of hospital trade groups and consolidated hospital networks. But Joshua Sharfstein, MD, former health and mental hygiene secretary of Maryland, told Kaiser Health News it could help those that treat people on Medicaid or are uninsured. "Where hospitals are making money hand over fist, it's a hard sell to switch," Dr. Sharfstein said. "But where hospitals are facing economic pressure, there is much more openness to financial stability and the opportunity to promote community health."
5. Operating margins can be slightly smaller with this system, Dr. Rosenthal said. For example, Baltimore-based Johns Hopkins' margin was 1.2 percent in fiscal year 2019. Rochester, Minn.-based Mayo Clinic's margin was 6.9 percent, and Stanford (Calif.) Health Care's was 7.1 percent.