The rate was more generous than Medicare’s usual payment, which (in theory at least) is calculated to allow hospitals to deliver high-quality care. The hospitals also got funds for teaching doctors in training and taking care of the uninsured — services that could previously go uncompensated.
In subsequent decades, however, hospitals did end-runs around price controls by simply ordering more hospital visits and tests. Spending was growing. Maryland risked losing the federal waiver that had long underpinned its system. Also, under the waiver’s terms, Maryland’s hospitals were at risk for paying a hefty penalty to the federal government for the excessive growth in cost per patient.
That’s why in 2014 the state worked with the federal government’s Centers for Medicare and Medicaid Services to institute the global cap and budget system in place today. Dr. Joshua Sharfstein, who was the state’s health and mental hygiene secretary, met skeptical hospital administrators to “sell the concept,” as he described it, assuring them that the hospitals would still get reasonable revenue while gaining new opportunities to improve the health of their communities with money to invest in preventive services.
Studies show the program, which was further revised in 2019, generally worked at keeping costs down and generated savings of $365 million for Medicare in 2019 and over a billion dollars in the prior four years. What’s more, working with a fixed budget has provided incentives for hospitals to keep patients out, resulting in programs like better outpatient efforts to manage chronic illnesses and putting doctors in senior housing to keep residents out of hospitals through on-site care.
Instituting this type of plan may be politically unworkable statewide in other places today, given the much greater power now of hospital trade groups and large consolidated hospital networks. “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.”
Dr. Sharfstein thinks the Maryland approach can be especially attractive for financially strapped rural and urban hospitals that treat mostly people on Medicaid and the uninsured.
Though Maryland is an oddity in the United States (the few other states that tried price controls in the 1970s abandoned the experiment long ago), many countries successfully use price guidelines and budget limits to control medical spending. Notable among them is Germany, whose health system is otherwise similar to the United States’, with multiple insurers. A landmark 1994 study comparing international efforts did find that the German system, for example, can be stingier at providing care that is expensive or elective.