Global Hospital Budgets Don’t Cut Utilization: Study

A key factor in the results of the model may have been the lack of physician incentive payments, although that component is being added.

Jan. 26—A potential national model for moving hospitals to global budgets was unable to reduce patient utilization during its first two years, according to recent research.

Researchers examined the first two years of a five-year global hospital budget pilot in Maryland and found no association between the program and consistent changes in emergency department (ED) visits, return hospital stays, hospital outpatient department use, or post-hospitalization primary care visits.

The initiative, which has been closely watched by payers and providers nationally, was launched by Maryland in 2014, when it placed most of its hospitals under all-payer global budgets for inpatient, hospital outpatient, and ED care. Among the program’s goals are reducing unnecessary hospital utilization and encouraging greater use of primary care.

Before the global budget program was launched in 2014, the number of hospital stays among Medicare patients in Maryland had been declining gradually. Although stays continued to decline after the global budget program was launched, the rate of decline during 2014 and 2015 was similar to that from 2009 to 2013.

“Together, these findings provide no clear evidence that Maryland hospitals met their budgets by reducing hospital utilization or enhancing primary care beyond changes that would have been expected in the absence of global budgets,” the authors wrote in JAMA Internal Medicine about the study, in which fee-for-service Medicare beneficiaries in Maryland were compared with those in matched control areas.

“This type of innovation, and providers’ response to innovation, doesn’t happen overnight,” said Karoline Mortensen, PhD, associate professor of health sector management and policy at the University of Miami, who has previously studied the Maryland global budget model.

Mortensen noted that the model is designed in five-year increments to establish successes over an extended time frame and eventually promote a move to a payment system that will encourage population health improvement.

“The brief time period covered in this study, as well as in my own study, are likely too short to see improvements,” Mortensen said.

Additionally, she noted that the focus of recent research on the Medicare fee-for-service population could have affected the results since Medicare beneficiaries in Maryland had some of the nation’s highest inpatient readmission rates.

“It takes time to change both patient and provider behavior,” Mortensen said.

The general consensus seems to be that these innovations will take five to 10 years to transform healthcare delivery, utilization, and prevention, according to Mortensen.

But the challenges faced by Maryland’s healthcare system in responding to the global budgets have been evident in recent news coverage.

“Asthma hot spots, as well as patient dumping in Baltimore, suggest that hospitals are not responding to the budgets as intended,” Mortensen said. “Well-controlled asthma should never result in an inpatient stay, yet it remains largely unaddressed in Baltimore.”

However, population health incentives will be encouraged through the state’s budgets, and hospitals should find prevention more lucrative than inpatient treatment.

“This lies within the 10-year plan for the state,” she said.

Multiple Factors

Among the possible reasons why global budgets did not cut utilization is the absence in hospitals’ budgets of payments to physicians for care provided in the hospital or in community settings, which would have limited the program’s influence on physician behavior.

The study authors noted that accountable care organizations (ACOs) and other payment models place physicians or both physicians and hospitals at risk for patients’ care costs and outcomes, while only hospitals bear risk in Maryland’s program.

The Centers for Medicare & Medicaid Services (CMS) initially rejected Maryland’s proposal to share a portion of hospitals’ savings with physicians to promote incentive alignment, but Maryland plans to expand the scope of its budgets to include physicians and to establish ACO-like organizations that would manage inpatient and outpatient spending on Medicare beneficiaries.

“Physicians have direct control over the treatment decisions for these patients,” Mortensen said. “The vast majority of physicians practicing in Maryland were unaware of the changes to hospital financing, before and during the transition to global budgets.”

Another reason why the model may have fallen short was that it established annual budgets for hospitals, but hospitals were still paid per admission or per service.

“Hospitals that lowered utilization were expected to raise their prices to receive their budgeted revenue, but since price increases were generally limited to less than 5 percent, the program’s structure may have dampened incentives to substantially reduce volume,” the authors wrote.

Another possibility is that logistical challenges slowed the start of the program to the extent that its structure was not operational at all hospitals for the full two years of the study. Additionally, the authors’ interviews with hospital staff revealed that some hospitals had initial difficulty aligning physicians and staff with the payment model and implementing new care management programs for patients.

Other Results

The recent research followed upbeat early assessments of the global budgets program. An initial evaluation by CMS found that the state was making progress on aggregate hospital expenditures, clinical quality, and readmissions. In first 18 months of the model, acute care hospitals transitioned to global budgets more quickly than projected, and most hospitals successfully managed their revenues to remain within the 0.5 percent corridor around their global budget, according to a CMS report.

After 30 months, Maryland hospitals had a 48 percent reduction in potentially preventable complications, and the readmission rate fell from 7.9 percentage points to 3.4 percentage points higher than the national average, according to a 2017 analysis in Health Affairs .

Additionally, within the first three years the program achieved $429 million in Medicare hospital savings compared to the national rate of growth, which has translated to a $319 million total-cost-of-care savings relative to national Medicare trends.

“Even as Maryland’s model is still in its early stages, interest in all-payer global hospital budgeting is growing among rural hospitals,” a Commonwealth Fund analysis noted.

The only other all-payer program to have launched is a Pennsylvania payment model that began in January 2017 and will bring all-payer global hospital budgeting to 30 rural hospitals within three years.

The hope is that a global budget will provide rural hospitals with a predictable amount of revenue and allow them to invest in “outside the walls” initiatives to reduce preventable hospital utilization.

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Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare