Maryland’s Modern Approach to Healthcare

Josh Luke

Maryland wants residents to know how expensive certain hospital procedures are. The images featured in this post come from a recent advertising campaign.

Believe it or not, this campaign may prove to be a milestone in the long and arduous road to healthcare affordability in America. Simply put, hospitals are thriving businesses and always have been.

Hospitals play on the emotions of Americans who often can’t afford care. Until recently, hospitals were not even required to prove that the patients they admitted met the minimum criteria for hospitalization – leading to massive abuses of the system.

The hospital model, in a nutshell, was simple: find any justification we can to admit every patient we can and then bill the insurance company for payment. This model, known as Fee-for-Service, led to the golden age of hospital success in America. I nicknamed it “The Fee-for-Service Free-for-All.” There was no accountability whatsoever and, as a result, the Federal Medicare fund is expected to be empty in the next twelve-to-eighteen years unless something changes.

From wearthecost.org

The beginning of the end for this methodology was the Affordable Care Act (ACA), or Obamacare. The ACA implemented a series of initiatives requiring hospitals to meet minimum criteria for admission, or payment would be withheld and fines could be issued.  The ACA also forced the hand of hospitals to transform into value-based care models.

Much like the Medicare Advantage model, those who manage care in value-based care are provided allocated dollars for each patient by the Federal Medicare fund. As a result, all costs incurred by an individual patient for care in a month are accounted for by the private Medicare Advantage company as expenses. If any money remains at the end of the month, that residual becomes your profit margin. If you overspend the allocation, then it comes out of your own pocket. In healthcare, we call this a “risk model.” The government is forcing hospitals to enter risk arrangements to reduce over-utilization on patient services and, ultimately, reduce costs.  

In short, Obamacare forced hospitals to transform away from a Fee-for-Service model and into value-based care models. This means every patient a hospital justifies for admission becomes an expense to the hospital and not a revenue opportunity. That’s a 180-degree turn!

For the record, this is not a politically-driven issue. The fact is that our Medicare fund is running dry at an alarming rate and the government needed a model that requires accountability.

In comes Maryland!  While most states are slowly crawling towards value-based care with many hospitals doing everything they can to try to get Obamacare overturned, Maryland was one of the first states to adopt a Total Cost of Care Model.

Total Cost of Care takes value-based care way above the level of the hospital or insurer. The state looks at the total Medicare Dollars spent on each provider annually and allocates the appropriate ratio or percentage of dollars of the overall state fund to each provider, including hospitals and physicians.

Think of Total Cost of Care like this: Instead of the hospital getting $1241 each month to be responsible for your mom’s care, as it would in an Accountable Care Organization or full-risk HMO, the Total Cost of care model sees the hospital allocate a specified amount for the year. For example, the state would give a hospital $48.2 million and say, “That’s all your getting from us for all the patients you care for this year. So, good luck!”

As mentioned earlier, while the rest of the country is mid-way through a slow crawl towards transforming to value-based care that began sometime in 2010, and will likely be complete by 2020, hospitals in the state of Maryland were forced to complete the transformation overnight, or risk financial failure.

As it stands, every patient admitted to the hospital, or provided a service by a hospital, in Maryland is simply an added expense to the hospital’s ledger. It’s a consolidated bottom line. The hospital receives a large allocation from the state annually, and every service provided after that is an expense. It’s an entirely different mindset; the hospital is the de-facto insurer now.

When you see an article stating that a single state in the United States of America is advertising the cost of hospital procedures, expensive ones at that, it may first give you pause. But when you realize that state in question is Maryland, a state bold enough to pave the way on converting to this model, it comes as no surprise.

In an effort to end the long-entrenched practices of over-admitting patients and over-ordering often unnecessary tests, Maryland and its hospitals made the bold choice to transform to the role of the insurer overnight. So the state and its hospitals are now the banker and, every time you access care, it costs them.

When you have a basic understanding of how Maryland is ahead of the game on value-based care, it is no wonder that its state hospitals were the first to say, “Let’s advertise our prices to weed out those patients who may not truly need an expensive procedure.” It’s the same tactic insurers have been using for years.

It’s the right move and the next step in this transformation. Just ask the insurer; it’s the oldest trick in the book, and the program was extended and expanded through 2023.   

 

Dr. Josh Luke is a celebrated speaker, award-winning Futurist, LinkedIn Influencer, a faculty member at the University of Southern California’s Sol Price School of Public Policy, and author of Health-Wealth: Is healthcare bankrupting your business? 9 Steps to Financial Recovery. Drawing on his experiences as a hospital CEO, Dr. Luke delivers engaging and entertaining keynotes that teach audiences simple concepts on how individuals and companies can save thousands on healthcare. For more information on Dr. Josh Luke, please visit www.DrJoshLuke.com.

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