State health cost commission to seek exemption from Medicare payment changes

By Barbara Pash

This summer, Maryland will request an exemption from a new requirement by Medicare that hospitals demonstrate their quality of care. The requirement, which involves monetary rewards for those that meet the new standard and penalties for those that don’t, goes into effect Oct. 1.

“We will provide documentation to the secretary of the U.S. health department before that deadline” to demonstrate that “Maryland already has those programs in our system” said Robert Murray, executive director of the Health Services Cost Review Commission, the state agency that sets hospital rates.

The commission has been tracking quality care in hospitals in the state for three years. “The health reform act says you can be exempt from this regulation if you show you already meet or exceed” the national requirement, Murray said, adding that he expects to demonstrate that successfully.

Murray valued Maryland’s hospital industry at $13 billion, of which Medicare, the federal program for people aged 65 and up and for the disabled, accounts for about $5.8 billion in payments to hospitals for inpatient and outpatient-based hospital services.

The new quality requirement is not the only standard that is being imposed on hospitals nationwide in order to qualify for Medicare payments. Another element is Medicare’s recent announcement that, for the first time, it will focus on hospitals’ total expenditures per enrollee, although the definition is vague and the time frame for implementation is indefinite.

Because Maryland is the only state in the country with a waiver from the Medicare payment methodology, Murray does not expect the new national total expenditure standard to affect the state directly.

In 1977, the state negotiated the waiver in which Medicare agreed to pay hospitals in Maryland on the basis of commission-set rates. Over the years, other states have also been granted waivers but Maryland is the only state to have maintained its waiver.

However, the new focus on total expenditures may indirectly affect the state, Murray said. “If they’re putting the screws on hospitals nationally, it might make our waiver test more difficult. It could affect the Maryland system and hospitals,” said Murray, who is taking steps to avoid that possibility.

The commission offers voluntary pilot programs that offer incentives to hospitals to not admit patients unnecessarily and to reduce preventable re-admissions. “We want the hospitals to focus on the quantity of visits,” said Murray, who added that while the waiver provides Maryland hospitals with a buffer, hospitals nationwide are not thrilled with the coming changes in Medicare standards.

Jim Reiter, senior vice president for communications of the Maryland Hospital Association, said the association is cooperating with the commission on “the re-admission initiative”.  To cite one example, Medicare payments to hospitals will be cut if too many heart attack, heart failure or pneumonia patients are readmitted after treatment, according to media reports.

“We are working with the commission for value-based purchasing” that links payments to performance, Reiter said.

As far as hospital payments are concerned, Reiter said, “the state actually sets the rate hospitals can charge and by law all payers [insurers, Medicare and Medicaid, and individuals] pay the same for each service at each hospital,” known as the all-payer system.

“In other states, the cost shifts because insurance companies negotiate a better rate than individuals. That doesn’t happen in Maryland and in exchange, Maryland hospitals report all kinds of financial and quality information,” Reiter said. “Maryland already ties payment to performance,” and thus the rationale for an exemption to the new quality standard.

Predictions abound that Medicare is headed for bankruptcy by 2024 unless costs are contained. Medicare officials “are worried about the affordability of the program, and they are getting serious about total expenses,” Murray said.

Glenn Schneider, former executive director and current board member of Health Care for All, a health advocacy group, applauded state efforts to address the coming changes in Medicare.

“With the [state’s] all-payer system, everyone’s got skin in the game, which is good. It means the hospitals will get paid less if the quality is poor and the quantity too high. The all-payer system has driven the commission and the hospitals to solve their problems,” Schneider said.

About The Author

Len Lazarick

Len Lazarick was the founding editor and publisher of and is currently the president of its nonprofit corporation and chairman of its board He was formerly the State House bureau chief of the daily Baltimore Examiner from its start in April 2006 to its demise in February 2009. He was a copy editor on the national desk of the Washington Post for eight years before that, and has spent decades covering Maryland politics and government.