Opinion: Let’s Change How We Pay for Hospitals
Excerpted from Knowable Magazine dot Org
When the pandemic hit in early 2020, many hospitals had to postpone all non-urgent surgeries — their main source of revenue.
This affected even facilities that had been in relatively good shape: From March to June 2020… US hospitals lost more than $50 billion per month.
But in one state, the financial future for hospitals seems somewhat less bleak.
In Maryland, outpatient hospital revenue between January and July 2020 was only 14.6 percent lower than the same period in 2019; for inpatients, revenue fell by only 1.6 percent.
We believe other states could learn lessons from Maryland’s experience.
How did Maryland end up with such a different system to pay for hospital care? In 2014, an independent commission in Maryland, with input from payers and hospitals, agreed to a specific annual budget for each hospital, determined by the number of patients and procedures in 2013, plus annual adjustments based on inflation and population growth. This created a system of fixed revenue, or a global budget, paid by all insurers (public and private), so hospitals could anticipate their yearly income, and plan accordingly. The budget is not dependent on patient volume: If a hospital needed to treat more patients than it had anticipated, the reimbursement rate per patient fell; if fewer patients showed up, the rate rose. (The system continues to monitor hospitals to ensure they don’t use the payment scheme as a reason to not treat patients, or to discharge them sooner than they should.)
So during Covid, as other hospitals fell into crises when elective procedures were canceled, Maryland hospitals stayed afloat, which gave them the stability to face the unknown and support frontline workers.
Covid has shown… that the current system of fee-for-service pricing in hospitals is bad in good times, and worse in crises. Read more.
This article is part of Reset: The Science of Crisis & Recovery, an ongoing Knowable Magazine series exploring how the world is navigating the coronavirus pandemic.