Like many hospitals, Pennsylvania’s Chan Soon-Shiong Medical Center at Windber saw its service volume collapse earlier this year after a pause in elective procedures. Global
CEO Tom Kurtz said the decline would have wreaked havoc on its operating revenue in previous years, but it didn’t, because this year Windber joined Pennsylvania’s Rural Health Model, a global budgeting experiment. “We protected 70% of our revenue … when our operating revenue would have been 20% to 25%,” Kurtz said. “We looked like financial geniuses to our board.”
Pennsylvania’s rural hospitals get paid a lump sum at the beginning of each year to cover all inpatient and hospital-based outpatient services for all payers under the model. According to CMS’ Center for Medicare and Medicaid Innovation, policymakers hope the demonstration bolsters rural hospitals’ financial viability to ensure continued access to care for the state’s rural residents and improve health outcomes.
So far, it’s achieved those two goals. Andy Carter, CEO of the Hospital and Healthsystem Association of Pennsylvania, said each of the state’s 13 participating hospitals had stayed afloat during the pandemic. He’s disappointed that more hospitals aren’t taking part in the experiment. “It’s proof of the complexity of turning the delivery and financing system … 180 degrees,” Carter said.
But global budgets haven’t been a cure-all for runaway healthcare spending. The payment model has not greatly reduced healthcare costs or cost growth, as many experts and policymakers had hoped. Still, they have achieved some lower spending growth as well as something that’s hard for hospitals to come by throughout the coronavirus pandemic: stability.
Most of the evidence comes from Maryland, which in 2014 implemented all-payer global budgets for inpatient, hospital outpatient and emergency department care for most of its hospitals. The results have been mixed.
A 2018 study in JAMA Internal Medicine concluded that Maryland’s global budget wasn’t affecting hospital or primary-care use. Researchers found no consistent differences in annual hospital stays, 30-day return hospital stays, emergency department visits, hospital outpatient department utilization, or primary-care visits after two years.
But a federally funded report by RTI International found slower growth in average monthly expenditures per beneficiary for hospital services. That translated to $554 million in aggregate Medicare hospital savings, 4% of baseline period expenditures, during the first three years of global budgets (2014–16), according to Health Affairs. “In addition, the report found $679 million in total aggregate Medicare savings (3% of baseline spending), indicating that Maryland achieved hospital savings for Medicare beneficiaries without shifting costs to other parts of the healthcare system outside of the global budgets,” according to the Health Affairs blog. Other studies have found similar results.
But cost savings could take a while to materialize, as hospitals develop new business strategies and put them into practice. RTI’s report didn’t find reductions in hospital admissions until the second year of Maryland’s demonstration. It saw large decreases in the third year.
Rising drug costs could also limit global budgeting’s effect on healthcare spending because those costs play a significant role in hospital spending.
Experts say the Innovation Center will continue experimenting with ways to reimburse providers in the coming years. But it’s unclear how far President-elect Joe Biden’s administration will push payment reform and global budgeting in the wake of the coronavirus outbreak. Industry insiders disagree about how the pandemic will affect the pace of change, but there’s bipartisan consensus that payment reform is crucial to fixing the healthcare system.
“The biggest single impediment to improvement in the U.S. healthcare delivery system is the payment model,” said Dr. John Chessare, CEO of Maryland-based GBMC HealthCare.