$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$ $ $ $Emerging Approach$ $ $ $ $ $ $ $ An $ $ $ $ $ $ $ $ $ to Payment Reform: $ $ $ $ $ $ $ $ $$$$$$$$ $ $ $ $ $ $ $ $Budgets $ $ $ $ $ $ $ All-Payer Global $ $ $ $ $ for$ $ $Safety-Net $ $ $ $ $ $ $ $ $ Large $ $ $ $ $ $ $ $ $ Systems$ $ $ $ $ $ $ $ $ $ Hospital $ $ $ $$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$ Joshua M. Sharfstein Sule Gerovich Elizabeth Moriarty David Chin Professor of the Practice Senior Researcher Associate Distinguished Scholar Department of Health Policy Mathematica Policy Research Clinical Economics Division Johns Hopkins Bloomberg and Management Berkley Research Group School of Public Health Johns Hopkins Bloomberg Johns Hopkins School of Public Health School of Medicine AUGUST 2017 AUGUST 2017 An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems Joshua M. Sharfstein, Sule Gerovich, Elizabeth Moriarty, and David Chin ABSTRACT ISSUE: Health systems often lack resources to support intensive efforts that emphasize prevention. A contributing factor is the continued dependence on fee-for-service reimbursement. All-payer global hospital budgeting is a promising innovation that departs from fee-for-service reimbursement by assuring a hospital receives a prospectively set amount of revenue over the course of the year. This assurance creates an incentive to reorganize care delivery and invest in services to address preventable health conditions. GOALS: Assess the feasibility and likely outcomes of implementing global all-payer budgets in hospital systems in the United States, particularly in large safety-net hospital systems. METHODS: Analysis of concepts based on the experiences of global hospital budgeting programs implemented in Maryland and planned for Pennsylvania. KEY FINDINGS AND CONCLUSIONS: To be successful, all-payer global hospital budgeting requires a vision for transformation, an operational strategy, and an environment conducive to success. Key considerations for adopting this approach include whether alternative payment methods can accomplish the same goals, whether a sufficient reference population can be defined to guide year-over-year budget adjustments, and whether a strong governance structure can be established and sustained. An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems 3 BACKGROUND By several measures, this evaluation found the Many communities in the United States experience high first 18 months of Maryland All-Payer Model rates of premature illness and death.1 In 2015, the nation’s implementation was a success. Acute-care life expectancy dropped for the first time since 1993.2 hospitals in the state transitioned to global budgets more quickly than projected, and most Expanding access to primary care, behavioral health hospitals successfully managed their revenues services, and other social services can improve health to remain within the 0.5 percent corridor around outcomes and moderate rising costs. However, finding their global budget. sustainable sources of funding for clinical transformation has been challenging. One major reason is that the safety- The evaluation also reported, “These findings are net health care systems still depend on fee-for-service particularly notable because they reflect early experience reimbursement for hospital services. When health with the All-Payer Model, when hospitals were just systems can stay afloat only by keeping inpatient beds beginning to adjust to the new system. Discussions with filled, major investments in prevention can sink the ship. hospital leaders during site visits indicated that in most cases hospitals were in the early stages of developing strategies to respond to the incentives of the All-Payer All-Payer Global Hospital Budgeting Model. In particular, strategies that require changes An emerging payment innovation is all-payer global outside the hospital’s direct control — such as aligning hospital budgeting. This approach involves an annual hospital and physician incentives and reducing patient expectation for revenue for all inpatient and hospital demand for hospital services by improving population outpatient care in advance, creating a powerful incentive health and altering care-seeking patterns — were in the to reorganize care for prevention and to invest in nascent stages.”8 community services. After 30 months, Maryland has seen a 48 percent The use of all-payer global hospital budgeting as a public reduction in potentially preventable complications, and policy tool in the United States began in Maryland. 3 has seen the readmission rate fall from 7.9 percent to In 2010, Maryland’s independent rate-setting agency 3.4 percent over the national average.9 In addition, after launched a pilot program for 10 rural hospitals, in nearly three years of operation, the results include $429 which each was guaranteed a set amount of revenue for million in hospital savings in Medicare compared to the the coming year, regardless of the number of inpatient national rate of growth, which has translated to a $319 admissions, emergency department visits, and other million total cost-of-care savings relative to national volume measures.4 Chief executives of the pilot hospitals Medicare trends. discovered that the new all-payer global budget model freed them from the urgent need to keep their beds filled Even as Maryland’s model is still in its early stages, to maintain adequate revenue.5 These hospitals launched interest in all-payer global hospital budgeting is growing new multidisciplinary clinics to care for individuals among rural hospitals. Notably, in January 2017, with chronic disease, enhanced transitions of care, and Pennsylvania and CMS announced a payment model supported new programs for behavioral health.6 that will bring an all-payer global hospital budgeting model to 30 rural hospitals within three years.10 The idea In 2014, Maryland and the Centers for Medicare and of a global budget is particularly attractive for small, Medicaid Services (CMS) announced a payment model geographically isolated facilities that are struggling to that expanded all-payer global budgets to all 46 acute maintain adequate volume to survive under fee-for- care hospitals in the state.7 The initial evaluation by CMS service reimbursement.11 Under a global budget, a rural found that the state was already making progress on hospital can plan for a set amount of revenue and invest aggregate hospital expenditures, clinical quality, and in “outside the walls” initiatives to reduce preventable readmissions: hospital utilization. commonwealthfund.org August 2017 An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems 4 Large safety-net health systems in urban areas differ in that in a specific population, infant mortality rates are many respects from small rural hospitals. Their challenge high, preventable asthma admissions are frequent, and may be too many patients, not too few, and their reach opioid-related overdoses are rising. It might then note may be far beyond inpatient services into a network that the health system does not have adequate financial of community clinics. In addition, the proximity of resources to invest in expanding health services, such as urban safety-net hospitals to competing health systems primary care, evidence-based home visiting, behavioral means that a portion of their patients may have readily health treatment, and care coordination for complex accessible alternatives for obtaining care. However, there patients. It should explain the unfortunate dynamic is an important commonality: Both rural hospitals and that success in reducing admissions, under the current large safety-net hospitals frequently adopt strong social payment model, would have significant adverse financial missions for their communities that include efforts to consequences. address major sources of preventable illness. The vision should then define a set of promising This report assesses the potential of all-payer global initiatives that would be possible under an all-payer hospital budgeting to meet the challenges large safety- hospital budget that guarantees revenue independent of net health systems and their communities face. We inpatient volume. These might include: describe the steps necessary for developing all-payer • Additional primary care and community-based global budgets and identify key considerations for behavioral health services; all-payer global budgeting in the context of alternative strategies for value-based payment. To illustrate how • Changes in hospital service lines, depending on global budgeting might be applied in an urban area, we community needs; also highlight the experiences of NYC Health + Hospitals, • Care coordination for high-need patients; New York City’s network of public safety-net hospitals and affiliated community clinics. • Effective use of health information technology to identify high-need, high-cost patients and areas in need of additional support12; and IMPLEMENTING ALL-PAYER GLOBAL BUDGETS IN LARGE SAFETY-NET HOSPITALS • Coordination with local public health agencies There are three primary steps to implementing all-payer and other community resources around primary global budgets in large safety-net hospitals: a vision prevention and investments in addressing social for transformation, an operational strategy, and an determinants of health. environment conducive to success. Such efforts are a key focus of transformation activities at many safety-net hospitals, including NYC Health + Step 1: A Vision for Transformation Hospitals. To overcome the political and policy challenges involved The vision should also include ways to align with local in establishing all-payer global hospital budgeting, physicians, including opportunities for doctors to earn a health system must promote a strong vision for incentives under both the Merit-Based Incentive Payment transformation that can earn support from three System (MIPS) and Alternative Payment Model tracks audiences: the local community, key state and federal of the Medicare and CHIP [Children’s Health Insurance policymakers, and the staff at the health system itself. Program] Reauthorization Act. The complex reporting A successful vision begins with combining an assessment requirement in the Merit-Based Incentive Payment of community health challenges with an understanding pathway provides opportunities for health systems to of the limitations of the current financial model in align interests with independent physicians who are addressing them. A local analysis might find, for example, seeking assistance in meeting the requirements. The commonwealthfund.org August 2017 An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems 5 Alternative Payment Model track could enhance existing TRANSFORMATION ACTIVITIES AT efforts and investments to align with primary care NYC HEALTH + HOSPITALS physicians in new payment models for patient-centered medical homes to address community needs. In addition, To improve health outcomes and lower costs, new bundled payment programs provide opportunities with the support of funds made available through for specialists to join high-value health care networks. the state’s Medicaid waiver, NYC Health + Because community primary care and specialty Hospitals is pursuing: physicians play a vital role in managing chronic illness, Primary care improvement. The health this alignment is essential for success over the long term. system is standardizing patient panels; The vision should address why it is important for all seeking medical home certification for payers to participate: It permits the clinical system to dozens of practices; expanding phone access; fully transform to emphasize prevention and disease and improving quality oversight using metrics management, rather than maintain two or more for cardiovascular disease, diabetes, and delivery systems within the same hospital attuned to depression. different incentives. Another important reason is that full participation would create benefits for everyone in Community health collaboration. For a community, regardless of their source of payment for example, in collaboration with community health care. partners, the health system has promoted pre-exposure prophylaxis for HIV and Finally, the vision for transformation should include engaged community health workers to metrics for success. One such metric is the financial support patients with asthma. viability of the safety-net health system itself. Others might include: Identification and care for high-need patients. The system has developed a risk- • Improvements in community health outcomes, such scoring algorithm that can identify high-need as overdose; patients for care coordination and other • Reductions in preventable inpatient admissions; services. • Reductions in hospital-acquired conditions; Behavioral health integration. Pilots for • Reductions in readmissions; and improved care of depression, anxiety, and substance use disorders are under way. • Increased use of effective outpatient services, such as evidence-based addiction treatment. Sustainability and expansion of these efforts will require a mechanism to capture and reinvest A vision for transformation should begin as a high-level savings from the prevention of inpatient concept that shows communities, political leaders, hospitalizations. public agencies, and private payers what a different set of financial incentives for the acute care hospital can help accomplish. It can then evolve over time into a detailed implementation plan. Sources: Correspondence from OneCity Health. Also see The City of New York, One New York: Health Care for Our Step 2: An Operational Strategy to Manage Neighborhoods. Transforming Health + Hospitals (City of Global Budgets New York, 2016). In addition to a vision of health and transformation for a hospital and its community, all-payer hospital global commonwealthfund.org August 2017 An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems 6 budgeting requires an operational strategy for the system It is worth noting that the concept of a reference itself. Such a strategy should define 1) how budgets will population distinguishes U.S. all-payer global hospital be established and adjusted over time; 2) how payers budgeting from global hospital budgeting in Canada and will participate; and 3) how an effective structure for Europe, which generally set hospital budgets based on governance and administration will be established. the characteristics of the provider, such as the number of beds or types of services offered.13 How budgets will be established and adjusted Adjustments to global budgets based on the reference over time population are designed to address the concern over An all-payer global hospital budget is not guaranteed to stay perverse incentives to direct patients elsewhere. If the at a set level indefinitely; if it were, a health system could reference population moves to other institutions for succeed financially simply by directing its patients elsewhere. essential care, then the hospital will experience a reduction To avoid this perverse incentive, a global budgeting system in its global budget over time.14­On the other hand, if the needs a set of rules to adjust the global budget year over reference population is becoming healthier, with fewer year, based in part on patient preference represented by preventable admissions, the hospital will enjoy a stable market shifts, as well as demographic and other trends. budget even in the setting of declining utilization. Initial Global Budgets Who is in the reference population? Maryland’s A hospital’s first global budget is most easily set through approach, the only one implemented to date in the a review of historical patterns of expenditures. This United States, uses the population living in the hospital’s approach, which is straightforward to implement service area. Maryland has developed methods to and acceptable to hospital leadership, was rapidly account for overlapping service areas in urban and implemented in Maryland across dozens of hospitals. suburban regions. Pennsylvania’s rural hospital program will also use geography-based reference populations. Adjustments to Global Budgets Each Year An alternative approach for the reference population Establishing a fair process for adjustments to global budgets each year is a key step for preserving key could be to include individuals assigned by specific payers incentives while maintaining stability for the or attributed on the basis of primary care affiliation. For participating hospitals. These adjustments should be example, the population could include all enrollees in an based in part on 1) the ongoing experience of a specific accountable care organization (ACO) affiliated with the reference population that can be closely monitored and hospital, or all patients of a set of primary care physicians. 2) the utilization of services by others who are not part of The greater the number of attributed patients through this reference population. either mechanism, the greater the corresponding part of the global budget. The fewer participants, the smaller the Reference population. The concept of a reference budget. Should preferences among patients shift toward population is critical for all-payer hospital global or away from the hospital, the budget would increase or budgeting in the United States. This is the population decrease, respectively. most closely tracked for year-over-year budget adjustments. At the most basic level, if this reference Such alternative approaches to geography-based reference population is growing in number, the hospital receives populations may be difficult to implement. Models a larger budget to provide care. A global budgeting that attribute individuals to a specific provider are the system can also make year-over-year adjustments based main methods used to build populations for ACOs, but on trends in the demographics and health status of the establishing clear linkages between a single physician and reference population. a hospital may be more difficult and may change over time. commonwealthfund.org August 2017 An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems 7 Other populations of patients. For those patients who How payers will participate are seen by the hospital but are not part of the reference A global budget without payer participation is like a population, revenues can be included in the budget each party without guests. Fortunately, there are several ways year and then adjusted for future years depending on to divide the responsibility for hospital budgets among utilization. For example, the Maryland system adjusts participating payers. In Maryland, payers continue some global budgets based on fluctuations in non-state- to make claim-based payments based on the rates resident utilization (Exhibit 1). determined by the rate-setting agency; the rate-setting agency works behind the scenes with hospitals to adjust In theory, these two approaches to defining a reference rates to accomplish global budgeting, effectively turning population could be combined and include both a local the rate-setting mechanism into a cost allocation method. and an attributed population. Finding a relatively large reference population is critically important to the success Global budgeting is also possible without rate-setting, with of hospital global budgeting. payers contributing to each hospital’s revenues each year based on their historic utilization of the hospital’s services. Adjustments to global hospital budgets over time can This contribution must also be adjusted each year. also take into account metrics that reflect the quality of care, population health outcomes, and patient Medicare experience. These can be implemented by setting Given the frequency with which older adults require benchmarks in advance or by rewarding hospitals that hospital care, Medicare’s participation is essential to produce continuous improvement over time. the establishment of a global budgeting program. This Addressing Changes Over Time Exhibit 1. Addressing Changes Over Time Global Grows or shrinks over time based on utilization budget by people who are not in reference population Global for others budget for reference Grows over time if population • Reference population grows • Utilization shifts to participating hospital from other hospitals Shrinks over time if • Reference population declines • Patients use other hospitals instead of the participating hospital Hospitals maintain revenue in global budgets as utilization for preventable conditions declines in reference population commonwealthfund.org August 2017 Source: J. M. Sharfstein, S. Gerovich, E. Moriarty, and D. Chin, An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems, The Commonwealth Fund, August 2017. An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems 8 THE IMPORTANCE OF THE REFERENCE POPULATION The reference population serves as the core target for health improvement activities. If preventable admissions decline in this population, the hospital maintains the revenue. It is therefore critical that the reference population be as large as possible. If just 5 percent of the population of a hospital is in a reference population, then there will be few opportunities to invest in prevention and keep the benefit. If 95 percent of the population of a hospital is in a reference population, then clinical transformation will bring many rewards. For this reason, adoption of an all-payer hospital global budgeting strategy may be accompanied by a strategy to increase the reference population. For example, if a reference population is based on primary care attribution, a health system may choose to invest in more primary care physicians. participation is made possible by a waiver to hospital that include past levels of inpatient volume. Medicaid payment rules issued by the Center for Medicare and DSH payments are due to shrink considerably under Medicaid Innovation at the request of the state. The the terms of the Affordable Care Act, although these waiver sets the terms under which Medicare pays the declines have so far been postponed. assigned share of global budgets to particular hospitals. • UPL payments are state payments to hospitals Because Medicare fee-for-service spending is relatively permitted in Medicaid so long as the total predictable over time, it is not difficult to transition to reimbursement for classes of providers does not global budget payments.15 exceed what Medicare would reimburse. These payments often support hospitals with links to Medicaid entities (such as county governments) that contribute Given the importance of Medicaid reimbursement directly to the Medicaid program. for safety-net hospitals, Medicaid participation in a global budgeting program is also essential. States have Traditional DSH and UPL payments have been linked to considerable flexibility under both the Medicaid statute inpatient utilization, consistent with the fee-for-service and the 1115 waiver process to change the terms of paradigm of traditional hospital payment. Recently, hospital payment.16 Like Medicare, Medicaid can chart however, there has been growing interest in incorporating trends and convert expected payments into global such funds in value-based payment arrangements.18 payments for a population.17 Under an 1115 waiver, a state can consolidate the DSH and UPL programs in order to contribute to hospital global Indirect public payments should be included under budgets. California’s recent 1115 waiver renewal includes a global budgets. These payments, which may represent “global budget” program that is limited to the uninsured; a large proportion of health system revenues, include the program sets a maximum global budget for each Disproportionate Share Hospital (DSH) payments and hospital that is provided in proportion to the services Upper Payment Limit (UPL) payments. delivered to this population.19 • DSH payments are intended to compensate hospitals Including DSH and UPL payments in all-payer hospital that care for large low-income populations. These are global budgets strengthens the alignment of incentives set at the federal level and distributed among qualifying for clinical transformation. hospitals by the state, based on a broad range of factors commonwealthfund.org August 2017 An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems 9 GLOBAL BUDGETING WITHOUT RATE-SETTING Pennsylvania’s proposed approach to global budgeting involves assigning an appropriate proportion of a negotiated global budget to each payer. For example, if a hospital’s negotiated budget is $100 million and the share of hospital expenditure attributable to Insurer A’s patients is consistently 35 percent, then Insurer A might be directed to pay the hospital $35 million over the course of the year. This payment could be arranged on a monthly or quarterly basis. At the end of the year, if Insurer A’s actual percentage of volume is different from 35 percent, there could be an adjustment in the current or following period. How an effective structure for governance and unusual services, such as burn units and transplants, administration will be established from all-payer global budgets. It can handle capital An essential component of an all-payer global hospital investments differently from other costs. It can penalize budgeting model is a strong governance structure with inappropriate behavior, such as inappropriate facility an effective approach to implementation. Maryland’s transfers. Budgets can also be adapted to account for hospital payment model is managed by the Health other factors, such as the costs of medical technology Services Cost Review Commission, an independent and pharmaceuticals beyond the hospital’s control. agency created by Maryland statute whose members The administering agency must be able to adjust are appointed by the governor. No more than three budgets when extraordinary situations, such as a severe members of the seven-member panel may have provider influenza season, demand additional spending. It can affiliations, and, by tradition, at least one comes from be anticipated that the operations of the governance the physician community.20 Pennsylvania is planning to structure will cost at least several million dollars a year. create a Rural Health Redesign Center as a public-private partnership to perform a similar function. Step 3: An Environment Conducive to Success It is essential that the administering agency have No health system is an island; success under all-payer credibility with key public and private partners. If global budgeting depends on a variety of market and seen as a purely political creation, the agency will not policy factors. Three critical factors are the local hospital be trusted to be fair. If it tilts too far toward payers or environment, the engagement of the state government, toward hospitals, one or the other may lose confidence and the availability of an information technology in the system’s ability to succeed. In addition, an expert infrastructure, technical assistance, and startup funding. staff is essential to generating data-driven analyses to understand the system and respond quickly to problems Local hospital environment as they arise. An urban environment may include large safety-net As noted above, effective administration of an all-payer health systems as well as private systems that may be global hospital budgeting program involves the setting less likely to serve the same number of low-income and adjusting of global budgets with a transparent and patients. A critical question for a large safety-net hospital fair set of methodologies. It also includes assigning considering a global budget is whether surrounding contributions to payers, monitoring market shifts, hospitals will also shift to this method of payment. A assessing quality, and measuring outcomes. There is hospital is far more likely to meet its goals under a global also a range of other operational considerations. An budget if neighboring hospitals serving the same or a administering agency can exempt certain expensive, similar population are also paid under global budgets. commonwealthfund.org August 2017 An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems 10 A regional ecosystem of global budgeting has several benefits. First, it eliminates the danger that the other hospitals would seek out COULD ALL-PAYER GLOBAL additional volume to grow their revenue, which may mean reductions HOSPITAL BUDGETING WORK in global budgets due to what appear to be market shifts. Second, IN THE BRONX? it creates an incentive for collaboration in addressing the needs of The Bronx is a county with 1.46 high-need patients, because reductions in preventable admissions would benefit all facilities. Third, it allows payers to look across larger million people, a poverty rate of populations to see trends in utilization and cost, providing more 31.5 percent, and the second- confidence about the progress of the model. And finally, it creates highest rate of preventable additional synergy with local public health agencies interested in admissions in New York. While an defined geographic populations. An example of a possible regional individual hospital could move to global budgeting system is shown in the box at the right. a global budget, there would be a risk that the surrounding hospitals Engagement of the state government could increase their own volumes State officials play a central role in establishing any system of correspondingly and undermine all-payer hospital global budgeting, including for large safety-net their success. systems. This role is in part because of formal authority. Not only, An alternative would be for all Bronx as noted above, does Medicare participation depend on a request hospitals to be paid under global from the state, but participation of the state Medicaid program is also essential for success. Beyond formal authority, strong state budgets, allowing payers to monitor leadership, including that of the governor, is needed to encourage the success of the initiative across transformation, align payers, and set expectations for reform. all Bronx residents. At the county level, over 90 percent of people Engaging state officials starts with the vision for transformation. admitted to Bronx hospitals in 2014 State leaders may see special value in the alignment of global were Bronx residents. Moreover, budgeting with public health goals for specific geographic areas about 75 percent of hospital or populations, such as reducing overdose, addressing chronic admissions for Bronx residents in illness, and helping older adults age in place. They may also see value in using all-payer global hospital budgets to align the 2014 occurred in Bronx hospitals. long-term incentives of health systems and hospitals with other Bringing all the hospitals together innovations in payment that aim to reduce preventable illness under global budgeting could allow and associated costs, including patient-centered medical homes, for the design of a transformed accountable care organizations, and system investments through health system with alignment the Delivery System Reform Incentive Program (DSRIP).21 These for the health of the population state officials may have longstanding, constructive relationships and with the engagement of with the leadership of safety-net health systems that can serve as a community leaders and public foundation for discussion. health agencies. Of note, Medicaid participation in a global hospital budgeting program differs fundamentally from a “block grant” from the federal government to the state. Under a block grant, the federal Source: SPARCS Hospital Data, New York government imposes a financial cap that supersedes all other State Department of Health. factors. This limitation can erode financial support for the Medicaid program over time and may make it impossible to meet core patient care obligations. commonwealthfund.org August 2017 An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems 11 By contrast, an all-payer global hospital budgeting program in prevention. Yet fee-for-service reimbursement and has the primary purpose of improving health. The model outdated approaches to indirect payments in the Medicaid is developed with multiple safeguards and a governance program can box these health systems into dependency structure to ensure that innovative financial incentives on inpatient volume for revenue. are used to achieve improvements in care for patients In theory, an all-payer global hospital budgeting program and health for local communities. If these incentives fail can provide safety-net health systems the flexibility to to do so, then public agencies, private payers, and local achieve their financial and population health goals. In communities can revert to the previous basis of payment. practice, there are several important questions that relate to the viability of this model for particular areas. Availability of an information technology infrastruc- ture, technical assistance, and startup funding An important consideration is whether there are The administering agency requires access to high-quality alternative and more readily available payment data on hospital utilization and, to the extent possible, mechanisms capable of achieving the same tools for identifying opportunities for health systems transformational results. One reason the Medicaid to improve outcomes and lower costs. For example, managed care program started several decades ago Maryland’s health information exchange helps identify was to encourage greater attention to preventive care. patients with complex health needs, sends real-time However, a major limitation of managed care has been alerts to clinicians, and provides rapid reporting to the separation of the payer from the provider, so that hospitals on readmissions. health systems are unable to capture savings that can sustain transformation. There are efforts in some states, In addition, health systems often need technical and including New York, to require managed care plans to financial support to transition into alignment with pass incentives to clinical systems capable of managing new incentives under all-payer global budgets. As risk. This may create new opportunities for large urban a committee of the National Academy of Medicine safety-net systems. recently noted, “Even when there is financial alignment, organizations with fewer resources may not be able to Another recent development is the rise of accountable respond … without upfront resources.” Pennsylvania 22 care organizations in the Medicaid program. is receiving $25 million from CMS to provide technical Massachusetts, Rhode Island, and Vermont all have 1115 assistance and other support through the new Rural waivers under Medicaid to support risk sharing by health Health Redesign Center. Other sources of funding systems acting as accountable care organizations. include private philanthropy, foundations, and the The use of this tool can be part of an “a la carte” approach global budgets themselves, which can be set to provide to value-based payment, along with structuring payment additional room for population health investments. for the uninsured so that it is not based on inpatient Maryland provided hospitals with additional resources volume. Patching together such a system without a single in the first two years of the state’s program. global budget does not require the degree of public and private coordination needed for an all-payer hospital ALTERNATIVE INNOVATIVE PAYMENT global budgeting program. A key consideration, however, ARRANGEMENTS AND OTHER CONSIDERATIONS is whether the patchwork covers an adequate share of FOR SAFETY-NET HOSPITALS patient volume seen by inpatient facilities. If it fails to do Safety-net health systems are much more than essential so, health systems can be stuck with the proverbial “one providers of acute care. As community institutions aiming foot in each canoe,” unable to transform to leave fee-for- to maximize the health and well-being of those they serve, service medicine behind. Furthermore, a patchwork these organizations recognize the urgency of investments approach may create undesirable challenges for risk commonwealthfund.org August 2017 An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems 12 management, if patients move back and forth between CONCLUSION value-based and fee-for-service reimbursement. All-payer hospital global budgeting is an emerging A more logistical consideration is whether health payment reform that can permit large safety-net health systems can identify a viable reference population upon systems to make major investments in community which to base a global budgeting strategy. Those that can health. This approach can complement and sustain team up with other public and private hospitals as part other value-based reforms at the state level. Developing of a global budgeting program in their region may be a successful financial and delivery model requires a best placed to succeed. vision for transformation, an operational strategy, and an environment conducive to success. For an individual hospital considering a global budget, a key question is whether there is a defined service area Safety-net health systems interested in exploring this that supplies a large number of patients. If this is not the potential funding innovation may choose to consider the case, and the hospital draws diffusely from a diverse area, following steps: such as across an entire city, it may be difficult to identify 1. Describe the challenge. Assess the level of avoidable a reference population based on geography. In such a hospitalizations and corresponding savings that case, the feasibility of a global budget may depend on the might be possible under a global budget. ability to identify an attributed or assigned population and develop sophisticated approaches to tracking market 2. Draft a vision for transformation. Develop specific shifts. proposals to reduce avoidable hospitalization that could be made sustainable under a global budget. A third consideration is whether there is a path to a credible administrator for an all-payer global hospital 3. Propose an operational strategy. Study the local budgeting system. Long-standing disputes between health care environment to identify potential hospitals or between hospitals and insurers may reference populations to use as the basis for hospital complicate the development and implementation of an global budgeting. all-payer global hospital budgeting model. Well-trusted 4. Discuss with policymakers. Start talking about private or quasi-public agencies are best suited for taking all-payer global hospital budgeting with local, state, on such a role. The leadership of such organizations will and federal elected representatives and health need to bring in professional staff to provide oversight to officials. the system in a credible fashion. 5. Imagine a governance structure. Consider what characteristics may make the most sense locally and be most credible. 6. Consider alternatives. Evaluate all options to promote greater alignment among financial incentives, community health, and hospital sustainability. For their part, local and state officials may choose to learn more about global hospital budgeting to address long-standing challenges facing safety-net health systems and their communities. commonwealthfund.org August 2017 An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems 13 NOTES 9 N. Sabatini, J. Antos, H. Haft et al., “Maryland’s All-Payer National Academy of Sciences, Engineering, and 1 Model — Achievements, Challenges, and Next Steps,” Medicine, Systems Practices for the Care of Socially Health Affairs Blog, Jan. 31, 2017. At-Risk Populations (National Academies Press, 2016). 10 Centers for Medicare and Medicaid Services, L. Bernstein, “U.S. Life Expectancy Declines for the First 2 Pennsylvania’s Rural Health Model (CMS, n.d.). Time Since 1993,” Washington Post, Dec. 8, 2016. 11 J. M. Sharfstein, “Global Budgets for Rural Hospitals,” Clinical systems such as Kaiser Permanente and the 3 Milbank Quarterly, June 2016 94(2):255–59. Veterans Health Administration have set hospital 12 Maryland benefits from the Chesapeake Regional budgets for many years. Both systems have been able to Information System for Our Patients, a health make significant investments in prevention and see the information exchange that permits patient lookup and results reflected in lower expenditures with equal or real-time notification for clinicians across the state. better quality. 13 W. Quentin, D. Scheller-Kreinsen, M. Blümel et al., In Maryland, the only state that sets hospital rates, the 4 “Hospital Payment Based on Diagnosis-Related commission created this “global budget” by allowing Groups Differs in Europe and Holds Lessons for the these 10 hospitals to adjust their all-payer rates up United States,” Health Affairs, April 2013 32(4):713–23. or down, depending on whether the actual rate of Hospitals in these countries are generally prohibited admissions came in under or over what had been from spending funds from their global budgets on expected. new community-based services designed to reduce B. Ronan, “Total Patient Revenue,” The Ronan Report, 5 utilization of inpatient care. April 27, 2011. 14 Both Maryland and Pennsylvania are expecting to J. M. Sharfstein, D. Kinzer, and J. M. Colmers, “An Update 6 achieve Medicare savings in hospital costs for their on Maryland’s All-Payer Approach to Reforming the reference populations. Delivery of Health Care,” JAMA Internal Medicine, July 15 Medicare Advantage plans are more complicated. 2015 175(7):1083–84. There may be a number of competing plans with Key financial components of this model included 1) a 7 rapid changes in market share and hospital payment. limit on the growth of per capita hospital expenditures The administering authority can ask these plans to for all payers to 3.58 percent per capita, the long-term contribute to global budgets in proportion to their use trend of growth of the state’s economy; and 2) a lower of hospital services during the calendar year. rate of growth in per capita hospital expenditures 16 In Maryland, the state’s Medicaid program participates in for Maryland residents in the Medicare program all-payer hospital global budgeting through the state’s compared with the national average, so that the state Medicaid plan without special provisions in a 1115 waiver. will save Medicare at least $330 million over five years. R. Rajkumar, A. Patel, K. Murphy et al., “Maryland’s 17 Also like Medicare, managed care organizations can be All-Payer Approach to Delivery-System Reform,” New expected to contribute to global budgets in proportion England Journal of Medicine, Feb. 6, 2014 370(6):493–95. to their use of hospital services. S. Haber, H. Beil, W. Adamache et al., Evaluation of the 8 18 C. Mann, D. Bachrach, A. Lam et al., Integrating Medicaid Maryland All-Payer Model: First Annual Report (RTI Supplemental Payments into Value-Based Purchasing International, Oct. 2016). (The Commonwealth Fund, Nov. 2016). commonwealthfund.org August 2017 An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems 14 19 California Association of Public Hospitals and Health Systems and California Health Care Safety Net Institute, Issue Brief: The Global Payment Program — Improving Care for the Uninsured in California’s Public Health Care Systems (CAPH/SNI, July 2016). 20 Maryland Health Services Cost Review Commission, HSCRC Overview (HSCRC, n.d.). 21 The DSRIP program is a type of 1115 Medicaid waiver that provides substantial funding for community health investments in exchange for specific commitments to a series of process and outcome metrics. See: A. Gates, R. Rudowitz, and J. Guyer, An Overview of Delivery System Reform Incentive Payment (DSRIP) Waivers (Henry J. Kaiser Family Foundation, Oct. 2014). 22 National Academies of Science, Engineering, and Medicine, Systems Practices for the Care of Socially At-Risk Populations (National Academies Press, 2016), p. 57. commonwealthfund.org August 2017 An Emerging Approach to Payment Reform: All-Payer Global Budgets for Large Safety-Net Hospital Systems 15 ABOUT THE AUTHORS For more information about this report, please contact: Joshua M. Sharfstein, M.D., is associate dean for public Joshua M. Sharfstein, M.D. health practice and training and professor of the practice Associate Dean, Public Health Practice and Training in the Department of Health Policy and Management at Bloomberg School of Public Health the Johns Hopkins Bloomberg School of Public Health. Johns Hopkins University From January 2011 to December 2014, he served as joshua.sharfsteinjhu.edu secretary of Maryland’s Department of Health and Mental Hygiene, where he helped establish the Maryland model About the Commonwealth Fund of hospital global budgeting. Sharfstein previously served as principal deputy commissioner of the U.S. Food and The Commonwealth Fund, among the first private foundations started by a woman philanthropist — Anna M. Drug Administration and as health commissioner for Harkness — was established in 1918 with the broad charge Baltimore City. to enhance the common good. Sule Gerovich, Ph.D., is a senior researcher at The mission of the Commonwealth Fund is to promote a Mathematica Policy Research. Prior to joining high performance health care system. The Fund carries Mathematica, she worked at the Maryland Health out this mandate by supporting independent research on Services Cost Review Commission, leading research and health care issues and making grants to improve health care methodology projects for the all-payer hospital payment practice and policy. An international program in health policy system. Gerovich holds a doctorate degree in health policy is designed to stimulate innovative policies and practices in and management from the Johns Hopkins Bloomberg the United States and other industrialized countries. School of Public Health, a master of public policy from the Support for this research was provided by the Johns Hopkins University, and a master of arts in political Commonwealth Fund. The views presented here are those of science and public administration from Bilkent University the authors and not necessarily those of the Commonwealth in Turkey. Fund or its directors, officers, or staff. To learn more about new publications when they become Elizabeth Moriarty is an associate in the clinical available, visit the Fund’s website and register to receive economics division of Berkeley Research Group in Hunt email alerts. Valley, Maryland. She graduated from Johns Hopkins University in May 2017, majoring in public health, with a focus in program evaluation and analysis. David C. Chin, M.D., M.B.A., is a distinguished scholar at the Johns Hopkins Bloomberg School of Public Health and Johns Hopkins School of Medicine, where he is focusing on novel industry and academic population HIT research partnerships and preparing health systems and academic medical centers for success under value-based health care. Chin is also chairman of the board of directors for the National Committee for Quality Assurance in Washington, D.C. Before joining Hopkins, he was a senior national partner in the U.S. Healthcare Industries Advisory Practice of PwC and leader of PwC’s Academic Medical Center Practice and Global Healthcare Research Institute. Editorial support was provided by Jennifer Rubio. commonwealthfund.org August 2017