Maryland's New Demonstration Waiver Michael B. Robbins, Senior Vice President April 28, 2015

History – What is the Maryland “waiver?” New waiver’s key metrics How the Affordable Care Act interacts with the waiver How does this impact your community? 2 AGENDA

Health Services Cost Review Commission (HSCRC) created in 1971 with jurisdiction over hospital costs (IP & OP facility only) with rate setting authority for commercial payers Began negotiations with Medicare (HCFA) in 1972 for an all-payer waiver (in effect when all hospital rates set: 1977) The “Medicare waiver” (initially a demonstration waiver) made the system “all-payer” allowing for Medicare and Medicaid to be paid using rates set by the HSCRC System was based on historical costs – (with a focus on outliers) Established a prospective rate setting system - annual rate updates System of Financing “reasonable” Uncompensated Care” 3 History

Maryland – only state where hospitals don’t decide how much to charge for care Allows Maryland to “waive” Medicare payment rules, set rates hospitals charge As long as we meet waiver “test”  Growth in Medicare spending per inpatient hospital stay less than nation 4 History

Emphasis on Quality and Payment Changes nationally spurred a round of similar change in Maryland Quality Related Programs: Quality-Based Reimbursement (P4P system of rewards and penalties for performing evidence-based process measures), similar to national VBP program Maryland Hospital Acquired Conditions Policy (P4P system of significant rewards/penalties for risk adjusted rates of complications across 65 categories) Cost/Utilization Programs: Admission-Readmission Revenue (ARR) policy which bundled admissions and all-cause readmissions (31 of 46 hospitals adopted) One-day Stay Policy Re-instituted Volume Adjustment at 85% VC and 15% FC Negotiated 10 Total Patient Revenue (TPR) agreements 5 History

6 The 40-year-old waiver “test” quickly becomes out of date, a new five-year demonstration waiver is approved Through 12/31/14 As of 1/1/14 Inpatient care All hospital care Medicare only All payers Cost of care per hospital stay Cost and quality of care

7 New Waiver Objectives Opportunity for Maryland to continue to be a NATIONAL LEADER in health care CHANGE the way we pay for and provide health care BUILD on the great system we have and make it even better: More affordable Safer A healthier Maryland

Work together to slow growth in spending for hospital care Continue Maryland’s unique way of setting hospital prices Change how hospitals are paid, to reward the right things 8 Starts with Hospital Care

9 New Waiver Financial Tests Annual hospital SPENDING CAP − 3.58% all payer per capita growth Medicare dynamic hospital SAVINGS TARGET − $330 million over 5 years GROWTH in total Maryland Medicare spending per capita cannot exceed national rate of growth

10 New Waiver Quality Targets READMISSIONS: patients who return to the hospital within 30 days of hospital discharge Maryland ranks poorly (almost last) – 49 of 51 states and D.C. Bring Maryland readmission rates to NATIONAL AVERAGE in 5 years Better, SAFER care

11 New Waiver Quality Targets HOSPITAL ACQUIRED CONDITIONS: patients who get infections while in the hospital Maryland rates of infection HIGHER than nation REDUCE infections and other “hospital- acquired conditions” by 30% in 5 years Better, SAFER care

Change how hospitals are paid to reward the right things Volume – no; Value - YES Success under new spending caps requires volume control and cost reduction The key: population health management Care for patients in the community lower cost settings; reduce unnecessary care 12 A Healthier Maryland

Never been tried or tested before on a scale of this magnitude Hospitals in serious financial condition – 40% losing money at the time waiver was approved New hospital spending limits tight Will require hospitals to redefine themselves Will require hospitals to develop new partnerships Will require communities to work together to keep people healthy Will require patients and families to truly engage in their care 13 Challenges

Continue our unique hospital rate-setting system More equitable care for low income and uninsured people Should lead to slower growth in insurance premiums Lead nation in reforming health care Statewide focus on quality and safety 14 Opportunities

Rate-Setting Commission implements numerous policy changes through multi-stakeholder work group process (Including new work groups on Consumer Engagement and Care Coordination) Hospitals negotiate and adopt global budgets, and begin to invest in IT, care coordinators, and more to help manage community health Hospitals look to develop new partnerships 15 Initial Steps

16 Early Results To Date

Expansion of coverage: enrollment in Medicaid has grown by 300,000 since January 1, 2014 Estimated 100,000 enrollees in private exchange plans The result: significant reduction in hospital uncompensated care HSCRC reduced amounts in hospital rates by 1% in 2015; with another reduction of about 1% expected for next year 17 Affordable Care Act Impact

What is hospital source of funding for innovation in a world where total revenue growth is constrained? How do we insure that the promise of targeted disease management is realized? Opportunities to partner: Population health management and funding opportunities outside of the rate regulatory process 18 Impact on Manufacturers

Railroads went out of business because they thought they were in the railroad business instead of recognizing they were in the transportation business Hospitals realize they are in the health care business, not the hospital business 19 “Railroad Moment” Source: 2012 Kaufman, Hall & Associates, Inc; Jason Sussman

QUESTIONS? 20

Maryland's New Demonstration Waiver Michael B. Robbins, Senior Vice President April 28, 2015