1. April 13, 2012 1 Matching Revenue Flows with the Populations Needs: The Experience in Maryland John M. Colmers VP, Health Care Transformation and Strategic Planning, Johns Hopkins Medicine Chairman, HSCRC

2. HSCRC – 30,000 ft. Independent Commission created in 1971 – 7 members, 31 FTE staff Broad statutory authority and flexible tools –Costs are reasonable –Rates are reasonably related to costs –Rates are set equitably without undue discrimination –Authority to experiment with alternative methods Includes provision for uncompensated care in rates Medicare waiver granted July 1, 1977 as demonstration –Its what makes the system all-payer –Waiver test Rate of increase in Medicare payment/admission from 1/1/81. Must remain all payer Significant transparency for payers, providers, and patients Hospital rates are regulated, not physician rates Lowest markup in the US

3. Basic Components of HSCRC Rate System Departmental Unit Rates –Hospitals have departmental unit rates that are established by the Commission and are reflective of the relative cost of services through rate realignment –Hospitals must charge Commission approved rates to all payers– significant penalties –Only variation from rates are cost justified differentials Cost Per Case Constraint –Inpatient CPC Each hospital is constrained to case-mix/severity adjusted $/case –Outpatient CPV Hospitals are held to adjusted cost/visit standard Reasonableness of Charges – Charge per Case Comparison –Overall comparison among all hospitals –Identifies high cost hospitals for greater scrutiny –Accounts for factors Regulate costs not profits Relies on accurate and timely financial and case mix information 3

4. Bending the Cost Curve Lowest Rate of Cost Growth of any State 1976-2009 From 25% ABOVE the US average in 76 to 3% BELOW the US average (1) 2009: Maryland Hospital cost per case estimated $45 billion savings to the State over the period 1976-2009 US hospital cost growth Maryland hospital slower cost growth Had Maryland grown at the more rapid US rate – hospital expenditures would have been $45 billion higher Bending the Curve Growth in Hospital Costs per Case (MD vs. US) Had the US grown at the slower Maryland rate of growth – hospital spending would have been $2.0 trillion lower Note (1): Medpac identified a most efficient cohort of hospitals nationally with high quality scores – that are 9 -11% below average US cost per adjusted admission Indexed Rate of Growth Only caveat to this performance is savings is all Per Case

5. Effect of Payer Inequity 5

6. Source: American Hospital Association statistics 1980 - 2009 Mark Up and Cost Shifting 6 US Hospital markups MD Hospital markups Lowest markup and charges in US These are charges but payment levels follow closely

7. Rate Innovations Total Patient Revenue Admission/Readmissions Bundling - Alternative Rate Applications Quality Payment Mechanisms –Process measures 21 Quality Based Reimbursement (QBR) measures $7.1 million for FY2012 –Outcome measures Measured by 49 Maryland Hospital Acquired Conditions (MHACs) –e.g. UTI, septicemia $13.3 million for FY2012 System Redesigns –Response to CMMI solicitations 7

8. Why Maryland? Role of hospital trustees Political support, non-political process Focus on cost, less on price manipulation Broad authority has allowed system to evolve over time Waiver/demonstration authority is critical 8