A New Era: Maryland’s Medicare Waiver

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An Interview with John M. Colmers

After almost 40 years under the existing Medicare waiver, and with healthcare reform underway nationally, Maryland healthcare policy leaders agreed to revise current incentives in favor of a population-based approach. Maryland Physician spoke with Health Services Cost Review Commission (HSCRC) Chairman John M. Colmers to learn why.

Q: The new Medicare waiver has been referred to as the boldest cost-containment plan ever attempted, transitioning most Maryland hospitals from case-based to population-based reimbursement. What spurred the HSCRC to take this leap rather than make more incremental changes?

A: The existing waiver, which had been in place since 1977, could continue if we passed two tests: First, one demonstrating that our system remains all-payer, which we were able to do; and second, keeping the rate of increase in Medicare payments per-admission below the national rate of increase, which was becoming increasingly difficult to do. As Maryland hospitals decreased readmissions and eliminated ambulatory-sensitive cases, what was left were the more expensive cases, so the average cost-per-case was increasing faster than the national average. Thus, by doing the right thing by our patients, we found ourselves in an increasingly untenable position.

The challenge was to design a new system that was acceptable to all parties in the state, and then convince the federal government that it was in their interest to accept it. I give enormous credit to Dr. Sharfstein, secretary of the Department of Health and Mental Hygiene (DHMH), and to the hospitals and payers for agreeing to move from a system based on volume to a system based on value.

Changing a $15.5-billion industry is challenging, but we could see that losing the waiver would be incredibly disruptive. Nonetheless, it’s remarkable that the public and private leadership in the state is committed to this change. Our ultimate goal is to hit the ‘triple aim’ – a better experience of care, better population health and lower per-capita costs.

Q: It sounds like hospitals under the Total Patient Revenue (TPR) program have fared well over time. But how can hospitals with overlapping service areas manage under population-based health?

A: We have some experience in global budgeting with 10 TPR hospitals. They still charge each patient individually, but they are guaranteed a set yearly revenue. Under TPR, they have fundamentally changed the way they view their role. In Hagerstown, for example, Meritus Health took over the school health program so they could keep children with asthma healthier and out of the ED.

Under global budgets, hospitals begin to think differently. In Cumberland, for example, the Western Maryland Health System is doing innovative work with nursing homes and emergency departments – having patients complete a follow-up program so they don’t need to be readmitted.  And we know that, in aggregate, the TPR hospitals have done a better job in controlling readmissions.

Now we want to encourage collaboration among hospitals with overlapping service areas. For example, perhaps two hospitals that serve Baltimore City could work collaboratively on some programs for shared populations. Hospitals will need to develop innovative programs to provide more care to patients in their homes, such as Hopkins’ Hospital at Home, a program that provides hospital-level services to patients at home with certain diagnoses.

Q: What are some of the biggest challenges ahead for the waiver?

A: We have lots of technical issues to solve. For example, how we account for changes in market share and how to create an infrastructure that can efficiently support the care-management work of hospitals, physicians and other care providers, are high-priority matters. As noted above, we seek to create an environment that encourages appropriate collaboration, not unproductive competition. We have settled on an overall per-capita growth rate of 3.58%, but we have to see if that’s the right number in the long run. Finally, there must be a strong focus on creating Medicare savings.

Q: What makes Maryland likely to be successful in implementing the new waiver?

A: Our relatively small size helps – everyone knows one another. I also think Marylanders have a willingness to believe that government can help with the solution. Finally, our track record has been impressive. The HSCRC has done an excellent job over four decades. It’s pretty amazing that it operates with only about 30 employees and a $7-million budget.

This model may not work in many other states, but it might provide lessons that other states can adopt. Similarly, we’ll take lessons from their experience. Massachusetts, Vermont and Oregon are on comparable trajectories, though they will take different approaches.

Q: How will the new waiver impact Maryland physicians?

A: Much of the new demonstration waiver is consistent with current outcome-based models and the state’s Patient Centered Medical Homes program. To be successful, physicians must have electronic medical record systems and decision-support mechanisms. They have to think differently about the way care is rendered in the community – their role as patient managers is essential. They need to make sure that their patients are directed to the most appropriate settings for receiving optimum care as they move throughout the system.

I think we’ll see an increase in advanced-practice nurses and a decrease in very small physician practices. We need to think of ways to provide the infrastructure to help physicians manage patients’ needs optimally.

Q: When will you know whether the new waiver is working or not?

A: I think we’ll know early on, though true transformation won’t happen overnight. By year three, I hope we are promoting gain-sharing arrangements. The Commission is increasing its monthly monitoring of performance to be sure we remain on track. Better healthcare coverage under the Affordable Care Act should help us keep people healthier and reduce uncompensated care somewhat.

Q: After a long tenure in health-related government positions at DHMH, the Maryland Health Care Commission and the HSCRC, how have you found the transition to the private sector?

A: I have a stronger appreciation of what it takes to implement policy at the ground level. For example, I’ve participated in setting policies on readmissions, but when I came here, I could see that it literally takes hundreds of people to implement those policies – physicians, nurses, administrators, and others.

Q: What are your key responsibilities and goals at Hopkins?

A: My ‘day job’ is to develop a strategic plan for Johns Hopkins Medicine as a whole, and to encourage strategic planning in each entity. We not only have multiple academic and community hospitals in our system, but also a premier medical school and research enterprise, the largest primary-care group practice in the state – Johns Hopkins Community Physicians – a significant managed-care company with over 300,000 covered lives, All Children’s Hospital in St. Petersburg, Florida, and a substantial international presence.

I’m not a planner by training, but with leadership from Dr. Paul Rothman and lots of help from my colleagues, we built processes that encouraged the development of strategic priorities through a robust bottom-up and a thoughtful top-down approach. We identified six strategic priorities, assigned accountable leaders to each, and developed goals, metrics, tactics and strategies for each priority. My role is to serve as a champion and cheerleader, then once the plan is in place and the metrics of success established, it’s best to get out of the way of the very smart and innovative people here who are in the midst of implementation.

John M. Colmers is chairman, Maryland HSCRC, VP, Health Care Transformation and Strategic Planning, Johns Hopkins Medicine, and former secretary of the Department of Health and Mental Hygiene.


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