In its place, Maryland officials are pressing for an expansion of the state’s authority over its hospitals. The new system would not only set prices for the procedures they perform but also cap the growth in their overall spending.
The proposal has ignited a debate in Annapolis and beyond over how far the government should go in reining in sky-
rocketing health-care bills. Advocates for the plan say it is the most effective way to curb costs and that it could serve as a model for the rest of the country.
“Maryland wants to really hold health-care costs accountable,” said John McDonough, a health policy professor at Harvard University. “So far, no state has ever done that.”
But critics say the near-collapse of the state’s old system proves the perils of heavy-handed regulations.
“Hospital rate-setting clearly didn’t succeed at meaningfully slowing costs down,” said Joe Antos, who served eight years on the Maryland board that set rates.
The debate is being closely watched as health officials around the country are struggling to implement the Obama administration’s new health-care law. Many states are seeking ways to keep costs down as millions of uninsured Americans are added to the rolls of the insured.
“Should Maryland demonstrate meaningful initial cost savings, we believe other state and national efforts . . . will gain momentum,” George Huang, a senior analyst at Wells Fargo Securities, wrote in an April analysis of the Maryland proposal.
Maryland’s existing system was once hailed for eliminating an unwieldy element of the health-care system: the haggling between medical providers and insurance companies.
In other states, each time a hospital provides a service, it has to negotiate how much money it receives from an insurer. The time-consuming and often contentious process results in widely varying prices for the same procedures.
Hospitals pushed for the highest possible payouts partly because they say they do not receive enough from Medicare, the federal program that reimburses medical providers for their care of the elderly.
Maryland put an end to the wrangling. It established a state commission that directly set rates for procedures at all of its 46 hospitals. Over time, hospitals and insurers embraced the system because they knew exactly what to expect.
Medicare had to reimburse Maryland’s hospitals at a higher rate than it did in other states. But federal officials went along with it because, at the time, they wanted to experiment with other models of health care.