Md. Offers Lessons on 'Bending the Curve' in Health-Care Costs

By Eli Y. Adashi
Friday, October 2, 2009

The search is on for tried-and-true methods to vanquish runaway health-care cost inflation, or to "bend the curve," as the effort has become known. Advisory, toothless constructs need not apply. Preference will be given to publicly accountable, enlightened curve-benders specializing in hard-nosed, data-driven cost containment. One such model exists in Annapolis.

Maryland's Health Services Cost Review Commission (HSCRC) is the small regulatory agency that could. Established in 1971 by an act of the legislature to set hospital-specific service rates for all payers, the HSCRC was to bring about hospital cost containment and unfettered patient access to care. Overseen by expert commissioners appointed by the governor, the modestly staffed HSCRC is an independent agency whose decisions are legally binding. The results are plain: Maryland residents receive hospital care regardless of ability to pay, but the state's hospital costs per admission dropped from 26 percent above the national average in 1976 to well below that national benchmark by the early 1980s. Costs per admission are controlled, and the annual admission growth rate (1 percent) is on a par with the national rate, according to an analysis by executive director Robert Murray of hospital reports filed with the agency through 2008.

Over three decades, the HSCRC (current annual budget: about $4.9 million) is estimated to have reduced state health-care bills by as much as $40 billion, a return on investment of about 2,500 to 1. Had a comparable national system been created to the same effect, the commensurate savings might have been $1.8 trillion.

Maryland's health-care market is largely free of dysfunctional (and discriminatory) hospital practices seen in many other states, such as indefensible cost markups and cost-shifting to patients. Building on its strong record, the HSCRC voted this year to approve an innovative pay-for-performance program focused on potentially preventable hospital-acquired complications and readmissions.

Consider the ingredients of Maryland's success: Foremost is the HSCRC's legislated independence and broad enforcement authority. Nonpartisan and apolitical, the commission is not an advisory committee but is empowered to act on its findings. Analysis and deliberation are public, collaborative and exhaustive. No less important is the broad support afforded the commission by stakeholders in the system: providers, payers, patients and politicians (who still recall the oceans of red ink generated by Maryland's charity hospitals). Health-care providers appreciate the predictability, transparency and fairness of the process, and the nationally comparable profit margins. The enhanced compensation by public payers (enabled by a federal waiver) and the absence of protracted rate negotiations with each payer are fringe benefits. Payers cherish the regulated payment parity and the predictability of revenue streams. They are also happy to be largely free of hospital cost markups and cost-shifting. Patients appreciate the access to care. Moreover, employer-sponsored premiums as a percentage of median household income are the lowest in the nation, the New America Foundation's "State of State Health" reports.

Though there have been few mentions of this success story, the lessons from Annapolis are applicable to conversations on the utility of a similar federal construct. Former senator Tom Daschle articulated the concept well last year in his book "Critical: What We Can Do About the Health-Care Crisis," outlining a "federal health board" that would emulate some regulatory functions of the Federal Reserve System, and a similar proposal was raised on this page last week.

Many have realized the importance of empowering those who would control health costs. In July, President Obama offered support for a proposal to establish an "independent Medicare advisory council," an executive branch agency whose recommendations, like those of the Base Realignment and Closure Commission, would have to be accepted or rejected as a whole. Sen. John D. Rockefeller IV (D-W.Va.) in turn introduced the Medicare Payment Advisory Commission (MedPAC) Reform Act, under which the congressional advisory commission known as MedPAC would become an independent executive branch agency -- the Medicare Payment and Access Commission.

Common to these proposals is the notion that the recommendations of the proposed panels would be adopted unless they were expressly rejected by Congress or the president, and insistence on a "fail-safe" function to preclude an increase in the aggregate level of net expenditures by Medicare.

There is no underestimating the political and administrative challenges implicit in creating a national system to review health costs. Still, fiscal conservatives may find merit in scaling the Maryland paradigm to the national level. Viewed from Annapolis, the debate over "bending the curve" must seem like deja vu. Perhaps it is time for the rest of the country to get on board with Maryland's system.

The writer, a physician, is a professor of medical science and the outgoing dean of medicine and biological sciences at Brown University.

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