Federal health officials have authorized Maryland to continue its unique “all payer” health-care model for hospitals through 2019, while the state seeks approval to apply a similar plan to outpatient service providers such as doctors, skilled nurses and rehabilitation centers.

Officials say expanding the program, which regulates how much hospitals can charge in exchange for having the federal government cover a larger share of Medicare costs than it does in other states, is one of the strongest steps Maryland can take to fulfill a federal requirement to lower its annual Medicare costs by $330 million.

Gov. Larry Hogan (R) and the U.S. Centers for Medicare and Medicaid Services (CMS) announced the extension of the program Monday, ensuring that the state’s health system will not be plunged into chaos after its existing contract with the federal government expires at the end of 2018.

In an interview, Hogan said his administration was close to a deal on including outpatient services in the program until the resignation of then-U.S. Health and Human Services Secretary Tom Price last fall.

The governor said the state needed an extension of its existing contract while leadership at the Department of Health and Human Services is in flux. He said he sought help from Vice President Mike Pence, acting health and human services secretary Eric Hargan, CMS Administrator Seema Verma and Alex Azar, President Trump’s pick for permanent HHS secretary.

President Trump on Dec. 20 said that by passing the GOP tax bill, Republicans “essentially repealed Obamacare because we got rid of the individual mandate, which was terrible.” (Reuters)

“I had lengthy discussions with all of them personally,” Hogan said. “We were about to blow up the entire health system in Maryland if we didn’t go in and rescue it.”

Gene Ransom, chief executive of the Maryland State Medical Society, questioned whether the extension was ever in doubt, but he called the continuation a “a nice win” for Maryland.

Ransom said failing to obtain approval would have led to “complete pandemonium” for the state’s health system.

Since the 1970s, the federal government has allowed Maryland to regulate how much hospitals are paid for services. The goal of this “all payer” system is to ensure that private insurance, Medicare and Medicaid pay roughly the same prices.

In all other states, Medicare provides reimbursements below the actual cost of services, and hospitals end up passing on the uncovered costs to private insurers and the uninsured — thus increasing costs for everyone except Medicare recipients.

Maryland’s arrangement is hugely beneficial for the state, providing about $1.7 billion more in Medicare funds than it would otherwise receive.

Five years ago, the federal government reauthorized the deal through 2018 but required Maryland to lower Medicare costs by $330 million a year, mostly by incentivizing better outcomes and penalizing hospitals when patients are readmitted quickly.

State officials say expanding its guidelines to outpatient service providers will allow it to realize those savings.