If you build a budget, hospitals will adapt

U.S. health care spending is maddeningly high. As in fifty percent higher than what other wealthy countries spend, with no evidence we’re getting any bang for all those additional health care bucks.

In 2014, the state of Maryland took direct aim at this profitless profligacy, enacting a bold (dare I say European?) approach: It gave hospitals fixed budgets to cover the costs not only of inpatient hospital care, but also outpatient care and emergency room services. It basically told hospitals that, if they wanted to stay in business, they better figure out how to care for patients more efficiently.

Audacious! Maryland didn’t simply trim the cost of caring for its Medicaid beneficiaries. It wasn’t content to rein in Medicare costs. Instead, it gave hospitals a budget to cover the costs of all their patients: Medicaid, Medicare, and privately insured.

So how’s that worked out so far? In a study published in JAMA Internal Medicine, a team of researchers analyzed data from the second year of Maryland’s bold experiment. They wondered: did hospitals constrain spending by reducing health care utilizations? Did they beef up primary care services to help people avoid expensive hospital care?

A couple things to keep in mind before I tell you what these researchers discovered.

First, Maryland didn’t try to reduce health care spending; it tried to limit the growth of health care spending. Its budgets limited health care spending to a cap of 3.8 percent per year.

Second, the budgets were imposed on 36 hospitals in the state, not on every hospital.

Third, hospitals have two ways to stay within their budgets: reduce utilization or reduce their prices. That means that as the year goes on, hospital systems that are headed for a budget overrun are expected to lower their prices accordingly.

Fourth, the budgets are adjusted based on the size of the population the hospital serves. So a hospital that diverts (aka dumps) patients to other hospitals will see a corresponding reduction in their budget.

Fifth and finally, the Maryland program applies to all patients regardless of what kind of insurance they have, but the researchers only had access to Medicare data.

With these thoughts in mind, we can now look at what the researchers found.

1. Hospitals stays were unchanged. The budget pressure didn’t lead to any reduction in the number of people who required hospitalization. Instead, budgeted hospitals looked like non-budgeted ones: continuing a slow and steady trend toward reduced hospital stays:

Unadjusted Trends in Hospital and Primary Care Utilization Among Medicare Beneficiaries in the Maryland and Control Counties, 2009-2015: This plots show unadjusted annual rates of hospital stays among fee-for-service Medicare beneficiaries residing in the 8 Maryland counties where hospitals received global budgets in 2014 vs the matched control counties. The error bars represent 95 percent confidence intervals for the point estimates in a given year and are calculated using standard errors clustered by county.

2. ER Visits were also unchanged. It’s hard to find two lines more simpatico than the following:

Unadjusted Trends in Hospital and Primary Care Utilization Among Medicare Beneficiaries in the Maryland and Control Counties, 2009-2015

3. No change in primary care visits either.  

Unadjusted Trends in Hospital and Primary Care Utilization Among Medicare Beneficiaries in the Maryland and Control Counties, 2009-2015

What do all of these nondifferences mean? That we can hold budgets inline without reducing utilization, by getting providers to lower their prices (or at least to reduce their price hikes).

That change isn’t necessarily fast. It is a lot to expect hospital-based health care systems to transform themselves in a matter of months, after spending decades learning how to thrive in a fee-for-service world.

That governments can aggressively constrain health care inflation without expecting huge immediate upheaval in the normal processes of health care delivery.

If you build a budget, hospitals will adapt.

Peter Ubel is a physician and behavioral scientist who blogs at his self-titled site, Peter Ubel and can be reached on Twitter @PeterUbel. He is the author of Critical Decisions: How You and Your Doctor Can Make the Right Medical Choices Together. This article originally appeared in Forbes.

Image credit: Shutterstock.com

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