US/World

Maryland Incubates Idea Of Government Pricing Controls With Hospital Spending Cap

Maryland Tests Government Price Controls On Hospital Spending
In an experiment run by the Obama administration, Maryland is capping hospital spending to test government price controls, with an expected savings of $330 million in federal money. Shutterstock

As U.S. states continue an enduring health care debate, a few East Coast states appear bent on experimentation. Whereas Massachusetts pioneered today’s public/private balance in the Affordable Care Act, Vermont remains intent on moving to a single payer system, statewide. Now, Maryland -- with a large health budget bolstered by rich suburban counties of Washington, D.C. -- is poised to serve as a test-case for more aggressive governmental regulation of health care pricing.

The Obama administration said on Friday the state would cap hospital spending and set prices, expecting to save $330 million in federal spending. Analysts liken the new economic model to something found less in the Mid-Atlantic than in Scandinavia or Germany. The experiment, officials say, will help to make the case for other states looking to modify its economic system of health care.

Maryland’s fiscal year 2014 health budget includes $10.4 billion, which includes $3.9 billion from state coffers as well as $5.2 billion in federal money, with more than 86 percent of the total pot going to Medicaid-sponsored health programs.

John McDonough, a health expert from Harvard University, described the fiduciary experiment to The Washington Post last week. “You can put Maryland in the company of Massachusetts and perhaps Vermont as the three states furthest out in trying to invent a new future for cost accountability in health care spending,” he said. “Success creates a model that other states will want to look at emulating. And failure means it’s an option more likely to be crossed off the list.”

However, state-based price controls on health care is nothing new in Maryland, where since the mid-1970s the state has been the only in America to set prices hospitals may charge patients. Whereas the hospital industry usually deals individually with a patient’s medical insurer, not unlike a car salesman and his customer, hospitals in Maryland must charge everyone the same price. Over the past 40 years, the law has saved some $45 billion for consumers.

Yet, that system also incentivized hospitals to simply run more procedures to generate greater revenue, responding to medical inflation in general. Now, hospital spending will be capped at 3.58 percent over five years. The 46 hospitals in the state will also be given budget guidance by the state. In a statement, Maryland Gov. Martin O’Malley, a Democrat, said the country should “shift away from our near exclusive focus on treating illness, and move to a balanced approach that encourages prevention and wellness. He added, “Such a shift will reduce costs for families and small businesses and will simultaneously keep many Americans from dying of preventable causes.”

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