Changes to the Maryland Medicare Waiver

The Maryland Medicare Waiver is a special agreement with the federal government that allows the Health Services Cost Review Commission (HSCRC) to set hospital rates for all payers, including Medicare and Medicaid, so long as Maryland keeps Medicare inpatient per case cost growth below the national average.  In recent years, Maryland has moved closer to breaking the terms of the special Medicare waiver agreement as Medicare inpatient costs here are beginning to outpace national growth.  

This rapid growth has prompted health leaders to question whether the formula used to measure cost performance has become outdated.  

The growth in hospital inpatient costs is due in part to America’s overarching healthcare changes.  In general, the healthcare system in America has focused on reducing inpatient care.   More patients are seeking outpatient care in observation areas and clinics.  The waiver’s cumulative growth formula dates back to 1977 when inpatient services were predominate and the predominant measures of efficiency were cost per discharge and average length of stay.  

However, incentives aren’t aligned when the main method for measuring the state’s cumulative growth is inpatient cost, while the main revenue stream for hospitals is volume of patients. It is clear that this formula discourages efforts to reduce the number of people in hospitals.  

The current approach to managing patient care does not align with the way the growth is measured.

Every year the HSCRC issues an increase or decrease to hospital rates based in part on the cumulative growth formula.  Now, the rules that determine those rates might be changing as well.  Updating the Maryland Medicare Waiver has been in the works for almost a year as both hospitals and officials recognize the need to rectify rising costs, all the while improving quality of care.  

In conjunction with the HSCRC, the Maryland Department of Health and Mental Hygiene recently submitted a proposal to the Centers for Medicare & Medicaid Services (CMS) to reform and update the Medicare waiver.  The state’s plan proposes caps on hospital costs by linking the payment system to the overall economic growth in the state.  The proposed changes to the waiver are designed to achieve better care, lower cost and better health.  

The CMS will have the final decision about whether Maryland can move forward with the proposed changes to the waiver and there is expected to be much debate surrounding the terms of the proposal.

For more information, please contact Mark Jensen at 410-583-2400 or