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Monday, 17 October, 2016

Healthy Debate: Are All Payer Systems the Panacea?

The “all payer” health care system approach is touted as being the greatest thing since sliced bread – cover all, lower cost, etc.; but, is it?


Recently, Vermont pursued some type of all payer system. Maryland (MD) has had a hospital all payer system for some time, but now it’s being expanded. Looking at what has occurred and lessons learned would prove valuable before others charge ahead in adopting more similar styled systems.


MD’s all payer rate regulation has been in place since the early 1970’s. The rate system was based on three principles: cost control, cash needs for debt service which was incorporated into the rates, and coverage for the uninsured – a provision for reasonable uncompensated care costs is incorporated directly into the rates. (Note that the customary Medicare and Medicaid payment systems did not previously and do not currently pay for such costs). Initially built on a unit rate system that was then overlaid by rates per diagnosis related group, the system eventually experimented with a total payment limit per hospital. The system only controlled inpatient and outpatient hospital rates and not other health care expenditures. For the last four decades, the system has operated under a Medicare and Medicaid waiver in which those two payers pay at 94% of the rates that the regulatory agency establishes.


The MD waiver was contingent on a test of the levels of payments by Medicare. This required that Medicare payments be no higher than they would have been under the normal Medicare payment system, which at the time was cost-based reimbursement.  After several years into the MD waiver, the state was going to violate the waiver test. MD got Senator Barbara Mikulski to include a provision in federal legislation that changed the waiver test to a cumulative rate of increase test starting in 1983. This change has allowed MD to retain the waiver for many years.  As a result of the inclusion of costs not typically included in normal Medicare and Medicaid payments, MD’s system evolved such that those programs were paying more than a billion dollars a year more than they would have paid under their traditional methodologies – and MD hospitals got tons more money.


With the waiver system still intact, in 2013 the system was again going to violate the then current waiver test. Because MD retiring Governor O’Malley was considering a Presidential run, he worked to renegotiate the waiver.  This included a total limit on payments, a promise that the state would include physicians and other then unregulated providers under the new waiver, and other elements. The Centers for Medicare and Medicaid Services through the Centers for Medicare and Medicaid Innovation (CMMI) agreed to these conditions. In renegotiating the waiver, MD agreed, as is required by statute for CMMI initiatives, that it could not appeal anything related to the waiver, its test, the criteria, whether the waiver test was violated and the termination of the waiver. This renegotiation was a necessity in order to avert the inevitable failure that was imminent.


Those looking to implement all-payer systems would be well advised to look at the programs (e.g., Washington State and New Jersey) that were implemented – and eventually collapsed in the 70s and 80s.


As reflected in today’s insurance market, expansion of coverage can cost a lot. The insurance market needed more money in order to operate properly – if at all.  Even the uninitiated can do something with more money, but true revolutionaries can do it with less.  Payer proposals should be clear which outcome they seek to achieve – jump on the “get some extra money” bandwagon or revolutionize health care.

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