Surgery in Maryland: Guidelines for navigating health care reform

Few surgeons outside Maryland know that for decades we have been unique in the nation in terms of our health care financing. This system changed even further in 2014, when the Centers for Medicare & Medicaid Services (CMS) approved a new model aimed at both lowering costs and improving quality. Early results have been so promising that CMS will be encouraged to partner with other states in implementing similar reforms—reforms that will profoundly affect the practice of surgery. Surgeons across America: pay attention.

History of the Maryland waiver

In the late 1970s Maryland hospitals and government officials negotiated a waiver to Medicare’s traditional payment model. Rates for hospital services would be established by an independent commission—the Health Services Cost Review Commission (HSCRC)—and all payors, private and public alike, would pay these rates. This system had the advantage of distributing the costs of uncompensated care and medical education as well as eliminating cost shifting among payors; the growth of per-admission costs was contained.

Although the system was initially salutary, in recent years this system has been ineffective in preventing overall per capita Medicare costs from exceeding those of most other states. Maryland hospitals have not been immune to the pressure to increase the volume of services provided. Also, Medicare pays higher rates for these services in Maryland than other states that fall under national prospective payment systems for inpatient and outpatient care. Maryland, threatened with losing its waiver, successfully presented CMS with a new model.

Adoption of a new model

Maryland’s plan, with its guarantee to CMS to both save costs and improve quality, changed hospital reimbursement. On January 1, 2014, the state established a hospital global budget program. All payors in aggregate pay each hospital or hospital system a fixed amount for inpatient and outpatient services that calendar year. The amount is adjusted for achievement of quality measures but not for utilization or hospital costs. This mandates that hospitals focus on value rather than volume and on population health rather than on episodic care.

As a state, Maryland promised to contain the growth of per capita hospital costs to 3.58 percent—the 10-year compound annual growth rate of the per capita gross state product—over the next five years. We will limit the annual growth of Medicare’s costs to 0.5 percent less than the actual national growth rate, thus saving Medicare a minimum $330 million over five years. Entitlements to beneficiaries do not change.

In terms of quality measures, Maryland will reduce readmission rates for Medicare patients to the national mean and will reduce 65 potentially preventable conditions associated with hospital care, conditions that overlap with Maryland Hospital Acquired Conditions (MHACs), by 30 percent over five years.1

Although each hospital had the option of continuing a modified fee-for-service system, all 41 hospitals in Maryland, influenced by the HSCRC’s carrot-and-stick inducements, chose the global budget model. Thus the additional agreement to move almost all of the state’s aggregate hospital revenue into global budgets in five years has nearly been satisfied already.

Early results of the new model

After the first year, per capita hospital costs for all payors increased by 1.47 percent, more than 2 percentage points lower than the promised growth rate of 3.58 percent. This occurred despite 21 percent growth in Medicaid enrollment due to the Affordable Care Act. Maryland per capita hospital costs decreased by 1.08 percent, already saving $116 million of the promised five-year $330 million, as these costs increased nationally by 1.07 percent. In the quality arena, potentially preventable conditions decreased 26.3 percent despite worse results in central line- and urinary catheter-related infections. Although still worse than the national rate, Maryland decreased the gap in the readmission rate from 1.2 percent to 1.0 percent in one year.2

Maryland has promised to reduce costs and improve quality of all health care in the state, not just hospital services. In 2014 these per capita costs did decrease by 0.64 percent, an improvement driven by reductions in hospital expenditures. We still must improve our patient-experience scores, which remain among the worst in the country.

Implications for surgery

One might think that a hospital would desire less surgery under a global budget model. Operations are costly, so fewer operations translates to more money left in the bucket at the end of the year. However, providing fewer services also means a smaller global budget the next time it is calculated for one’s hospital. Thus, hospitals still want to provide a high volume of surgical procedures, but with fewer complications, postoperative days in the intensive care unit, and readmissions. Surgery done well, therefore, is even more important in Maryland now, since even small improvements in outcomes can have an enormous effect on the bottom line.

The occurrence of adverse events must be scrupulously tracked and reported to the state, with millions of dollars of both rewards and penalties at stake. Many of the observed-versus-expected events are under the influence of surgery: postoperative hemorrhage, surgical site infection, venous thromboembolism, central line-related infection, urinary catheter-related infection, pressure sores, and more. Quality has always been paramount to surgeons—few of us sleep well when our patients suffer a complication—and we now have an even more enthusiastic partner in hospital administration.

Patient satisfaction, difficult to reliably measure and more difficult to influence, has become a multimillion dollar asset or liability.

Suggestions for surgeons and hospitals

Few states have the 40-year experience with a centralized rate-setting commission, so the full Maryland model may be impractical or delayed in other states. Still, it is important to avoid complacency, as the pressure from CMS to change will continue to grow. In the laboratory that is Maryland, the experiment appears to be working. Even if the costs to CMS remained equal to those of other states, the predictability on January 1 of those total state costs is highly desirable to the agency. The incentives for quality can be instituted with or without the global budget scheme, and probably will be. Surgeons and hospitals that prepare today will appear prescient when these changes occur.

The following are suggestions for surgeons and hospitals anticipating global budgets.

  • Optimize quality. Hospitals and surgeons must align incentives towards this end. For example, compensation incentives should move rapidly away from pure productivity (for example, relative value units, collections, and so on) and toward quality-based measures such as observed-to-expected mortality, complications, length of stay, compliance with evidence-based order sets, and others. This mandates the ability to measure and report these factors by individual surgeon or group (see “Leverage IT” later in this article). Departments should appoint a surgery quality officer to drive these changes—ours at Sinai Hospital reviews surgery-related MHACs and oversees our resident quality projects (see “Leverage residents” later in this article); this can be a career path for a surgeon.
  • Operate in the lowest cost setting. It is often surgeon inertia, efficiency, or comfort that inhibits moving cases to outpatient surgery centers or moving divisions to a different hospital within a system; this cannot be tolerated when a hospital can no longer pass along the higher cost of the tertiary care setting. At Lifebridge Health System, for example, we moved the bariatric surgery division from Sinai Hospital to our smaller sister institution, Northwest Hospital.
  • Become indispensable. Hospitals need to backfill the move to outpatient centers with growth in complex elective cases, such as cancer resection. Niche specialization can be developed and marketed (for example, Sinai has an International Limb Lengthening Orthopedic group and a Center for Geriatric Surgery).
  • Leverage information technology (IT). For the reasons above, it will be an enormous advantage for hospitals and groups to know exact cost data for various settings as well as individual quality data by surgeon. Evidence-based order sets and decision support in an electronic health record facilitate best practices. The seemingly high up-front expenditure will pay dividends under nearly any future model.
  • Leverage residents. With encouragement and guidance by program directors and faculty, residents are in a powerful front-line position to effect change. Every surgery resident should be part of a quality improvement project (at Sinai our residents developed and led five team projects targeting venous thromboembolism, blood utilization, trauma transitions of care, enhanced recovery, and patient safety curriculum; they have educated other departments and their order sets are used by all specialties). This experience also prepares them for their future.
  • Embrace multidisciplinary care. Although not the sharpest arrow in a surgeon’s quiver, the openness to help from others will be increasingly important. Many readmissions after an operation are actually for “medical” reasons such as congestive heart failure. Early multidisciplinary involvement, including that of social service, will ultimately lower cost and improve quality.
  • Become geriatric surgeons. A large proportion of complications, readmissions, and increased length of stay occur in the older surgical patients. A good place to start is perusal of the best practices documents for preoperative evaluation and perioperative management of the older surgical patient, developed jointly by the American College of Surgeons and the American Geriatric Society and available on their websites at no charge.3,4
  • Embrace population health. Even further from core surgical focus, the management of chronic conditions in a population, such as that of a geographic area or the summation of all primary care provider panels of patients, will be so important for hospitals and systems that surgeons must help. At minimum, a surgeon can notify the family physician when the surgeon identifies hypertension, hyperglycemia, smoking, lack of recommended mammogram or colonoscopy, or another potential risk.
  • Satisfy patients. Traditionally, surgeons would not thrive if they provided less-than-excellent service to patients and referring physicians, but this service, measured and publicly reported, is now the basis for direct and significant financial incentives and penalties. Technical excellence is insufficient; a surgeon is scrutinized for access to appointments, how close a patient is seen to his or her appointment time, alacrity with calling the patient with lab results, and more.


Maryland has become a laboratory for health care reform, including all-payor rate setting and global hospital budgets overseen by a central state commission. So far, the experiment appears to be working, with decreased costs and increased quality, and therefore there will be pressure on other states to adopt some or all of these dramatic changes. Surgeons will be affected and those who are prescient and prepare will thrive in this new world.


  1. Rajkumar R, Patel A, Murphy K, et al. Maryland’s all-payer approach to delivery-system reform. N Engl J Med. 2014;370(6):493-495.
  2. Patel A, Rajkumar R, Colmers JM, Kinzer D, Conway PH, Sharfstein JM. Maryland’s global hospital budgets—preliminary results from an all-payer model. N Engl J Med. 2015;373(20):1899-1901.
  3. Chow WB, Rosenthal RA, Merkow RP, Ko CY, Esnaola NF. Optimal preoperative assessment of the geriatric surgical patient: A best practices guideline from the American College of Surgeons National Surgical Quality Improvement Program and the American Geriatrics Society. J Am Coll Surg.215(4):453-466.
  4. Mohany S, Rosental R, Russell M, Neuman M, Ko C, Esnaola N. Optimal Perioperative Management of the Geriatric Patient. 2016. Available at: Accessed February 7, 2016.

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