Inpatient and Outpatient Utilization under Global Budgets in Maryland

The state of Maryland implemented global budgets in all 46 acute care hospitals in 2014, budgeting 95% of total hospital revenues in the state. These global budgets operate within the all-payer rate setting environment, and include regulated inpatient services as well as regulated outpatient services. Rates are not set or included in the budget for outpatient services that are delivered off of the hospital site (“unregulated services”). The pilot program, Total Patient Revenue (TPR), providing global budgets for rural hospitals, began in eight rural hospitals on July 1, 2010.

One major goal of this innovative budgeting strategy is to provide hospitals with financial support to invest in infrastructure to effectively and efficiently provide care to the community of patients in each hospital’s surrounding area. The global budgets increase financial pressure on hospitals, since providing additional on-site hospital services no longer increases revenue. The nature of the services included in the budgets may provide incentives for hospitals to increase profits by increasing the provision of unregulated services that fall outside of the global budget. The goal of this investigation is to examine whether implementing innovative payment mechanisms in rural hospitals created incentives for hospitals to reduce inpatient admissions and provide more care in a more cost-effective outpatient setting, as well as to investigate whether these hospitals increased provision of unregulated services.

The study uses hospital financial data reported to the Health Services Cost Review Commission by all 46 acute care hospitals in the state of Maryland from 2007 – 2013. The dependent variables include total inpatient discharges, and Equivalent Inpatient Admission (EIPA), a measure of hospital workload. EIPA is a calculation used by the state to adjust the count of inpatient admissions upward to account for the volume of outpatient services. EIPA is calculated by dividing total gross patient care revenues (inpatient and outpatient) by gross inpatient care revenues and multiplying that quotient by admissions.

Difference-in-differences estimation is used to compare changes in admissions and EIPA in the eight rural treatment hospitals to the remaining hospitals in the state. The results show a statistically significant drop in overall inpatient admissions during the study period across all hospitals in the state; they did not drop more rapidly for the globally budgeted hospitals. The measure of total EIPA was not statistically significantly different for treatment hospitals relative to the control hospitals. However, EIPA for regulated inpatient and outpatient services is statistically significantly lower for treatment hospitals relative to controls after the implementation of global budgets.

Global budgets appear to be providing incentives for hospitals to more rapidly substitute inpatient with outpatient care, both regulated and unregulated. The drop in admissions and regulated EIPA services suggest more investigation into the potential unintended consequences of global budgets is warranted. The drop in EIPA regulated services without a corresponding drop in total EIPA may be driven by hospitals providing more outpatient care off-site and thus outside of rate setting and their global budgets, which will ultimately not translate into lower health care spending for the state.