"Medicare for All" is a popular slogan for leftist Democratic candidates on the campaign trail, but they rarely address how it would upend hospital financing. At the heart of Sen. Bernie Sanders's Medicare for All Act is a proposal to overhaul payments for hospital care. It would allocate "global budgets" to institutional medical providers -- limiting them to lump sums to cover operating expenses -- instead of allowing them to get more revenue for each additional patient they treat.
Advocates of this model argue that hospital spending is lower in other developed countries, where hospitals are often subject to global budgets. Yet this model has also been used statewide in Maryland since 2014. Although global budgets have slowed the state's healthcare spending, Maryland hospitals are treating fewer patients and charging substantially more for each.
Hospital care is the largest category of medical expenditure. It accounts for 41% of the cost of health insurance -- more than doctor visits and prescription drugs put together. Critics of American healthcare often argue that a centralized government purchaser would extract better value and lower prices when paying hospitals compared with a fragmented industry of private insurance companies. They point to rising prices paid by private insurers and suggest that greater regulation could reduce volumes of costly low-value procedures.
Under global-budget healthcare models, the government typically limits total annual or quarterly revenue allocated to each hospital. The Biden administration in 2023 encouraged states to adopt hospital global budgets through an initiative it called Advancing All-Payer Health Equity Approaches and Development, or Ahead. (The Trump administration kept the acronym but changed the program and renamed it Achieving Healthcare Efficiency Through Accountable Design.)
Maryland is the pioneer in this approach. State regulators have set hospital inpatient procedure rates for all payers since the 1970s, and in 2014 the state reformed the model by capping each hospital's total annual revenue under global budgets. Such uniform fees reduce payments from private insurers while driving up payments covered by taxpayer-funded Medicare and Medicaid programs. This has proved popular with Maryland's hospital industry, as the share of hospital care funded by Medicare and Medicaid has increased over time, yielding $2 billion a year in additional revenue.
This federal funding windfall was contingent on Maryland's Medicare spending per inpatient admission growing less than the national average. By 2014 that was no longer the case. The volume of procedures billed to the program was also well above the national average. The Obama administration therefore required Maryland to limit total revenue at each hospital -- in other words, to establish global budgets -- in return for extending the federal waiver that allowed the state to continue receiving higher Medicare and Medicaid reimbursements. Regulators were empowered to reduce prices at each hospital as necessary to bring total revenue to allocated levels.
A new Manhattan Institute report finds that the 2014 reform substantially eliminated the incentive for Maryland hospitals to attract and treat additional patients. From 2008 to 2023, the state went from treating 7% more hospital-admitted patients per capita than nationwide levels to 18% fewer. The relative volume of outpatient care has also fallen.
By decoupling revenues from payments for treating patients, Maryland's global budgets have encouraged hospitals to avoid treating the most seriously ill patients. Community hospitals have increasingly dumped costly patients on the state's academic medical centers, which haven't been fully compensated for the additional load and which typically are short of beds. This has damaged cutting-edge facilities like Johns Hopkins, which performs the costliest procedures, such as kidney transplants. Between 2012 and 2023, kidney-transplant rates statewide declined from 161% to 60% of the national average. Between 2014 and 2023, emergency department wait times in Maryland rose from 137% to 153% of nationwide levels -- much longer than in any other state.
As global budgets have assured Maryland hospitals growing revenue for treating fewer patients, the cost of common inpatient procedures from 2008 to 2022 increased by 7% to 34% more than nationwide. Take one example: From 2012 to 2023, Chester River Hospital Center in Chestertown, Md., saw its operating profit per patient surge from $1,510 to $8,796, while the number of patients it treated slumped from 5,828 to 1,899.
States often advance healthcare payment reforms as a way to obtain additional federal funds with spurious claims of savings. But the Trump administration is cracking down on this practice. Starting in 2028, the feds will control Maryland's Medicare hospital rates, phasing out the special arrangement under which Medicare and Medicaid paid state hospitals above national benchmarks.
Uncoupled from a federal funding windfall, global budgets would serve only to starve Maryland's hospital industry, divert patients out of state and deprive them of essential care. It is hard to imagine that the state would continue the approach much longer. As lawmakers consider global budgets in the Medicare for All Act, they should learn from Maryland's failed example.
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Mr. Pope is a senior fellow at the Manhattan Institute and author of "The American Way of Welfare."
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