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Can New Monetization Models Help Healthcare Pricing?

A first-of-its-kind experiment is taking place in the US, in Maryland; some call it even game-changing or disruptive. Maryland is the first state in the US to institute global budgeting system. The five-years long experiment, which began with just 10 rural hospitals, rolled out statewide when every single hospital opted in within the first six months. First year results are in: cost savings in excess of $100 million and patient revisit rates dropping faster than the national average.

What is global budgeting?

The World Health Organization (WHO) defines global budgeting as “an overall spending target or limit

that constrains the price and the quality of the services provided”. In this new model, a hospital receives a set amount of money regardless of the number of patients and types of procedures it services. Simply put, if a hospital improves the quality of health delivered to a community and eliminates unnecessary services then it gets to keep the margin by being in control of its healthcare costs. And on the consumer side, patients pay healthcare providers fixed sums of money and can expect that they will receive all the care to get or remain healthy, no matter what – sounds like a win-win proposition, doesn't it?

Hospital financial incentives are better aligned with public health outcomes

Global budgeting is a new monetization model which aims to replace the “fee for service” model that hospitals charge for each visit, procedure etc. This new payment model forces hospitals to rethink the care that they provide and the ways in which they can keep their patients healthier. Hospitals are thus incentivized to reduce preventable illnesses while being able to make a margin by keeping their community healthy rather than keeping their beds filled. In Maryland, some hospitals hired care coordinators and created micro primary care centers to monitor and measure their health outcomes; some even created housing solutions to prevent recurring visits by the high utilizers of the ER departments.

Pricing Innovations Blog - Healthcare pricing

Hospitals will invest within communities to improve public health

It is foreseen that this new budgeting and payments model may disrupt the whole system of financial benefits for hospitals while resulting in better public healthcare outcomes. For example, hospitals may choose to utilize portions of their budgets to make telemedicine available to schools, enable nurse practitioners to make home visits, or open alternative treatment centers for mental illness or addiction. These sorts of preventive and responsive healthcare investments may improve public health outcomes faster than they improve hospitals’ cost structures, in the long run.

It’s surprising to see why not more people are talking about this as rising healthcare costs are among the biggest problems that our nation’s health system faces today. As Healthcare Consumer Price Index (CPI) continues to surpass the overall inflation, new monetization and payment models may just be the way to control the rate at which the healthcare costs rise even if they may not reverse the trends. We will watch closely and see if this Maryland experiment will provide sufficient mid-to-long term benefits to get ahead of the healthcare costs while improving public health outcomes.

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