All-payer rate setting

All-payer rate setting is a price setting mechanism in which all third parties pay the same price for services at a given hospital. The system does not imply that charges are the same for every hospital. It can be used to increase the market power of payers (such as private and/or public insurance companies) to mitigate inflation in health care costs. All-payer characteristics are found in the health systems of France, Germany, Japan, and the Netherlands.Maryland also uses such a model.

Since the late 1970s, Maryland has operated an all-payer system for hospital services. An independent commission establishes the rate structure for each hospital. That eliminated hospital cost shifting across payers and spread more equitably the costs of uncompensated care and medical education and limited cost growth, but per capita Medicare hospital costs are among the country's highest. It appears that the system eliminated price competition between hospitals and led them to divert high-cost patients to alternative settings, where prices remained unregulated.

Medicare's participation in the system is authorized by the Social Security Act and is tied to a growth limit in payment per admission. The Medicare waiver created incentives to increase the volume of services. Medicare pays higher rates for hospital services in Maryland than it does under the national prospective payment systems.

On January 10, 2014, the Centers for Medicare and Medicaid Services (CMS) and the State announced a new model that will focus on overall per capita expenditures for hospital services as well as on improvements in the quality of care and population health outcomes. For 5 years beginning in 2014, Maryland will limit the growth of per capita hospital costs to the lesser of 3.58% or 0.5% less than the actual national growth rate for 2015 through 2018. The change is forecast to save Medicare at least $330 million. 3.58% is Maryland's historical 10-year growth rate of per capita gross state product.

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