By NextBestFitPhase 1: Enactment & build · Step 1.8
Set hospital global budgets
Months 6–18; annual negotiation thereafter · UHA regional offices; Payment Rates BoardDiscuss this step
Pros & cons of this step
Pros
- +Predictable revenue: hospitals stop chasing commercially insured patients.
- +Hospital billing departments shrink dramatically: no claims adjudication, no denials.
- +Maryland's global budgets held hospital spending growth below the national trend while keeping hospitals solvent.
Cons
- −Hospitals with high commercial revenue lose money Academic medical centers and suburban systems may see 15–30% revenue cuts before admin savings.
- −Budgets based on history reward past inefficiency and penalize hospitals that were already lean.
- −A fixed budget can encourage rationing near year-end.
- Cost control vs. responsiveness: a global budget caps spending, but if demand rises faster than the volume corridor, patients wait. Canada's waits are partly a global-budget phenomenon.
medium confidence
Provider incomes and hospital finances
Hospitals' revenue is roughly flat in aggregate but redistributes sharply, toward Medicaid-heavy and rural hospitals and away from commercially dominant systems. Primary-care physicians gain and procedural specialists lose.
Today
Commercial revenue subsidizes losses on Medicare and Medicaid; hospital margins depend on payer mix.Under the plan
Hospital spending −$18.4B overall. Billing costs fall (about 8.5% of hospital and 13% of physician revenue today).Who gains
- Rural and safety-net hospitals
- Primary care
- Pediatrics
- Psychiatry (more patients covered at better rates)
Who loses
- Academic medical centers and suburban systems with high commercial shares
- High-earning procedural specialties
Magnitude: Commercial-heavy hospitals may see 15–30% revenue reductions before administrative savings.
- MarylandGlobal budgets kept hospitals financially stable while slowing growth.Sources: CMS Innovation Center / RTI (2023)
- RANDPrices vary widely between hospitals in the same market, showing market power rather than cost.Sources: RAND Corporation (2024)
Mitigations
- Hospital Transition Fund
- 4-year rate convergence
- Rural add-ons
Risk that remains: Some hospitals will close or merge.
Trade-off behind each cost item
- Hospital care+$1.62TProviders of this service receive $69.9B less for the same care; patients receive $51.5B more care.
- Billing staff lose jobs; providers' margins improve on average, but the distribution across hospitals and practices is uneven.
Trade-off behind each system change
- Nonprofit hospital tax exemption & charity care rules (IRC §501(r))The main rationale for the exemption (uncompensated care) disappears; ending exemptions would raise revenue but cut hospital margins.
- Medicare hospital payment systems (IPPS DRGs, OPPS)Spending control and less billing vs. weaker volume incentives.
- Medicaid & Medicare DSH and supplemental paymentsSimpler, but safety-net hospitals depend on budget-setting getting their adjustment right.
- Critical Access Hospitals (cost-based reimbursement)Protects rural access; cost-based budgets reward high costs and weaken efficiency incentives.
- Hospital uncompensated care and charity care policiesHospitals stop absorbing these losses; the community-benefit justification for tax exemption weakens.
- Medicare hospital cost reportsBetter data for fair budgets; heavier audit burden for hospitals.
- Medicare pay-for-performance programs (MIPS, Hospital Value-Based Purchasing, readmission penalties)Far less reporting; a quality incentive remains but can penalize hospitals serving sicker, poorer patients.