Global Budgets for Safety-Net Hospitals

One of the primary goals of alternative payment models, including patient-centered medical homes and accountable care organizations, is to allow clinical systems to reap the rewards of investments in prevention. Most of the anticipated savings from new models of care are expected to accrue in the form of reduced inpatient utilization. However, if hospitals remain paid on a fee-for-service basis—either because they are not part of the alternative payment models or because the new approaches still reimburse by admission—then their balance sheets stand to lose revenue as preventable illnesses and their related complications decline. Such hospitals might compensate with additional admissions to keep their beds filled, undermining outpatient and community-based initiatives. An important priority is to ensure that hospitals are full partners in transformation efforts in US medicine.

One innovative payment reform that helps align hospital incentives with outpatient and community-based prevention strategies is all-payer global hospital budgeting. Under this model, which was originally developed in Maryland, each participating hospital receives an annual, prospectively set budget funded by all payers, public and private.