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Home » 2014 Issues, Articles, March 2014

How a Maryland lab met fixed-budget test

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Anne Ford

March 2014—Maryland may be one of the smallest states in the nation, but its new effort to reduce spending on hospital services could have a big impact on patient care and health care costs. In January, after a three-year, 10-site pilot program, most of the state’s hospitals decided to move to a system under which “the hospitals are given a fixed budget and asked to manage the care of the patients they serve within that budget,” says Maryland Hospital Association president and CEO Carmela Coyle.

Thanks to a longstanding waiver from the federal Medicare program, Maryland, unlike every other state in the country, ensures that all hospital patients (insured or uninsured) pay the same price for the same service at the same hospital. Under the new fixed-budget system, hospitals are incentivized to reduce hospital admissions—not by keeping people out of the hospital who need to be there, Coyle says, but by eliminating duplication of tests and services and by helping the local community stay healthy. Authors of a perspective piece in the Feb. 6 New England Journal of Medicine write, “The resulting changes [of this fixed-budget approach] should be visible at hospitals throughout Maryland in the form of more coordinated care, a greater emphasis on care transitions, and a renewed focus on prevention” (Rajkumar R, et al. Maryland’s all-payer approach to delivery-system reform. N Engl J Med. 2014;370:493–495).

“If you’re given a fixed budget, you really do begin to think about the health of the population outside the hospital,” Coyle agrees. “What we’re trying to say is: Our job is bigger than the three to four days that somebody may be hospitalized. It’s our job to coordinate their care as they leave the hospital, make sure somebody’s got a physician to turn to, make certain they understand their medications, and create a clear care path for them. Without unnecessary admissions, hospitals have more room to spend their limited dollars on those patients who truly need acute-care services. It’s the right way to care for patients, and we believe we have an opportunity to be a national policy leader in this. All eyes are on Maryland.”

That’s big talk for a small state. But the experience of at least one of the hospitals in the fixed-budget pilot program, Western Maryland Health System of Cumberland, Md., backs it up. With help from several large-scale laboratory initiatives, the health system has achieved big gains.

During the pilot, Western Maryland Health System reduced its inpatient admissions from 17,449 in fiscal year 2011 to 14,033 in fiscal 2013, while readmissions fell from 16 percent to nine percent. And in fiscal 2013, the system made an operating profit of $15 million on about $370 million in revenue, CEO Barry P. Ronan told the New York Times last August.

Jo Wilson

Jo Wilson

Impressive numbers to be sure, but when the pilot program began in 2010, Western Maryland vice president of operations Jo M. Wilson found it rough going at first. “We had a very tough year that year, because we were beginning to start up programs that were strengthening our out-of-hospital services for patients, but we weren’t seeing the reduction in admissions yet,” she explains. “So we actually had a terrible year that cost us money. It was after that that we realized we couldn’t just sort of drift along to make these changes happen. We had to become change agents—actually take a role in making things happen, as opposed to just sort of letting them happen.”

In the laboratory, “making things happen” took the form of initiatives around automation, staffing, point-of-care testing, and test utilization, as well as additional measures in areas such as microbiology, blood bank, and chemistry. These efforts are impressive examples of how a laboratory—any laboratory, in any state—can help achieve cost savings and improve efficiency.

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