Hospital global budgets are fixed payments made to hospitals for a set of defined services. These payments are determined prospectively, based on historical utilization, and adjusted annually to account for changing demographics, market share, and service mix. Hospital global budgets address the failure of the market to constrain price and price growth. This type of alternative payment model reduces hospitals’ incentive to increase service volume, as hospitals are not paid based on the number of services they deliver. Instead, hospitals are responsible for managing patient service use and operating costs to stay within budget. Global budgets can also financially benefit hospitals. They provide a steady, predictable revenue source that gives hospitals the flexibility to redeploy resources to other areas, potentially including efforts to improve the health of the communities they serve. The following steps present a sequence of important decisions for states to work through. The order in which states implement these steps will vary depending on whether the state is leading the design of the hospital global budget model or whether it is using stakeholder feedback to inform model design. States may also choose to phase in certain elements of the hospital global budget model over time. The steps we have laid out assume that while states are leading the way, they do not yet have statutory authority to implement hospital global budgets or set provider rates. Therefore, states need to secure support and agreement to participate from payers, hospitals, and other stakeholders. States should be prepared for a process that is both iterative and dynamic, where questions and strategic choices may need to be revisited over time. This guide includes examples from four states that have used hospital global budgets: New York’s Hospital Experimental Payment Program (1980–1987), Maryland’s All-Payer Model (2014–2018) and Total Cost of Care Model (2018–present), OneCare Vermont’s model (2017–present), and Pennsylvania’s Rural Health Model (2019–present). Step 1. Set goals for adopting hospital global budgets and confirm readiness to proceed. Step 2. Determine how to engage stakeholders during the hospital global budget model design process. Step 3. Decide who should convene stakeholders and design the hospital global budget methodology. Step 4. Incorporate the goal of improving overall health care and payment equity into model design, implementation, and evaluation. Step 5. Determine whether to make participation voluntary or mandatory. Step 6. Establish the level of standardization across the hospital global budget model. Step 7. Identify which hospitals and services to include. Step 8. Identify which payers should participate. Step 9. Agree on how to establish and update budgets annually. Step 10. Choose a method for adjusting budgets during the performance year based on hospital utilization. Step 11. Decide how to distribute payments to hospitals. Step 12. Decide whether the model should include supplemental arrangements that aim to improve affordability, access, quality of care, and population health. Step 13. Determine who should calculate budgets and manage and oversee the hospital’s global budget. Step 14. Identify opportunities to mitigate hospitals’ financial and technical risk. Step 15. Create a plan for monitoring and reporting on progress.
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