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New Opportunity for States to Improve Health Care and Slow Cost Growth

The Center for Medicare and Medicaid Innovation recently released a state-based payment model that aims to improve population health and advance health equity while containing health care cost growth.

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The Center for Medicare and Medicaid Innovation has released its new States Advancing All-Payer Health Equity Approaches and Development (AHEAD) Model, which builds on the successes and lessons of existing state-based efforts to create a higher quality and more efficient health care system. 

What are the specifics of AHEAD?

AHEAD is a total cost of care model in which participating states will constrain hospital spending growth through global budgets and increase investment in and transformation of primary care, all while taking responsibility for managing costs and quality across payers through all-payer cost-growth targets.

Under global budgets, hospitals will receive a pre-determined, fixed annual budget to cover inpatient and outpatient care based on their historical Medicare and Medicaid revenue, which helps limit spending and gives hospitals greater flexibility to allocate resources according to patients’ needs. This incentivizes hospitals to avoid unnecessary services including avoidable hospitalizations and to coordinate with primary care providers and specialists to manage the health of their patient population. 

AHEAD recognizes that primary care is the foundation of a strong health care system and aims to create a more robust and patient-centered primary care infrastructure. As global budgets and all-payer cost growth targets work to limit increases in spending, AHEAD seeks to rebalance spending across the system and transition care from acute care settings, such as hospitals, to primary care offices. Participating primary care practices will receive greater Medicare investment to support transformation efforts aligned with state Medicaid programs. 

AHEAD also aims to advance health equity by requiring states to develop a plan to reduce disparities and align with existing innovations in states’ Medicaid programs. AHEAD will include rural and safety net providers who treat disadvantaged populations. 

Up to eight states will be selected to participate in AHEAD, with the first performance year beginning in 2026 and running through 2034. To support implementation, states may receive up to $12 million in funding from CMMI

Why focus on global budgets?

Global budgets are a promising, but evolving, strategy for states to contain rising health care costs, improve the quality of patient care, and achieve other important health care goals. Evidence from Maryland and Pennsylvania, two states that use global budgets, highlights several potential benefits and insights going forward: 

  • Reduced Hospital Admissions: Global budgets encourage hospitals to reduce potentially harmful services and unnecessary care. Maryland reduced rates of all-cause acute care hospital admissions by over 16% for Medicare and commercially insured patients. Additionally, 80% of rural hospitals in Pennsylvania’s program improved rates of avoidable utilization, although Maryland saw mixed results on this metric. 
    • Contained Medicare cost growth: Maryland’s initial global budget program reduced Medicare spending by nearly $1 billion over a 4.5‑year period and an expanded version of the program similar to AHEAD reduced total spending relative to national trends by $365 million. Despite generating savings for Medicare, Maryland’s model did not lead to a decrease in total spending for commercial plans. Evidence suggests potential savings were offset by higher spending on services that were not included in the hospital global budget, indicating hospitals shifted care to maintain revenue levels. This underscores the need for future models to include a broader group of hospital services as well as a mechanism to monitor and contain growth in total expenditures, such as the all-payer cost-growth targets included in AHEAD
    • Increased financial certainty and predictability for providers: Fee-for-service reimbursements can lead to unpredictable funding. For example, the COVID-19 pandemic resulted in decreased patient volume for providers across the United States, which reduced their revenue and threatened their sustainability. In contrast, global budgets may ensure a predictable revenue stream that benefits providers and patients. Pennsylvania’s global budget program played a significant role in keeping its rural hospitals open during the pandemic, ensuring patients could access care when needed.

    A promising step towards reining in costs and improving population health

    Given rising health care spending and persistent poor health outcomes, we need to focus on reducing health care costs and rebalancing spending to target high-value, patient-centered primary care. Evidence from Maryland and Pennsylvania suggests that global budgets hold promise to contain hospital cost growth and improve care. AHEAD builds on the experience from these states and combines global budgets with other promising tools like all-payer cost growth targets and primary care investment. 

    While a proven strategy to reduce Medicare spending and slow rising health care costs, it’s not immediately clear what impact AHEAD will have on commercial hospital prices. There are some concerns that global budgets could lock in high commercial hospital prices – especially for large, consolidated health systems. States should take that concern into account when setting the parameters of a global budget or consider implementing other policies to address high prices. Federal and state policymakers will have to strike a balance between reducing spending and incentivizing hospital participation in the model when implementing global budgets. 

    While ambitious, AHEAD has the potential to be an important step towards improving our health care system. Successful implementation of the model will require a strong partnership between the federal government and states, which can begin applying in 2024. The hard work to improve care and contain cost growth is just beginning, and AHEAD represents an important opportunity for states to play a greater role in the process.