How Maryland's Hospital Payment Revolution Shielded Healthcare During COVID-19
When COVID-19 slammed U.S. hospitals in March 2020, it triggered a financial catastrophe. Elective procedures—hospitals' primary revenue source—vanished overnight. Yet in Maryland, something remarkable happened: Hospitals didn't face this disaster alone. Armed with a revolutionary payment model called the Total Cost of Care (TCOC), the state became an accidental laboratory for healthcare resilience 1 2 . This is the story of how a decade-long experiment in hospital financing turned into a lifeline during humanity's worst pandemic in a century.
Unlike the typical U.S. system where hospitals earn more by doing more (fee-for-service), Maryland uses global budgets. Since 2014, regulators set annual revenue caps for each hospital, covering all patient care costs. Think of it as a "healthcare allowance" adjusted for population health needs—not service volume 2 .
The Health Services Cost Review Commission (HSCRC) sets each hospital's yearly budget based on community needs and historical spending.
Hospitals adjust service prices mid-year if volumes spike or drop, ensuring actual revenue matches the target 2 .
Hospitals keep savings if they reduce unnecessary admissions through better community health programs.
| Component | Function | COVID-19 Impact |
|---|---|---|
| Global Budgets | Fixed annual revenue for hospitals | Stabilized income despite volume drops |
| Dynamic Price Adjustments | Mid-year rate changes to hit targets | Enabled rapid revenue correction |
| Quality Incentives | Bonuses for reducing readmissions/infections | Funded pandemic safety efforts |
| Medicare Alignment | Extended cost controls to outpatient care | Limited cost-shifting to other sectors |
As COVID-19 emptied hospitals in spring 2020, a team from Johns Hopkins University seized a unique chance to test Maryland's model. Their question: Did global budgets protect hospitals better than conventional payment systems? 1 3
Researchers analyzed revenue data from all 61 Maryland hospitals, comparing March-July 2020 against two baselines 1 3 :
Variables measured:
Maryland hospitals saw a 6.8% revenue drop during the peak pandemic months. Severe? Yes—but far less than the 21.7% plunge in states using fee-for-service 1 . Two mechanisms proved vital:
| Payment Model | Revenue Change | Service Volume Change | Price Adjustment |
|---|---|---|---|
| Maryland (Global Budget) | -6.8% | -32.1% | +18.3% |
| Typical U.S. (Fee-for-Service) | -21.7% | -38.4% | +0.9% |
The study revealed three unexpected advantages 1 2 :
Unlike fee-for-service models, Maryland hospitals didn't face financial pressure to resume risky elective procedures early.
With revenue assured, hospitals shared PPE and staff across networks.
By Q4 2020, Maryland revenues neared pre-pandemic levels—6 months faster than other states.
| Tool | Function | Role in Pandemic |
|---|---|---|
| HSCRC Database | Tracks all-payer hospital claims & finances | Enabled real-time revenue monitoring |
| Dynamic Pricing Algorithm | Adjusts service rates quarterly | Automated revenue stabilization |
| Population Health Index | Measures community disease burden | Redirected resources to high-risk zones |
| Retained Savings Mechanism | Lets hospitals bank unused budget funds | Provided emergency liquidity |
| Quality Metrics Dashboard | Tracks readmissions/infection rates | Monitored COVID-19 care disruptions |
Maryland's pandemic story transcends budgeting. It shows how aligning profits with prevention turns hospitals into community shields. While U.S. hospitals overall lost $323 billion in 2020, Maryland's system—plus federal aid—kept every acute-care hospital solvent 2 . As Colorado, Pennsylvania, and others adopt similar models, this once-radical idea may become medicine's new immune system: ready for whatever comes next.
Global budgets don't just pay for care—they buy resilience.