Mid-Atlantic Health Law TOPICS

On November 12, 2025, the State of Maryland and the Centers for Medicare & Medicaid Services (CMS) amended the Achieving Healthcare Efficiency through Accountable Design (AHEAD) Model, which Model is now the basis of the “waiver” that allows Maryland, via the Maryland Health Services Cost Review Commission (HSCRC), to set the rates that Maryland hospitals charge all payers, including Medicare and Medicaid.

The new AHEAD amendment calls for many significant changes to the way rates will be set for Maryland hospitals in the future, and also creates many uncertainties.

HSCRC Primer

Maryland’s so-called “waiver” means that, instead of Maryland hospitals being paid under the federal prospective payment system, which generally pays hospitals based on the diagnoses of its patients, Maryland hospitals charge Medicare on a fee-for-services basis at rates set by the HSCRC. The result is that Medicare pays Maryland hospitals much more than Medicare would pay absent the waiver.

In fact, each Maryland hospital has a charge master listing the prices of over 2,000 different services, and each hospital generally charges those prices to all payers for those services on an a la carte basis. However, the charge master for one hospital is not the same as the charge master for another hospital, meaning charges for the same service vary widely from one Maryland hospital to another.

The full name of the HSCRC is the Health Services Cost Review Commission. Originally, the amount charged by each hospital was based on its “costs.” Accordingly, high-cost hospitals charged more than low-cost hospitals. Over time, those charges have inflated. One result of this is that Maryland hospitals have remained solvent, and presently Maryland has many more hospitals per 1,000 people than one finds in neighboring states.

One of the unique features of the Maryland hospital rate system is that all payers are overcharged enough to allow hospitals to provide care to patients who are not covered by private or public insurance.

Another more recent, unique feature of the Maryland system is that each hospital is given a Global Budget Revenue cap (GBR) that it may annually charge all patients, generally regardless of the number or the severity of the illness of such patients, on the theory that that cap will keep hospital volumes low.

From its inception, the “genius” of the waiver has been that to preserve the waiver, the primary thing Maryland has had to do is to make sure that the amount of money Medicare pays Maryland for hospital services on a per capita basis does not grow faster than Medicare is spending for hospital services on a per capita basis elsewhere in the country.

In other words, due to the unique features of the Maryland system, including funding uncompensated care and implementing GBRs to reduce utilization, it has been acceptable for Medicare to spend more money in Maryland, as long as that amount was growing a little slower than Medicare’s spend for hospital services per capita was growing elsewhere.

In fact, Medicare is presently paying Maryland hospitals approximately $3 Billion per year more than Maryland hospitals would receive if they were being paid under Medicare’s prospective payment system. To put that in context, Maryland hospitals only presently receive about $22 Billion in total revenue for hospital services, meaning that the extra money from Medicare constitutes between 10 and 15 percent of all Maryland hospital revenue for hospital services.

In addition, Medicaid also generally pays Maryland hospitals at rates set by the HSCRC, and by doing so, the federal government is paying Maryland hospitals another approximate $1 Billion extra per year.

AHEAD Amendment

At the end of the Biden Administration, the State of Maryland and CMS entered into an extension of Maryland’s waiver from the Medicare prospective payment system pursuant to the so-called AHEAD Model. However, since the Spring of 2025, the State of Maryland and CMS have been exploring the potential amendment of the AHEAD Model.

While many observers were concerned that the result of such discussions would be a drastic reduction in the $4 Billion of extra annual federal funding of Maryland hospitals, that does not appear necessarily to be the result.

As it turns out, CMS is quite enamored with Maryland’s GBRs, believing that capping hospital revenue could lead to the substantial lowering of utilization of hospital services by Medicare patients. Moreover, if that can be proven, then CMS imagines that perhaps Medicare could impose a GBR system on hospitals nationwide.

As a result, the signed AHEAD amendment provides that Maryland hospitals will continue to be reimbursed generally in the same way they have been reimbursed through December 31, 2027.

However, for the next eight years thereafter, Maryland hospitals will charge different amounts to different categories of patients, and be subject to three separate GBRs, one for fee-for-service Medicare, likely one for Medicaid and one for all other payers.

This is very different than the present situation where all patients at a particular hospital are generally charged at the same rates by that hospital, and where each hospital has a single GBR applicable to all payers.

Moreover, the new fee-for-service Medicare GBR would be set by CMS and not by the HSCRC.

Uncertainties

At present, there are also many significant uncertainties concerning the levels at which the three GBRs would be set.

Fee-For-Service Medicare

For example, while CMS has committed to derive the new Medicare fee-for-service GBRs for Maryland hospitals from the amounts Medicare pays those hospitals for Medicare fee-for-service patients in calendar year 2026, Medicare has also indicated that those GBRs would be subject to certain “adjustments” which adjustments are not yet definitively set.

Such potential adjustments, among other adjustments, might include adjustments for excluded services, uncompensated care and the amount hospitals presently funnel back to the State of Maryland to help fund the State’s portion of Medicaid expenditures.

Another one of the expected adjustments will include a “repricing” of all Maryland hospitals’ charge masters so that Medicare charges vary less from one hospital to another.

Maryland hospitals’ fee-for-service Medicare GBRs will also be increased or decreased depending upon whether Maryland makes or misses certain targets related to all Medicare fee-for-service spending for Marylanders for all services, and not just hospital services.

Medicare Advantage

While CMS will be setting a GBR for traditional fee-for-service Medicare patients, Medicare Advantage patients will be carved out of the Medicare fee-for-service GBR, with Medicare Advantage patients being charged hospital rates set by the HSCRC.

Although Maryland hospitals are presently charging Medicare Advantage patients the same high rates as traditional fee-for-service Medicare patients, it is anticipated that beginning in 2028, and perhaps as early as January 1, 2027, the rates charged to Medicare Advantage patients will be lower than the rates charged either to Medicare fee-for-service patients or to commercial patients.

On the one hand, that will permit Medicare Advantage finally to take a foothold in Maryland, something it has been unable to do previously due to the high hospital charges to which it was subject. However, on the other hand, as the number of Medicare Advantage patients grows, Maryland hospitals will have to learn to do without that extra revenue.

Medicaid

While the AHEAD Amendment contemplates that Medicaid will continue to pay Maryland hospitals at rates set higher than Medicaid pays in the rest of the country, and contemplates that the HSCRC will establish a separate Medicaid GBR for each Maryland hospital, that outcome still requires a future agreement with Medicaid, which might or might not happen.

If it does not happen, then Maryland hospitals would again have to learn how to live without the extra money that they are presently receiving from the federal government in regard to Medicaid patients.

Commercial Payers

The AHEAD Amendment will also have a significant impact on commercial payers.

Outside of Maryland, commercial payers pay hospitals about 250 percent of what Medicare pays hospitals for hospital services. That phenomenon is referred to as “cost-shifting” in that it shifts the cost of paying for hospital services from services provided to the elderly and paid for by Medicare to services provided to younger people paid for by “commercial” payers, either via insured products or self-insured employer sponsored programs.

In Maryland, however, both types of commercial payers only pay Maryland hospitals a little more than Medicare pays those hospitals. More specifically, commercial payers in Maryland are only presently paying about 190 percent of what Medicare pays outside of Maryland for hospital services.

Accordingly, as Medicare pays Maryland hospitals less due to the “adjustments” described above, as the HSCRC grants a discount to Medicare Advantage patients, and also if Medicaid pays Maryland hospitals less than it historically has paid for hospital services, then one can expect that the new commercial GBRs set by the HSCRC will shift costs to the commercial payers.

This means that beginning in 2028, there could be dramatic increases in: (a) the amounts paid by commercial payers to Maryland hospitals; (b) the cost of commercial health insurance in Maryland; and (c) the cost of sponsoring self-insured health plans by Maryland employers.

Unintended Consequences

Further, while there are Maryland hospitals that have enough commercial patients that could allow them to charge those patients more, coupled with charging Medicare and Medicaid patients less, there are other Maryland hospitals that do not have enough commercial patients to cover a reduction in revenue from Medicare and Medicaid. Accordingly, that could mean that some Maryland hospitals may close, or severely limit the services that they provide.

Also, due to the uncertainties described above, many Maryland hospitals will likely hoard their cash over the next several years to be in a better position to withstand whatever occurs. This likely means that many existing mission driven initiatives, new hospital equipment purchases and planned expansions will be put on hold.
 

Barry F. Rosen
410-576-4224 • brosen@gfrlaw.com