Global budgets are an alternative payment model (specifically, a form of capitation) in which providers—typically hospitals—are paid a prospectively-set, fixed amount for the total number of services they provide during a given period of time. Providers are responsible for expenditures in excess of the set amount in addition to quality outcomes, creating an incentive to reduce unnecessary utilization and invest in prevention. Thus, global budgets are a key tool that payers can use to lower health care spending, particularly in markets that lack competition.
Global budgets are relatively uncommon at the state-level, but a few states have incorporated the strategy into their plans to reduce spending and improve population health. Maryland has implemented global budgets for hospitals as part of its all-payer rate setting program since 2010, with notable success. Various studies have documented improvements in the rate of per capita hospital spending growth; reductions in potentially preventable complications and hospital admissions; and lower out-of-pocket costs for Medicare beneficiaries with no negative affect on patient experience and hospital financial performance.1 However, increases in Emergency Department use were also observed.
Other states are now testing the utility of the model in a non-rate setting environment. Pennsylvania’s efforts have focused exclusively on rural hospitals,2 while Vermont is using global budgets as part of its All-Payer ACO Model.3
1. Sharfstein, Joshua M., et al., "Global Budgets in Maryland: Assessing Results to Date," JAMA, Vol. 319, No. 24 (June 26, 2018).
2. "Pennsylvania Rural Health Model," Centers for Medicare & Medicaid Services (Updated Jan. 16, 2020).
3. Bailit, Michael, et al., "Balancing Health Care's Checkbook: New Strategies for Providers and States," Health Affairs Blog (July 20, 2018).
Urban Institute: Global Budgets for Hospitals (April 2016).