Removing a constraint on hospital utilization: a natural experiment in Maryland

To limit growth in hospital utilization in the 1990s, Maryland required payers to reimburse excess hospital volume at lower case rates. In 2001, this policy changed and excess volume was paid at full case rates. We investigated the impact of this policy change on hospital utilization and finances.

We conducted interrupted time-series analyses of hospital-level annual inpatient admissions, outpatient equivalent volume, equivalent admissions, operating revenue, operating costs, and operating profit.

We analyzed each time series for 45 acute care hospitals in Maryland using a segmented regression model, allowing for changes in level and slope of the trend in 2001, when the payment policy was changed. To incorporate trends for all hospitals, we fit these models as hierarchical generalized linear models.

We observed significant changes in inpatient admissions, outpatient equivalent volume, and operating costs. Following the policy change, trends in inpatient admissions and outpatient equivalent volume had significant 1-year increases of 7.7% and 17.1%, respectively. The annual growth rate for inpatient admissions increased significantly, from 0.8% to 2.4%. The growth rate for outpatient equivalent volume increased from 3.2% to 4.7%, but this change was not statistically significant. Trends in operating costs had significant 1-year increases of 7.6% and an annual growth rate that increased significantly from 4.8% to 8.4%, exceeding the annual growth rate for utilization.

Hospitals responded to changes in payment by accelerating the increase in service volume. The observed increase in utilization coincided with substantial inflation in operating costs that cannot be easily eliminated.