State of Maine Employee Health Plan: Tiering Hospitals on Quality and Cost

The State of Maine (SOM) Employee Health Plan is one of the largest purchasers of health insurance in Maine, covering around 40,000 lives. In 2006, SOM began a tiered benefit design, identifying certain Maine hospitals as preferred or non-preferred based on measures of quality and patient safety and increasing members' cost share for the use of non-preferred hospitals.

The impact of tiering was evaluated using medical claims data. Monthly visits for inpatient, outpatient, and outpatient surgery were analyzed between July 2005 and July 2006 (baseline period) and between July 2007 through June 2009 (by preferred/non-preferred status) and found decreaseds in hospital utilization at 2 large hospitals when designated as non-preferred. Results were not conclusive for all hospitals.

As of July 2011, SOM will incorporate a measure of cost into its tiering program. To provide input into the tiering process a method for quantifying cost variation across Maine Hospitals was developed. Inpatient and outpatient claims were identified in the commercial claims data and rolled up to the inpatient-admission and outpatient-visit level. Using the state-wide database of commercial claims, inpatient admissions were assigned to a Medicare Severity diagnosis-related group (MS-DRG) and outpatient visits to an APG (ambulatory patient group). A set of common DRGs and APGs performed at virtually every Maine hospital was identified (Level 1). An additional set of services performed at larger Maine hospitals also was identified (Level 2). Hospitals were allocated into two groups based on type of services provided. Comparisons of mix-adjusted average costs were carried out within the two groups to determine a measure of cost variation and to identify low and high-cost hospitals. Substantial variation in the mix-adjusted average payment variance for services was found, with small hospitals ranged from 29.1% above the state average to 19.0% below the state average and large hospitals ranging from 33.8% above the state average to 12.3% below the state average.

Tiering appears to have some effect on where members go to obtain hospital services and, if applied properly, may provide incentives for hospitals to improve quality and reduce costs. These tiering initiatives also have drawn attention to the substantial variation in cost and quality across providers and have paved the way to engaging a variety of hospitals in partnerships to reform the delivery and payment system in Maine. The SOM provides a model for purchasers and consumers to incentivize change in the health care system.