Maryland’s hospital payment system has long kept costs low, hospitals stable, and care accessible, but the model now faces a major turning point. As the state’s Total Cost of Care waiver nears expiration and Maryland prepares to transition to the federal AHEAD model, potential sweeping changes to hospital payments and healthcare costs could have significant effects on counties as employers and public sector health plan sponsors.
Introduction
For decades, Maryland has stood apart in how it pays for and delivers health care. Its unique all-payer hospital rate-setting system, refined through the state’s Total Cost of Care (TCOC) model, has kept costs lower, improved outcomes, and drawn national attention as a model worth emulating.
From the Total Cost of Care (TCOC) Model to the AHEAD Model
Under the Total Cost of Care model, Maryland became the only state with broad authority to set hospital payment rates for all payers: Medicare, Medicaid, and private insurers alike. The model aimed to contain hospital cost growth while improving quality and reducing unnecessary utilization. Over time, it evolved to focus on care coordination and outcomes across the full continuum of care, not just hospital services.
According to the Health Services Cost Review Commission (HSCRC), Maryland slowed hospital spending growth and reduced hospital readmissions. Demonstrating that a state-level model could align incentives across payers while maintaining access and quality. But the TCOC model was always time-limited, and as its agreement with the federal government was originally set to expire in 2026, and then 2025, it has since been extended. Maryland has been in the process of transitioning to a new model.
The AHEAD Model: A National Framework
The federal initiative, known as the States Advancing All-Payer Health Equity Approaches and Development (AHEAD) Model, builds upon Maryland’s existing TCOC framework. Developed by the Center for Medicare and Medicaid Innovation (CMMI), AHEAD is designed to expand state-based payment and care transformation models across multiple states.
AHEAD’s primary goal is to improve health outcomes for residents while controlling cost growth. It promotes a multi-sector approach that brings together hospitals, primary care providers, payers, and community organizations to invest in prevention, primary care, and population health. For Maryland, applying to participate in AHEAD is not a new direction but a continuation of a long-standing plan.
From a Maryland Matters article:
So, why is Maryland applying for the federal program if the state already has a total cost of care system in place? Maryland’s Total Cost of Care model is set to expire in December 2026.
CMMI (Center for Medicare and Medicaid Innovation) has developed AHEAD as the federal policy approach for state implementation of population-based payment models, and we really see AHEAD is the pathway to secure continuation of the Maryland model, said Assistant Secretary of Health Policy Marie Grant during an HSCRC work group discussion on the AHEAD model application process in February..
How Maryland’s System Works
Since the 1970s, Maryland has operated under a unique arrangement through the Health Services Cost Review Commission (HSCRC), the only system in the nation where a state, not the federal government, sets hospital rates. Under this model, all payers, including Medicare, Medicaid, commercial insurers, and even self-insured employers, pay the same rates for the same hospital services.
As discussed in Bolton’s part two webinar on Maryland’s hospital payment system, Maryland’s “global budget revenue” (GBR) approach caps each hospital’s total annual revenue, incentivizing cost control and efficiency. Hospitals must stay within their budget “cap,” adjusting charges quarterly to avoid going over, like a careful “Price is Right” strategy. This structure has kept hospitals financially stable and significantly reduced uncompensated care across the state.
Pending Federal Action and Implications
According to Bolton in their part two webinar, the federal government currently provides about $4 billion more per year to Maryland hospitals than they would receive under standard Medicare and Medicaid payment systems, roughly $3 billion from Medicare and $1 billion from Medicaid. These funds have been vital to sustaining Maryland hospitals and the services they provide.
However, as the federal government reassesses these arrangements, that funding and Maryland’s authority to set hospital rates face uncertainty.
The Total Cost of Care (TCOC) waiver was recently extended, giving Maryland two more years of stability through 2026 and 2027, while the next phase is negotiated. After that, there is an amendment to the AHEAD model that could bring significant changes starting in 2028. Under this new framework, Medicare payments in Maryland would shift to the federal Inpatient and Outpatient Prospective Payment Systems (IPPS/OPPS), the same system used in every other state.
The federal government is considering reducing its annual contribution of an extra $3 billion to Maryland. That means a potential “funding cliff” after 2027, when hospitals may receive substantially less revenue from Medicare, forcing difficult financial adjustments statewide.
A loss of federal support would likely mean higher insurance premiums for employees, potential service reductions, or hospital closures, especially in vulnerable and rural areas.
Next Steps and Potential Impacts to Counties
The federal announcement to stop paying Maryland the extra funding sparked intense negotiations among state leaders, federal officials, and hospital representatives. In Part two of the Bolton webinar, Barry Rosen, Healthcare Leader at Gordon Feinblatt, laid out three potential scenarios to move forward: Maryland could pursue litigation against the federal government and the US Department of Health and Human Services (HHS), the federal government could reconsider and maintain the current arrangement, or an AHEAD amendment could be adopted that gradually reduces federal payments over time. While the likely outcome has shifted several times in recent weeks, current discussions suggest the AHEAD amendment is emerging as the most probable path forward.
If Maryland’s Health Services Cost Review Commission (HSCRC) authority is reduced or eliminated under the AHEAD amendment, hospitals may begin negotiating prices directly with insurers and employers, similar to systems in other states. Large insurers could leverage their size, but self-insured employers, including counties, could face higher costs and fewer protections against price variability.
Analysts in Bolton’s webinar predict that commercial insurance rates could rise sharply after 2028, with ripple effects on county budgets and employee benefit plans. Rural hospitals, which already operate on thin margins, could face additional strain, though a federal One Big Beautiful Bill Act funding program may provide limited relief for smaller rural hospitals.
Counties employ thousands of workers and provide health coverage to families across the state. If these potential changes are implemented, it could lead to higher health plan costs, budget pressure, and new challenges in maintaining comprehensive benefits.
Stay tuned to Conduit Street for more information.
Useful links:
Learn More about the AHEAD Model.
Watch Bolton’s Part One Webinar on Maryland’s Hospital Payment System.
Watch Bolton’s Part Two Webinar on Preparing Employers for Maryland’s Hospital Payment System Overhaul (webinar recording link coming soon).
This article is part of MACo’s Deep Dive series, where expert analysts explore and explain the top county issues of the day. A new article is added each week – read all of MACo’s Deep Dives.
