Equalizing Health Provider Rates: All-Payer Rate Setting

Updated 7/10/2018

Cost Containment header

Equalizing Health Provider Rates: All-Payer Rate Setting #7 - PDF File 

                             Colorado Supplement: Equalizing Health Provider Rates: All Payer Rate Setting - PDF File - (To read portable document format (.pdf) files, use  Adobe Acrobat Reader.)

Cost Containment Strategy and Logic

All-payer rates are payment rates that are the same for all patients who receive the same service or treatment from the same provider. “All payers” include private health insurance plans, large employer self-insured plans, uninsured patients (where data are available), and Medicaid and Medicare (under an approved waiver from the federal government). Rates may be set per service or per case (e.g., hospital care for a heart attack). Rate setting has mainly been used for hospital inpatient and outpatient services.  Under a system of all-payer rates, the reimbursement a provider receives for a given service is the same regardless of who pays. Different payers would not pay different rates for the same service, as is the case today. Currently, although virtually all patients are charged the same amount on paper (i.e., list price), actual payments vary widely based on negotiated discounts. A hospital, for example, may receive reimbursements from more than a dozen different health insurers and health plans, each with its own payment schedule. In addition, Medicare and Medicaid have their own rules for paying hospitals.

Summary of Health Cost Containment and Efficiency Strategies - Brief #7- Equalizing Health Provider Rates: All-Payer Rate Setting


State/Private Sector Examples  Strategy Description Target of Cost Containment Evidence of Effect on Costs
Maryland Payment rates that are the same for all patients receiving the same service or treatment from the same provider. Rates can be set by a state authority or by providers themselves.
  • High health care prices.
  • Lack of price competition.
  • Significant provider costs to negotiate, track and process claims under multiple reimbursement schedules.
Evidence is mixed but indicates that, properly structured, state all-payer rate setting can slow price increases but not necessarily overall cost growth.

Recent News and Updates

2018: Maryland governor signs federal all-payer health contract 
Maryland Gov. Larry Hogan signed a contract with the federal government on July 9 to enact the state's unique all-payer health care model, which he said will create incentives to improve care while saving money. Hogan signed the five-year contract along with the administrator of the federal Centers for Medicare and Medicaid Services (CMS), Seema Verma. The Hogan administration said the new contract is expected to provide an additional $300 million in savings a year by 2023, totaling $1 billion in savings over five years. Because the state's 2014 reform change focused on hospitals only, the federal government required the state to develop a new model that would provide comprehensive coordination across the entire health care system.

Under the agreement, Maryland will be relieved of federal restrictions and red tape that the other 49 states face in the Medicare program. However, the state will have to meet benchmarks of improving access to health care while improving quality and reducing costs. Verma said the model is the first involving CMS that holds the state "fully at risk for total Medicare costs for all residents."

Modernizing Maryland's all-payer rate-setting system Approved: On January 10, 2014, CMS announced its approval of the proposal to Modernize Maryland's all-payer system. For more information, visit: http://innovation.cms.gov/initatives/Maryland-All-Payer-Model/

Background: Maryland is the only state with an all-payer system of hospital finance, which is overseen by the Health Services Cost Review Commission (HSCRC). Maryland is pursuing efforts to modernize this system to enhance patient experience, improve outcomes, and lower health care costs. This required a model proposal to be accepted by the Center for Medicare and Medicare Services (CMS) in the U.S. Department of Health and Human Services.

  • On October 11, 2013, Governor Martin O’Malley submitted a proposal to modernize Maryland’s all-payer hospital system.  Read the proposal here.  Read the state’s revised model proposal here.
  • Maryland's Proposal to Modernize All-Payer Rate Setting:  - ‎Maryland Executive branch testimony describing next-step plans. Maryland will accelerate a broad range of delivery reform efforts. These include modernizing Maryland's All-Payer Rate Setting System– 03/27/2013.

Taming Health Care Spending: Could State Rate Setting Work?-   
"For more than three and a half decades health care expenditures in the United States have grown at a much higher rate than those in other wealthy nations..... State rate setting in the United States, when properly designed and implemented, has a strong track record, particularly in Maryland. Rate setting works because it consolidates the demand-side, thereby enabling the assertion of collective bargaining power and control of expenditures. Properly designed, rate setting can control health care prices and the volume and intensity of services."
Posted in Health Affairs by David Frankford and Sara RosenbaumMarch 20, 2017


Vermont Governor Peter Shumlin announced the state wants to transform its health care system under the All Payer Model. According to the governor’s office, the All Payer Model moves away from fee-for-service and toward quality-based care that focuses on keeping Vermonters healthy. The model changes three main payers of healthcare in Vermont including Medicaid, Medicare, and private insurance, to pay doctors and hospitals differently than they do today. The governor’s office says instead of paying for each test or procedure, doctors and hospitals will receive a set of payment for each patient attributed to them. “For Vermonters, our innovation will mean not only a health care system that is more affordable but one that better meets their needs,” Gov. Shumlin said. “We will restore the family physician’s rightful place in Vermonters lives, ensuring they have someone to turn to when they get sick and a partner in keeping them healthy.”
       Vermonters will still be able to see the doctor or healthcare provider of their choice. Vermonters on Medicaid and Medicare will not see any changes to their benefits. The state is currently finalizing negotiations of the terms of the All Payer Model with the federal government. If approved, Vermont will become the first state to adopt this model.


About this NCSL project

NCSL’s Health Cost Containment and Efficiency Series will describe two dozen alternative policy approaches, with an emphasis on documented and fiscally calculated results. The project is housed at the NCSL Health Program in Denver, Colorado. It is led by Richard Cauchi (Program Director) and Martha King (Group Director) with Barbara Yondorf as lead researcher (2009-2011).

NCSL gratefully acknowledges the financial support for this publication series from The Colorado Health Foundation and Rose Community Foundation of Denver, Colorado