DHA 722 Week 8 Proposal for an Innovative Model of Care Delivery Example

Paid to Keep People Well: Proposing a Rural Global Budget Model for Four North Carolina Hospitals and Their Communities

[Student Name]

University of Phoenix

DHA/722: Policy and Regulation in Health Care

Week 8 Assignment

[Instructor Name]

[Date]

The rural hospitals, budget amounts, payer participation, services and timeline are composites written for a model paper; research findings come from the sources cited.

At a quarterly review, the region's finance director showed a chart that frustrated everyone in the room. As the community paramedic program, telehealth follow-up and care management reduced admissions at the rural hospitals, revenue fell. The more successful the hospitals were at keeping people well, the more money they lost. The regional vice president was asked to propose a better model. This paper proposes a rural global budget.

The Problem

Fee-for-service payment pays hospitals for each admission, test and visit. For small rural hospitals, whose fixed costs are high and volumes low, each lost admission hurts. The system discourages the prevention the region is trying to provide and leaves hospitals financially fragile, with revenue that swings with volume. The pandemic showed the danger: when elective procedures stopped and patients avoided hospitals in 2020, the rural hospitals lost a fifth of their revenue in three months while their fixed costs stayed the same. Only emergency federal relief kept two of them solvent.

The Region's Starting Point

The four hospitals serve about 118,000 people and together receive about $164 million a year from all payers. Medicare and Medicaid provide most of that revenue. Avoidable admissions for conditions such as heart failure, chronic lung disease and diabetes complications run about 30% above the state average, a gap that represents both a health problem and, under a global budget, an opportunity.

The Model

Under the proposed model, the four rural hospitals would receive a fixed annual budget from all major payers, based on their historical revenue for the population they serve and adjusted each year for inflation, population change and quality performance. The budget would cover inpatient and outpatient hospital services. If the hospitals kept people healthier and needed fewer admissions, they would keep the savings to reinvest in community services.

Setting the Budget

The baseline would be the average of three years of revenue, excluding the pandemic year, divided among payers by their share of historical spending. Adjustments would reflect population changes, inflation in wages and supplies and shifts of services to or from other providers, so that a hospital transferring more patients to the academic center would see its budget reduced accordingly. A small share, about 2%, would depend on quality performance.

Community Services Funded From the Budget

Savings would fund services fee-for-service does not pay for well: community paramedics, care managers, behavioral health in primary care, transportation to appointments and partnerships with food and housing programs. These services are the mechanism through which a global budget is supposed to improve health.

Policy Authority

The model requires several authorities. Medicare participation would come through a federal demonstration under the Center for Medicare and Medicaid Innovation, which tests payment models. Medicaid participation would come through the state and its managed care plans, which can make directed or alternative payments. Commercial insurers would join through contracts. State policy could encourage participation by making it a condition of state employee health plan contracts. The state's hospital association and rural health office have expressed interest, and the network's academic center, which would receive transfers, would need to agree on how shifted services are counted.

Evidence From Maryland

Maryland has used hospital global budgets longest. Roberts and colleagues evaluated its eight rural hospitals, which adopted global budgets in 2010, and found that by 2013 there were no differential changes in acute hospital use or price-standardized hospital spending among Medicare beneficiaries they served compared with an in-state control group (Roberts et al., 2018b). A separate evaluation of the statewide program's first two years found no consistent reductions in hospital use or increases in primary care visits (Roberts et al., 2018a). A fixed budget changed how hospitals were paid, but not, at first, how patients were cared for.

Evidence From Pennsylvania

Pennsylvania's Rural Health Model gave participating rural hospitals global budgets beginning in 2019. Chatterjee and colleagues compared seventeen participants with forty Pennsylvania comparison hospitals from 2014 to 2023 and found operating margins rose 4.5 percentage points more in unadjusted models but only 3.0 points, not statistically significant, after adjustment, offering mixed evidence that global budgets help stabilize rural hospital finances in the short term (Chatterjee et al., 2025).

Why Earlier Models Fell Short

The evidence suggests three lessons. Budgets alone do not change care; hospitals need new services and partnerships to reduce avoidable use. Short evaluation periods may miss slow changes. And models covering only some payers leave hospitals with mixed incentives. The proposal addresses each: dedicated investment in community services from the start, a ten-year horizon and all-payer participation.

Governance

A regional board with representatives of the hospitals, payers, primary care, public health and community members would oversee the budget, approve community investments and review performance.

Safeguards Against Underservice

A fixed budget creates a risk that hospitals will do too little. Safeguards include quality measures tied to budget adjustments, monitoring of transfers, emergency department waits and access to specialists, a patient ombudsman and public reporting of results for each hospital every quarter.

Stakeholders

Hospital boards need assurance of stable revenue. Physicians need confidence that referrals will not be restricted. Many of the region's physicians are paid by volume, so their compensation would need to shift toward measures of panel health and quality to align with the hospital budget. Payers need predictable spending. Patients and communities need to see better access. The state needs evidence the model works before expanding it, and county governments and local employers want to see services they can point to.

Implementation Timeline

Year one negotiates payer agreements, sets baseline budgets and hires the first care managers so that services are ready when the budget begins. Year two launches the budget and first community investments. Years three through five expand services and adjust the budget. Years six through ten evaluate long-term outcomes.

Evaluation Design

The evaluation will compare the four rural hospitals' populations with similar rural populations elsewhere in North Carolina, using difference-in-differences methods. Measures include avoidable admissions, emergency visits, mortality, patient experience, hospital margins, total spending per person and access to primary and behavioral health care.

Risks

The model could fail if payers withdraw, if budgets are set too low, if the hospitals lack capacity to build new services or if federal demonstration authority changes. Starting with a clear baseline, a multi-year agreement and technical support reduces these risks. The region will also negotiate an exit provision that returns the hospitals to fee-for-service payment without penalty if the model is discontinued, so that the smallest hospital is not left worse off than before.

Conclusion

Fee-for-service payment punishes rural hospitals for keeping people well. A rural global budget could reverse that incentive, but evidence from Maryland and Pennsylvania shows that budgets alone deliver modest results. Paired with community services, all-payer participation, safeguards and a long evaluation, the model offers the region a credible path to financial stability and better health.

References

Chatterjee, P., Wang, M., Chen, X., Kim, S., Coe, N. B., Joynt Maddox, K. E., Murphy, K., & Werner, R. M. (2025). Mixed evidence that rural hospitals' finances improved with participation in the Pennsylvania Rural Health Model. Health Affairs, 44(7), 788-795. https://doi.org/10.1377/hlthaff.2024.01559

Roberts, E. T., Hatfield, L. A., McWilliams, J. M., Chernew, M. E., Done, N., Gerovich, S., Gilstrap, L., & Mehrotra, A. (2018b). Changes in hospital utilization three years into Maryland's global budget program for rural hospitals. Health Affairs, 37(4), 644-653. https://doi.org/10.1377/hlthaff.2018.0112

Roberts, E. T., McWilliams, J. M., Hatfield, L. A., Gerovich, S., Chernew, M. E., Gilstrap, L. G., & Mehrotra, A. (2018a). Changes in health care use associated with the introduction of hospital global budgets in Maryland. JAMA Internal Medicine, 178(2), 260-268. https://doi.org/10.1001/jamainternmed.2017.7455