Strategies
A hospital global budget is a fixed payment amount made to hospitals for a set of defined services. These payments are determined prospectively, based on historical utilization, and adjusted annually to account for changing demographics, market share, service mix, and/or other factors. This type of alternative payment model reduces hospitals’ incentive to increase service volume, as hospitals are not paid based on the number of services they deliver. Instead, hospitals are responsible for managing patient service use and operating costs to stay within budget. Global budgets can also financially benefit hospitals. They provide a steady, predictable revenue source that gives hospitals the flexibility to redeploy resources, potentially including services that will better improve the health of the communities they serve.
Hospital global budgets can be implemented in different ways – narrowly for only state-procured plans (e.g., public employee health plan, Medicaid), or broadly to also include commercial and Medicaid payers, depending on federal and state authorities, depending on state authorities. Starting between 2026 and 2028, Medicare, Medicaid and at least one commercial payer will pay participating hospitals using global budgets in states or regions participating in the Center for Medicare and Medicaid Innovation (CMMI) Achieving Healthcare Efficiency through Accountable Design (AHEAD) model. (See here for the Financial Specifications for the CMS-Designed Medicare Hospital Global Budget Methodology.)
Broad payer participation ensures that a hospital will receive the majority of its revenue through the hospital global budget. Receiving a large portion of revenue through a predictable payment allows hospitals to reorient how they deliver care and invest in population health initiatives.
The impact of hospital global budgets on hospital prices and price growth will vary significantly based on program design, including scope (participating payers and hospitals), baseline budget levels, and annual trend.
| Question | Answers |
|---|---|
| Which hospitals should be included? | Hospital global budgets can apply to some or all hospitals. Participation could be limited to general acute care hospitals or broadened to include critical access hospitals and/or specialty hospitals (e.g., psychiatric facilities or rehabilitation hospitals). Inclusion of specialty hospitals will add some additional considerations, for example, around identifying appropriate quality, inflation, and other adjustments. |
| Which payers should be included? | Hospital global budgets can be implemented narrowly for state-procured plans (public employee health plan, Medicaid program), in the commercial market, and with Medicare, depending on federal or state authorities. Medicare will only participate through the CMMI AHEAD model. Commercial payer participation can be voluntary or mandatory. |
| Should hospital and payer participation be mandatory or voluntary? | States can pursue mandatory or voluntary global budgets, depending on their goals, existing authorities, and political feasibility. Hospital Participation: Mandatory hospital participation maximizes the impact of hospital global budgets and puts all hospitals subject to the requirement on the same playing field. Voluntary participation will likely result in a smaller program, but participating hospitals will be committed to adopting the new payment model. This path will also receive less pushback from providers and would not require new provider regulatory authority. It could, however, encourage hospitals operating under global budgets to “shed” patients to hospitals still paid on a fee-for-service basis (see risk mitigation strategies, below). Payer Participation: Mandatory payer participation in some or all segments of the commercial market will result in global budgets that encompass a greater proportion of hospitals’ total revenue, supporting facilities in transforming their operations and business models. Some payers will likely resist this requirement, though others may see hospital global budgets as a promising cost containment opportunity. Voluntary payer participation will result in smaller global budgets that cover lower proportions of hospitals’ total revenue, potentially reducing program impact. Furthermore, voluntary commercial payer participation may limit the program’s ability to constrain annual price growth since states are not likely to regulate annual inflation and other adjustments for commercial global budgets under such arrangements. |
| What authority is needed to establish a hospital global budget? | Mandatory (or Partially Mandatory) Hospital Global Budgets: States can choose to compel fully insured payer participation through insurance regulatory authorities or seek provider rate-setting authority to achieve participation from fully and self-insured plans. In this case, states are more likely to play a strong regulatory and oversight role. This could include some or all of the following: developing the hospital global budget methodology, calculating baseline budgets, annually setting hospital global budget trend and adjustment factors, and monitoring and oversight to guard against gaming or other negative unintended consequences. Voluntary Hospital Global Budgets: States may be able to pursue voluntary hospital global budgets without new authorities. In this instance, states could play a convening role, building support and commitment to participation among both payers and hospitals, or by developing an aligned commercial hospital global budget methodology. |
| Which services should be included in the hospital global budget? | Hospital global budgets can include inpatient and outpatient facility services only, or expanded to include additional service types such as other hospital-owned facility services (e.g., home health services, skilled nursing) or professional services. Including additional services maximizes the percentage of hospital revenue captured within the global budget but increases model complexity. |
| How should the hospital global budget be set? | The basic steps for setting a hospital global budget are: (1) calculate a baseline budget; and (2) trend the baseline budget forward to the performance year.
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| How are payments administered? | Most hospital budget payments are made prospectively, with or without end-of-year reconciliation. The total global budget amount for the year is divided into equal installments based on payment frequency (e.g., monthly, biweekly). Hospitals continue to submit claims for services rendered to support quality and utilization measurement. In models with end-of-year reconciliation, hospitals may receive or be required to pay back some amount of the difference between the budget amount and the value of submitted claims. Reconciliation parameters could vary based on hospital type. |
| How can the state mitigate potential risks? | Hospital global budgets – particularly those that do not include any adjustments for utilization – create a strong incentive for hospitals to reduce their costs, because they retain any unspent revenue at the end of each year. This includes incentives to reduce service volume and care complexity. The incentive to reduce volume could result in reduced access (care rationing) or “lemon dropping” (ending care relationships with high-cost or high-needs patients). States can closely monitor for these potential behaviors, as both can negatively impact patient outcomes. |
Hospital Global Budgets
In 2014, the Maryland Health Services Cost Review Commission (HSCRC) began to annually calculate, monitor, and enforce hospital global budgets for the state’s 46 acute-care hospitals as part of its Maryland All-Payer Model Agreement with CMS. The agreement exempted Maryland hospitals from Medicare’s inpatient and outpatient prospective payment systems and shifted the state’s hospital payment structure to an all-payer, annual global budget. These features ensured that global budgets encompassed 95 percent of hospital revenue. Maryland maintained these arrangements as part of the state’s 2019 Total Cost of Care Model with CMS. Both initiatives leveraged Maryland’s unique all-payer rate setting authority, which allows the State to set hospital-specific and service-specific rates for hospital inpatient and outpatient services.
Federal evaluations found $689 million in net savings to Medicare in the first three years of the Total Cost of Care Model (2019-2021), after accounting for federal and state investments. Across both models, evaluators found a 2.1% reduction in total Medicare spending and a 6.1% reduction in total hospital spending. The model ended in 2025, with Medicare’s participation in Maryland’s hospital global budgets transitioning to the AHEAD Model starting in 2026.
Hospital Global Budgets
From 2019-2024, Pennsylvania implemented multi-payer global budgets for rural hospitals through the Pennsylvania Rural Health Model, supported by an agreement with CMMI that enabled Medicare to join as a participating payer. The model was operated by the Rural Health Redesign Center, an independent organization established by the Pennsylvania General Assembly in 2019. The model’s primary goals were to “support care delivery transformation that improves population health outcomes, increases access to high-quality care, and improves the financial viability of rural Pennsylvania acute care hospitals.” In addition to Medicare, commercial insurers voluntarily participated in the hospital global budget initiative to support hospital financial stability. Eighteen of the state’s 67 rural hospitals participated in the model, including both critical access hospitals and prospective payment system (PPS) hospitals, along with five commercial payers and traditional Medicare.
Federal evaluations found that the model’s biweekly payments and focus on care transformation provided some financial stability and a fiscal buffer to hospitals, though the reconciliation process created some uncertainty. In addition, the model served as a catalyst for participating hospitals to address behavioral health needs in their communities in partnership with community providers, resulting in reduced potentially avoidable utilization and improved health outcomes. However, the model did not reduce the growth of hospital expenditures across payers, as average global budget payments to most hospitals exceeded what would have received under fee-for-service.
Hospital Global Budgets
Rhode Island and Vermont have worked with stakeholders to develop detailed hospital global budget designs and methodologies, though these models have not been implemented to date.