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Martin O'Malley is finally talking about his best idea: health care

Alex Wong/Getty Images

At the recent Democratic debate, there was a moment — actually two moments — when Martin O'Malley was perfectly positioned to steal the spotlight.

And he just couldn't get a word in.

"Governor, you're breaking the rules," moderator John Dickerson chided him the first time, as O'Malley tried to squeeze in his health care comments before a commercial. The second time — as Bernie Sanders and Hillary Clinton sparred over universal coverage — Dickerson told a pleading O'Malley that CBS had to cut to commercial again or "the machine breaks down."

It was a memorable laugh line. ("Dickerson 2016," Atlantic politics writer Molly Ball tweeted.)

But it was a frustrating moment for a cadre of health wonks, who knew what O'Malley wanted to talk about: Maryland's groundbreaking global budgets for hospitals.

"I was throwing things at the TV," Dr. Joshua Sharfstein told me.

As a health economist might say, Sharfstein had some skin in the game. He's Maryland's former health secretary. And he helped put together the plan that O'Malley wanted to tout on national television.

Ten days later, O'Malley is finally getting national attention for his health care ideas. On Tuesday, he unveiled an extensive health care proposal that includes a grab bag of reforms. More price transparency. New protections on prescription drug costs. Funds to fight everything from lead poisoning to hepatitis C.

But make no mistake: Global budgets are the centerpiece.

How global budgets work, and why Maryland pursued them

As Sarah Kliff and Lena Sun detailed in the Washington Post last year, global budgets take typical health care economics and flip them on their head. Traditionally, hospitals get paid based on the number of procedures they perform, which is known as the fee-for-service model. But global budgets set a cap on spending: Hospitals are assigned a predetermined amount of revenue and are required to meet quality goals to get paid.

Essentially, hospitals are incented to deliver the best care — not the most care.

Different hospitals and insurers had experimented with global budget pilots, but until Maryland there had never been a statewide global-budget project before.

So why did Maryland pursue it? It's a complicated story, but it has to do with Maryland's decades of experience of innovating around health care.

In the 1970s, the state did something remarkable: It set a standard price for every hospital procedure. Typically, health insurers negotiate in secret with hospitals, each trying to get the best deal. But in Maryland, a state agency helps set the price for everything from an appendectomy to a hip replacement. And Medicare, Medicaid, and private insurers will all pay that set fee.

Health policy experts argue that Maryland's price-setting model was instrumental in controlling the state's health care costs. But it started running into some challenges in 2012, as costs were starting to rise quickly again.

Maryland has to get federal approval to run this type of program. And in 2014, officials announced a new cost-control program, one that committed the state to reducing Medicare hospital spending by $330 million over five years (alongside hitting certain quality metrics, too).

Within six months, every hospital in the state voluntarily signed on.

"This is without any question the boldest proposal in the United States in the last half century to grab the problem of cost growth by the horns," Princeton economist Uwe Reinhardt said at the time.

And what's even more audacious: It appears that Maryland is succeeding.

Results published in the New England Journal of Medicine earlier this month concluded that the demonstration already saved Medicare $116 million in 2014, more than one-third of the savings that Maryland had pledged by 2019. Per capita hospital costs actually shrank by more than 1 percent in the state.

A regularly updated dashboard shows off Maryland hospitals' progress against their goals.

maryland dashboard

O'Malley's campaign promise

In his new plan, O'Malley says he'll "create an option for states to adopt hospital global budgeting," although it's worth noting that some states already are moving forward.

For instance, Vermont is piloting an all-payer project. States like Hawaii are reportedly interested, too. Some policy experts predict that interest is going to tick up: Under the Affordable Care Act, states will be able to start implementing their own cost-savings experiments in 2017. (Given the emerging wave of requests, Baltimore-based Johns Hopkins is hosting a series of webcasts on early lessons.)

But there's a question over whether other states can really follow suit.

Take California, which is known as a famously progressive state on health care — it's the home of integrated care, Kaiser Permanente, and a wave of health reforms. And in 2013, a panel of more than a dozen prominent health care leaders called on California to institute global budgets. But the state was never able to follow through.

And don't forget, Maryland also had decades of experience with all-payer rate setting. Essentially, the state had spent decades building a runway — which helped the global budget plan successfully launch.

Regardless of whether Maryland's success is replicable, economists are thrilled. And they say that Maryland's plan deserves more attention — whether at primetime debates or in statehouses around the country.

"We need a lot more experimentation in health care," Harvard economist Amitabh Chandra told me. "Right now, we have Massachusetts and Maryland experimenting with new models. We need the other 48 states to do more."

O'Malley's plan also feels especially fresh given how it stands out compared with other Democratic candidates' health care proposals. Bernie Sanders's "Medicare for All" plan has a fair amount of popular support but is probably politically unfeasible.

"I suppose there's some value in having Bernie Sanders and Hillary Clinton debating universal coverage," Sharfstein told me.

"But what Gov. O'Malley has done is real — right now."

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