The History of Maryland’s All-Payer Hospital System: From 1971 to the AHEAD Model

By Two Pillars & Co Advisory Group · Sources checked October 2026

Why does the history matter to a hospital executive?

Many of the policies executives live with, from the public payer differential to the 3.58 percent affordability test, are inherited from earlier models. Understanding where they came from explains why they exist and how they may change. This guide walks through the major milestones, using public sources, and notes where details differ by source.

1971 to 1977: rate setting begins

According to the Health Care Transformation Task Force, the Maryland All-Payer Model was built off a rate-setting system established by the Maryland legislature in 1971. The legislation created the Health Services Cost Review Commission, an independent State agency with hospital rate-setting authority. The HSCRC was given responsibility for rate-setting determinations for private payers in 1974 and expanded to include Medicare and Medicaid under a 1977 federal waiver.^[1]

The Regulatory Working Group adds an important detail about the first waiver. At its inception in 1977, a payer differential was established based on business practices of payers that helped avert bad debt for hospitals, such as prompt payment and insuring high-risk individuals. The group refers to it as a differential rather than a discount because the difference in payments is built into hospitals’ rate structures, and it reports that the public payer differential is 5.7 percent for all public payers.^[2] For decades, the model’s core bargain was that Maryland could set rates for all payers, including Medicare, so long as it met federal cost-growth tests.

2014: the All-Payer Model and global budgets

In 2014 Maryland moved from rate setting based on payment per case to a population-based approach. The HSCRC explains that, in contrast to the previous Medicare waiver that focused on controlling increases in Medicare inpatient payments per case, the new All-Payer Model focused on controlling increases in total hospital revenue per capita, and that Global Budget Revenue extended the earlier Total Patient Revenue methodology.^[4]

The Task Force reports the conditions of the model: Maryland had to shift 80 percent of hospital revenue into facility-based global budget payment, limit annual per-capita cost growth to 3.58 percent, generate at least $330 million in overall Medicare savings and achieve a 30 percent reduction in hospital-acquired conditions over a five-year model period. It adds that the 3.58 percent figure was the ten-year average per-capita state gross product growth calculated at the time of the model design.^[1]

2019: the Total Cost of Care Model

In 2019, Maryland and CMS entered a ten-year agreement called the Total Cost of Care Model. It built on the All-Payer Model by adding financial incentives for hospital and provider alignment and state-level accountability for targets covering all Medicare beneficiary expenditures in the state. It also added two programs alongside global budgets: the Care Redesign Program, a voluntary program allowing hospitals to enter agreements with CMS, the State and providers, and the Maryland Primary Care Program, which pays primary care providers a per-beneficiary-per-month amount to deliver advanced primary care.^[1]

The HSCRC’s own update documents show the TCOC model’s requirements at work. In the rate year 2026 recommendation, staff describe the Medicare Financial Test, which required the model to generate $372 million in annual Medicare fee-for-service savings in total cost of care by the end of calendar year 2025, and the all-payer affordability test, which limits all-payer in-state hospital charge growth to 3.58 percent per year over the life of the contract.^[5]

2024 to 2026: from TCOC to AHEAD

The Total Cost of Care Model was designed to run for a limited term, and a successor was negotiated. According to the Maryland Association of Counties, on November 1, 2024, Maryland and CMS entered an agreement for the State to participate in the successor to the Total Cost of Care Model, the States Advancing All-Payer Health Equity Approaches and Development Model, known as AHEAD. In May 2025, under a new federal administration, CMS signaled interest in altering the agreement, particularly the State’s ability to set Medicare rates, and negotiations continued.^[6]

The executed agreement shows the result. The original agreement became effective November 1, 2024. A pre-implementation period ran from July 1, 2024 through December 31, 2025, and the implementation period runs from January 1, 2026 through December 31, 2035.^[3] The amended and restated agreement renamed the model the Achieving Healthcare Efficiency through Accountable Design Model, kept the AHEAD acronym, limited the State-designed all-payer global budget method to the first two performance years, and requires the State to use the CMS-designed Medicare fee-for-service hospital global budget method in performance year 3 and each year after.^[3] CMS’s own description confirms that AHEAD includes five state participants, with Maryland as the first cohort, and that it runs through December 31, 2035.^[7]

A timeline you can keep

Each stage kept the all-payer idea but changed who is accountable for what. The next stage, in 2028, is the largest shift in Medicare rate setting since 1977.

Frequently asked questions

What to do next

1. Note which of today’s policies come from earlier models.
2. Read the guides on global budgets and update factors.
3. Review the AHEAD timeline for your planning horizon.
4. Check how 2028 changes affect Medicare revenue.