How the HSCRC Sets Hospital Rates: Unit Rates, Rate Orders and the Annual Update Factor

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

What is a hospital “rate” in Maryland?

In Maryland, a hospital’s price list is not set by the hospital alone. The HSCRC calculates a rate for each of the hospital’s cost centers. A rate report, the HSCRC explains, is an annual report of all rates calculated for each applicable cost center for each hospital for the current rate year. Cost centers are identified by three-letter center codes that refer to daily, ancillary and ambulatory cost centers; they are described in Section 200 of the HSCRC’s Accounting and Budget Manual, and each cost center has a standard unit of measure explained in the manual.^[1]

A daily cost center, such as a medical-surgical unit, is typically priced per day. An ancillary center, such as laboratory or imaging, is priced per unit of service. The HSCRC publishes the resulting rates by hospital and by center each year, so executives can see their own and their peers’ rates.^[1]

How do unit rates relate to the global budget?

The global budget determines how much revenue a hospital is approved to earn. The unit rates are how that revenue is collected. As the Health Care Transformation Task Force describes it, hospitals continue to bill under fee-for-service at HSCRC-set rates, monitor total year-to-date charges and revenue against the annual global budget, and adjust unit charges on an ongoing basis to remain within the approved budget.^[3] If volume runs above plan, the hospital may need to reduce unit rates for the rest of the year; if volume runs below plan, it may need to increase them. The HSCRC reviews this through rate orders.

The Regulatory Working Group adds that all payers pay the same rate with small policy-driven exceptions, including a 5.7 percent public payer differential and an additional 2 percent prompt-pay discount for which payers may be eligible.^[4]

What is the rate year and the July 1 update?

The rate year, abbreviated RY, runs from July 1 through June 30.^[2] Each July 1, the Commission updates hospitals’ rates and approved revenues to account for inflation, policy-related adjustments, other adjustments related to performance, and settlements from the prior year.^[2] The recommendation that sets the update is called the update factor. The documents are lengthy because the update factor bundles many separate policies into one change in revenue.

What goes into the annual update factor?

The HSCRC’s rate year 2026 final recommendation illustrates the structure. It explains that the update factor includes changes for inflation, high-cost drugs, care coordination, complexity and innovation, quality, uncompensated care and other items as deemed necessary, and that it contains both permanent and one-time adjustments to hospitals’ rate orders.^[2] Its executive summary recommends, for hospitals under global budgets, a gross inflation increase of 3.36 percent (with 0.02 percent of that allowance allocated by each hospital’s share of drug costs) and an overall revenue increase of 5.68 percent, including a net increase to uncompensated care, which equals 4.90 percent per capita.^[2]

For non-global-budget hospitals, such as psychiatric hospitals and Mt. Washington Pediatric Hospital, the recommendation provided a 3.36 percent inflation update and suspended the 0.80 percent productivity offset.^[2] The document also described a net PAU savings reduction of 0.53 percent statewide for rate year 2026 and an allocation of 0.20 percent to a set-aside for efficient hospitals and unforeseen events such as cyberattacks.^[2] Those items are explained in the related guides. The point for now is that the headline percentage is the sum of many parts, and a hospital’s own result depends on how it performs in each.

How is the update tested and approved?

The update is not set in isolation. The HSCRC measures each recommendation against the State’s contractual tests with the federal government. In the rate year 2026 recommendation, staff explain the Medicare Financial Test, which required $372 million in annual Medicare fee-for-service savings 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.^[2]

The process is public. Staff work with the Payment Models Workgroup, stakeholders submit comments, and the Commission votes. For rate year 2026 the Commission approved the final recommendation on June 11, 2025, after comments from the Maryland Hospital Association, which asked for additional support, and from CareFirst, which opposed the draft recommendation over concerns about recent increases in hospital funding and the risk of exceeding the contract guardrail.^[2] Those comments show the competing pressures the Commission balances: hospital sustainability on one side and affordability for payers on the other.

What is changing for rate setting in 2027 and 2028?

The HSCRC’s October 2026 workplan lists a rate model for multi-payer global budgets as work in progress, because from 2028 the Medicare portion of hospital revenue follows CMS’s methodology while other payers stay with the Commission.^[6] Staff said approval of the fiscal year 2028 update factor is planned for June 2027 and that finalized guidance will be published early to give hospitals about nine months to plan, and that they will not switch to a calendar-year budget framework, so the July 1 rate year continues.^[6]

What should an executive take from this?

Three habits help. First, read your hospital’s rate report each year and understand each center’s unit and rate. Second, track the update factor’s components, not only its headline, because the permanent and one-time pieces affect cash flow and the following year’s base. Third, watch the mid-year and year-end targets: for rate year 2026 the Commission proposed applying 49.73 percent of approved revenue to the mid-year target.^[2] Under the AHEAD Model, the Medicare fee-for-service part of this process moves to CMS from 2028, which makes it important to understand today’s process before it changes.^[5]

Frequently asked questions

What to do next

1. Download your hospital’s latest rate report.
2. List the components of your latest update factor.
3. Compare year-to-date charges with the mid-year and year-end targets.
4. Plan for the Medicare share of this process moving to CMS in 2028.