How Maryland Hospital Global Budgets Are Adjusted Each Year: Volume, Market Shift and More

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

Why are global budgets adjusted at all?

If a hospital’s revenue were fixed forever, it would be unfair in both directions: a growing, aging community would outgrow its hospital’s budget, and a hospital that lost patients to a competitor would keep revenue for care it no longer provided. The HSCRC therefore adjusts budgets each year. Its stated list of reasons is that annual revenue is determined from an historical base period adjusted for inflation updates, infrastructure requirements, population-driven volume increases, performance in quality-based or efficiency-based programs, changes in payer mix and changes in levels of uncompensated care, and that revenue may also be modified for changes in service levels, market share shifts or shifts of services to unregulated settings.^[1]

The volume policies share one aim. In the HSCRC’s words, taken together they ensure a competitive hospital market in which money follows the patient, but only so that statewide volume on net does not grow for anything other than population growth and various forms of healthcare innovation.^[2]

The demographic adjustment: funding population growth and aging

The demographic adjustment recognizes that more people, and older people, use more hospital care. The HSCRC provides funding increases and decreases to recognize anticipated changes in hospital volume based on projected age-adjusted population changes at the ZIP code level, while disallowing increases in utilization due to potentially avoidable utilization. It is applied prospectively to acute hospitals’ budgets for the coming fiscal year and capped by Maryland Department of Planning estimates of statewide population change, to align with the per-capita constraint in the model.^[2]

An HSCRC overview explains the mechanics. The calculation begins by determining a hospital’s virtual patient service area, which aggregates the hospital’s service volume in each ZIP code for eight age groups. The HSCRC uses that service-area distribution to attribute population to each hospital in proportion to the services it provides to patients in each ZIP code relative to all hospitals.^[3] That means a hospital’s demographic adjustment depends on where its patients live and how old they are, not on the volume it happened to deliver.

The inputs are refreshed. In the rate year 2026 recommendation, the HSCRC adopted revisions to incorporate updated Maryland Department of Planning population data, including a census restatement and a revised net migration estimate that together added over 41,000 lives, and to reconcile current and future demographic adjustments to cumulative population counts rather than annual percentage growth rates.^[5]

The market shift adjustment: when patients move between hospitals

Population growth is only part of the story. Patients also move between hospitals, for example when a service opens at one hospital and closes at another. The Market Shift Adjustment, or MSA, provides criteria to reallocate revenue to account for shifts in cases between regulated hospitals, so that funding follows the patient and hospitals keep a competitive interest in serving patients efficiently. It does not address all volume changes, only those the Commission can quantify as shifts between hospitals and deems appropriate to evaluate; it does not evaluate readmissions and preventable admissions, because doing so would reward competing for potentially avoidable care.^[2]

Two design features matter for executives. Market shift adjustments are capped at the lesser of the growth for volume gains or the decline for volume losses, which removes incentives to drive up volume in a service area. And the cost associated with a shift is calculated using the hospital service line’s average charge per equivalent case-mix adjusted discharge, with a variable cost factor, historically 50 percent, representing how much of the cost moves with volume.^[4]

The variable cost factor is under review. A July 2025 HSCRC workgroup presentation reported that, with revised evaluations, statewide regulated hospital operating costs were found to be approximately 57 percent variable with volume, slightly higher than the 50 percent historically used; surgical service lines averaged between 56 and 64 percent and medical service lines between 52 and 56 percent. The same document records stakeholder concerns that granular market shift calculations in small geographic regions or small service lines can be statistically unstable.^[4] Executives should check the HSCRC site for any revisions adopted since.

Innovative drugs, complexity and innovation

Two policies protect hospitals from cost growth they cannot control. The CDS-A, or innovative drug funding, measures volume and changes in use of certain high-cost, physician-administered outpatient drugs, mostly oncology and infusion. The HSCRC adjusts budgets through the annual update factor for differentially higher inflation of those drugs and retrospectively for changes in drug volume, 50 percent permanent and 50 percent one-time, which together ensure funding at 100 percent of Average Sales Price.^[2]

The Complexity and Innovation policy adjusts budgets to support highly specialized, innovative care, such as organ transplants and CAR-T cases. It creates a prospective budget amount including a 100 percent variable cost factor for supplies and drugs for qualifying cases.^[2] Eligible cases are in-state inpatient cases in which academic medical centers account for 95 percent or more of an ICD-10 procedure code, with a case-mix index of 1.5 or greater.^[2] The rate year 2026 recommendation explains that this approach replaced a fixed list of categorical cases that had not kept pace with new technologies such as extracorporeal membrane oxygenation and ventricular assist devices, and that staff used 100 percent for drugs and supplies and 50 percent for all other charges for qualifying cases.^[5]

Shifts across the care system: deregulation, repatriation and out-of-state volume

Revenue can also move when services leave the regulated system or when Maryland residents change where they seek care. The HSCRC defines deregulation as the movement of a hospital service from a regulated space to an unregulated one, most often outpatient services, with a service presumed regulated if the building is on a hospital campus. Repatriation is the movement of Maryland residents from out-of-state hospitals back to Maryland regulated facilities. Out-of-state volume policies address patients who live outside Maryland, and the GBR contract allows the Commission to adjust a hospital’s revenue if that percentage changes materially.^[2]

New in 2026: the national demand modifier, surge funding and carve-outs

Volume methodologies are still evolving, and three 2026 developments matter to any executive trying to forecast their budget.

National demand modifier (approved). Historically the demographic adjustment funded population growth but not aging, on the assumption that the extra needs of an older population were offset by innovation. At its January 14, 2026 meeting the Commission approved, by a 5 to 1 vote, a staff recommendation to apply a 0.1 percent national demand modifier to the demographic adjustment, starting with the rate year 2026 policy and implemented July 1, 2026 with the rate year 2027 update factor. Staff said the modifier applies to the non-Medicare population, because the Medicare portion will be governed by a separate risk-adjusted growth mechanism, and committed to revisit it every two to three years with a one-year check using 2024 data. The same decision discontinues applying the demographic adjustment to volumes that are adjudicated through a distinct volume methodology and are not part of population-based payments, such as certain oncology drugs and out-of-state cases. Staff opposed an age-adjusted growth statistic proposed by the Maryland Hospital Association, which they estimated would cost about $130 million a year.^[8]

Surge funding (approved with an amendment). The surge policy funds the extent to which budgeted volumes across a full year may offset infectious disease surges. In January 2026 the Commission approved a staff recommendation, by a 5 to 1 vote, to base funding on a full 12 months of data, to build a nine-month estimate into July rate orders and reconcile it in January, and, from rate year 2027, to weight the evaluation 66 percent on equivalent case-mix adjusted discharges and 33 percent on patient days, reversing the earlier weighting in order to avoid rewarding longer stays. The Commission amended the recommendation to remove any connection between the surge policy and a length-of-stay incentive until further analysis is done. Staff also recommended that hospitals accepting surge funding maintain or increase staffing capacity.^[8]

GBR carve-outs (in development). The HSCRC has been developing a policy to remove certain highly specialized care from population-based global budgets. In its July 2026 Volume Workgroup presentation, staff defined candidate cases as those that meet all three criteria: highly specialized or complex care at academic medical centers and designated specialty centers, high acuity, and variable, unpredictable cost, volume, length of stay or care pathway within a diagnosis-related group. Carve-out diagnosis-related groups would be mapped to rate centers, and the associated revenue and volume deducted from hospital global budgets; baselines would use calendar year 2025 inflated to fiscal year 2027 (a three-year average for small-volume hospitals), and carved-out cases would be paid at 100 percent of hospital charges per case for non-Medicare payers while Medicare pays at the diagnosis-related group level. Stakeholders raised concerns about timing, NICU and newborn groups, out-of-state patients, payment mechanics and alignment with CMS. Staff planned a final recommendation for July 2026 and fiscal year 2027 implementation, and said the HSCRC was still discussing with CMS the alignment of the carve-out lists, so confirm the current status before relying on it.^[9]

Efficiency, capital and set-aside funding

Other methodologies adjust budgets through efficiency and capital policies. In the rate year 2026 update recommendation, staff proposed that hospitals in the third quartile or better of the Interhospital Cost Comparison, or better than one historical standard deviation (6.41 percent) from the average, not be penalized under the Integrated Efficiency policy; estimated that efficient hospitals could receive about $28.6 million (0.13 percent of the recommendation) through the Full Rate Application policy; and recommended a 0.20 percent set-aside to enhance budgets for relatively efficient hospitals and to cover unforeseen events at hospitals in financial hardship, such as cyberattacks.^[5] The figures are examples from that recommendation, and later years differ.

Transfers, capital, quality, PAU and uncompensated care

Other adjustments complete the picture. Transfer adjustments make revenue follow the patient when interhospital transfer rates change, with particular attention to Johns Hopkins Hospital and University of Maryland Medical Center as academic medical centers handling highly acute quaternary cases. The capital methodology provides predictable rate updates for large capital projects, taking account of capital cost efficiency, integrated efficiency, potentially avoidable utilization and excess capacity.^[1]

Quality and efficiency programs adjust revenue up or down based on performance, and the PAU Efficiency Adjustment reduces the amount hospitals receive through the demographic adjustment based on historical PAU performance.^[6] The uncompensated care policy adds or subtracts revenue according to a statewide pooling system.^[7] Each has its own article in this series.

What the HSCRC says is coming next

The HSCRC is rewriting its financial policies for the 2028 changeover to Medicare fee-for-service global budgets set by CMS. Its October 2026 AHEAD workplan lists several adjustment methodologies still to be drafted or finalized, each moving from a draft recommendation to a final one over the coming months: the core volume policies (market shift, demographic adjustment and surge), the funding appropriateness policies (full rate application, integrated efficiency and capital), the incremental volume policies (repatriation, out-of-state volume and deregulation), and carve-outs for drugs and services together with the potentially avoidable utilization policy. The Bridge Adjustment, an adjustments and assessments report, a rate model for multi-payer global budgets and the operationalization of the commercial cost shift are listed as current work.^[10]

The Commission’s September 2026 discussion of the implementation schedule added the dates. Staff said they would pursue a “minimum viable product” strategy of practical, incremental updates rather than disruptive overhauls, including not switching to a calendar-year budget framework, so that a fully operational system exists on January 1, 2028. CMS is to release its final 2028 methodology in January 2027; draft HSCRC recommendations will roll out through early 2027 with extended comment periods; final policy presentations are planned between January and March 2027; and approval of the fiscal year 2028 update factor is planned for June 2027, giving hospitals a nine-month operational planning window.^[10] Methodologies described in this guide may therefore change before 2028, so treat them as the current rules, not permanent ones. Items the workplan marks as draft are staff proposals that the Commission has not yet voted on.^[10]

A summary table, and how to use it

To use this in practice, ask your finance team for the line-by-line components of your last rate order and update factor. Understanding which adjustments moved your revenue, and why, is the foundation for forecasting and for challenging adjustments you believe are wrong.

Frequently asked questions

What to do next

1. Obtain the components of your last update factor and rate order.
2. Map your service lines to market shift exposure.
3. Check how your ZIP-code patient mix drives your demographic adjustment.
4. Watch for revisions to the volume policies.

Sources

1. Maryland Health Services Cost Review Commission, Global Budget Revenue Adjustments. Accessed October 2026.
2. Maryland Health Services Cost Review Commission, GBR Volume. Accessed October 2026.
3. Maryland Health Services Cost Review Commission, Overview of Demographic Adjustment (June 4, 2014). Accessed October 2026.
4. Maryland Health Services Cost Review Commission, Volume Policy Workgroup Meeting 1: Market Shift Policy Overview and Industry Concerns (July 31, 2025). Accessed October 2026.
5. Maryland Health Services Cost Review Commission, Final Recommendation for the Update Factors for Rate Year 2026 (June 11, 2025). Accessed October 2026.
6. Maryland Health Services Cost Review Commission, Global Budget Revenue (GBR) Potentially Avoidable Utilization (PAU) Efficiency Adjustment. Accessed October 2026.
7. Maryland Health Services Cost Review Commission, Rate Year 2024 Uncompensated Care Report (July 12, 2023). Accessed October 2026.
8. Maryland Health Services Cost Review Commission, February 2026 Post-Meeting Materials, including approved minutes of the January 14, 2026 public meeting. Accessed October 2026.
9. Maryland Health Services Cost Review Commission, Volume Workgroup Meeting #4: GBR Carve-outs (July 2026). Accessed October 2026.
10. Maryland Health Services Cost Review Commission, October 2026 Public Post-Meeting Materials (646th meeting, October 21, 2026), including presentation slides. Accessed October 2026.

Sources checked October 2026. This guide is general information for hospital leaders and is not legal, financial or regulatory advice. HSCRC and CMS policies change, and rate-year figures here are examples from the documents named in the sources. Confirm current figures with the HSCRC and CMS before relying on them. Two Pillars & Co is independent of the organizations cited. See our editorial policy.