Potentially Avoidable Utilization (PAU) in Maryland: How the Savings Policy and GBR-PAU Adjustment Work

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

What is potentially avoidable utilization?

Every hospital knows that some admissions could have been prevented. A patient with poorly controlled diabetes arrives in crisis; a patient is readmitted within weeks because follow-up never happened. The HSCRC defines PAU as hospital care that is unplanned and could be prevented through improved care, care coordination, or effective community-based care.^[1] When Maryland moved to global budgets, reducing PAU became a central focus, in the Commission’s words, to ensure care is delivered in the most appropriate setting.^[1]

The logic is straightforward. If hospitals are paid a fixed amount per population, every avoidable admission is both a cost to the hospital and a sign that the community’s care system failed upstream. The HSCRC therefore removes the revenue associated with expected PAU reductions from the system, so that savings are returned to payers and the State.

How is PAU measured?

The current policy defines PAU as readmissions, hospital admissions that might have been avoided with access to high-quality outpatient care, and avoidable hospitalizations for pediatric patients. The latter two are measured using the Agency for Healthcare Research and Quality’s Prevention Quality Indicators and Pediatric Quality Indicators, specifically PQI 90 and PDI 90, the overall composites.^[1] Readmissions are inpatient and observation stay readmissions within 30 days, and readmission revenue calculations exclude readmissions that are also avoidable admissions.^[1]

Prevention Quality Indicators capture ambulatory care sensitive conditions, which are conditions for which good outpatient care could potentially prevent the need for hospitalization or for which early intervention can prevent complications, such as hypertension or bacterial pneumonia.^[2] In rate years 2020 and 2021 the HSCRC changed the measurement to assess preventable admissions on a per capita basis, to better reflect hospital investments in community care.^[1]

What is the PAU savings policy?

The PAU savings policy is the mechanism by which the Commission sets a prospective statewide PAU savings adjustment that limits inflation on revenue related to PAU visits, based on the previous year’s performance. Unlike the HSCRC’s other quality programs, which reward or penalize hospitals, it assumes hospitals will reduce PAU as care transforms and is therefore currently penalty-only.^[1] The policy builds on the former Readmission Shared Savings Policy and the Admission-Readmission Revenue program, and was renamed PAU Savings in rate year 2017, when it broadened to potentially avoidable utilization generally.^[1]

The rate year 2026 update recommendation shows the arithmetic. Staff determined the incremental statewide reduction formulaically, applying the inflation factor plus demographic adjustment (4.87 percent) to the amount of PAU revenue (calendar year 2024 total experienced PAU of about $2.32 billion), against rate year 2025 total approved permanent revenue of about $21.47 billion. The result was a permanent PAU savings reduction of -0.53 percent statewide, or -$113,774,837. Each hospital’s share of the statewide reduction is determined by its performance on avoidable admissions per capita and on 30-day readmissions, with the latter attributed to the index hospital.^[3]

The same recommendation requires hospitals to report on improvement targets and outcomes as part of their high-value care plans aimed at reducing statewide PAU, with a take-back of 0.27 percent of inflation removed in rate orders for hospitals that fail to report.^[3]

What is the GBR-PAU Efficiency Adjustment?

The GBR-PAU Efficiency Adjustment is one of the annual adjustments to global budgets. It is applied to the demographic adjustment, the funding for volume change from population growth and aging. It reduces the amount hospitals receive in their global budget based on historical PAU performance and provides marginal cost allowances lower than average cost, reflecting per-capita efficiencies expected under the model, by applying an additional reduction to the demographic adjustment.^[2]

An important difference from the Readmission Reduction Incentive Program is who is charged with a readmission. Under the GBR-PAU adjustment, readmissions are counted for the receiving hospital, regardless of where the original admission occurred, which the HSCRC says should encourage hospitals to work within their service areas to reduce readmissions. Under RRIP, readmissions are counted for the hospital that discharged the patient.^[2]

The demographic adjustment itself also excludes growth in PAU: the HSCRC provides funding for projected age-adjusted population change while disallowing increases in utilization due to potentially avoidable utilization.^[4]

Why PAU matters for Maryland’s federal agreement

The PAU policy has a federal dimension. The HSCRC notes that it is also important for maintaining Maryland’s exemption from CMS quality-based payment programs.^[1] And the Commission’s own update documents tie PAU reduction to the State’s Medicare savings obligations. The PAU page states that reducing PQI admissions is critical for success in meeting Medicare financial targets under the All-Payer Model.^[1] Under the AHEAD Model, RRIP is to be updated to align with statewide AHEAD readmission goals.^[5]

What can a hospital do about PAU?

PAU is influenced by what happens outside the hospital, so effective responses involve partnerships. Common approaches include care management for patients with complex or high needs, transitions-of-care programs and timely follow-up after discharge, partnerships with primary care practices and community organizations, chronic disease management programs, and data sharing to identify patients at risk. The HSCRC’s own page emphasizes continued attention to care coordination, quality of care and care management for complex and high-needs patients.^[1]

Start by measuring. Obtain your hospital’s PAU revenue, PQI and PDI admission rates and readmission rates, trend them, and identify the diagnoses, ZIP codes and referral sources that drive them. Then decide which interventions have the highest return, and track whether they move your numbers. An invented example: a hospital finds that 40 percent of its readmissions come from heart failure patients not seen by a clinician within seven days of discharge, and that most live in two ZIP codes. A targeted follow-up program for those patients is a more precise response than a hospital-wide effort. The example is illustrative only.

Frequently asked questions

What to do next

1. Pull your PAU revenue, PQI, PDI and readmission rates.
2. Identify the diagnoses and ZIP codes driving them.
3. Choose two or three targeted interventions with partners.
4. Report improvement targets and outcomes in your high-value care plan.