With affordability at the forefront of health policy discussions, one cost-containment approach attracting growing interest is the use of global budgets, fixed prospective payments that replace traditional fee-for-service reimbursement and cap overall spending. Global budgets are not new. Maryland has long operated the nation’s most prominent hospital global budget system, providing hospitals with fixed annual revenue targets regardless of patient volume. The model was designed to constrain spending growth while encouraging hospitals to focus on population health, prevention and avoidable utilization. Today, several states are pursuing similar approaches, though often through spending-growth benchmarks rather than full global budgets.

Only three states currently use global budgets to cut spending: Maryland, Pennsylvania and Vermont. Hawaii is participating in the Centers for Medicare & Medicaid Services (CMS) AHEAD model, preparing to launch hospital global budgets on January 1, 2028.  Eight states have adopted hospital cost growth targets: California, Connecticut, Delaware, Massachusetts, New Jersey, Oregon, Rhode Island and Washington. We expect more states to consider similar spending growth targets in the future as discussions on affordability continue.

AHPA States’ Exploration of Global Budgets and Spending Growth Caps:

Among Adventist Health Policy Association (AHPA) states, California, Oregon, Missouri and Illinois have recently considered legislation to curtail spending.

• Oregon has capped hospital payments under its public employee health plans since 2019, limiting rates to 200% of Medicare for in-network facilities and 185% for nonparticipants, while also capping annual premium growth at 3.4%. The cap currently only applies to the state’s 24 largest hospitals; however, Oregon considered expanding those caps to all hospitals in 2025.
• California finalized one of the strictest benchmark-enforcement frameworks in the country this month, though it is not a hospital-specific global budget. California’s Office of Health Care Affordability voted to discipline healthcare providers for exceeding the state-imposed growth targets with penalties up to 125% of the amount overspent. Noncompliant providers and payers will also face penalties if they fail to establish and implement acceptable performance improvement plans.
• Illinois considered legislation (SB 3900 and HB 5301/SB 3770) that would combine Maryland-style rate-setting with mandatory global budgets, but both failed in committee.
• Missouri tried to pass a bill this year that would have created a single-payer, universal healthcare system for Missouri. Hospitals, clinics and other inpatient institutions would have been paid through annual global budgets. Independent providers operating outside of a hospital system would be paid on a fee-for-service basis. The failed to advance.

Testing with CMS’ AHEAD Model:

CMS has also launched the Achieving Health and Equity through Accountable Health (AHEAD) Model to test global budgets and other payment reforms in Connecticut, Hawaii, Maryland, Rhode Island and New York. These are phased, voluntary programs rather than statewide systems currently operating across every hospital. Vermont had originally volunteered to participate in the model but ended withdrawing in July 2026 due to CMS changing the agreement terms. On December 31, 2025, CMS announced that it was ending Maryland’s decades-long “Total Cost of Care” global budget model and transitioning them to AHEAD.

The evidence on whether these policies work is limited. Supporters of global budgets will point to a Brown University study finding that Oregon’s 2019 Medicare-based payment cap for state employee health plans generated approximately $50 million in savings per year during the first two years of enactment. Critics argue that these spending restrictions further constraint the ability of hospitals to expand healthcare services and invest in future needs. One thing is clear; policymakers are looking beyond prices and toward direct constraints on total healthcare spending growth.