Vermont Reform Gets Down and Gritty

by Hamilton E. Davis 

The recent round of hospital budget hearings by the Green Mountain Care Board marked a significant inflection point in the eight-year-long campaign to reform Vermont’s health care delivery system. Costs in the north-of-$2 billion system have been markedly damped down, but the process has been a long slog; and the advent of the Fiscal Year 2020 budgets have illuminated fault lines that are as deep as ever and that could still prevent full maturation of the reform effort.

That assessment sounds grim, if not bleak; and it should not be understated. It is also true, however, that the Green Mountain Care Board has opened up a two-pronged initiative that could point the way to a successfully recast system, in a relatively short time. The reform issue, in other words, is not yet decided, but the defining issues now are much clearer than they ever have been before.

The most important of those issues is how to manage the state’s small community hospitals, whose business model is badly broken here, just as it is across the rural United States; the second is how the political and regulatory players will deal with the University of Vermont’s health care network. Both of those questions are seriously fraught. The outcome will determine the kind of medical system Vermonters have in the 21st century. And, not incidentally, how much they will have to pay for it. To set the stage for that discussion we need an overview of where we stand now. (Stay tuned—it’ll be brief)

In its eighth trip around the budget track, the Board in mid-September approved system spending of $2.717 billion, a little over seven million dollars less than the 14 hospitals asked for in Fiscal Year 2020, which began Oct. 1 of this year. That is an increase of between 4.1 and 4.3 percent of hospital spending in FY2019, for which the Board does not yet have final figures.

The annual rate of increase during the Board’s tenure, which began with the FY2013 budget, is between 3.6 and a tick under 4.0; the difference involves some assumptions that won’t be resolved for some months. What is clear is an upward trend since 2016 in the system’s inflation rate from 2.8 going from 2016 to 2017 to just over 4 percent budget to budget between 2019 and 2020. The average rate over the Board’s tenure is 3.96.

That performance is far better than the eight percent rate the hospitals racked up from 2002 to 2009; but there is no gainsaying the fact the total system costs have moved from sustainable—under 3.0 percent in the 2016-17 window--to more than the Board target of 3.5 percent in 2019-2020. The regulators, and indeed all the players, need to figure out why that is happening, and what they need to do about it. 

The Smalls and a Possible Fix

  The single most intractable problem for Vermont reform is that more than half of the 14 facilities in the state are simply too small to function as fully elaborated acute care hospitals in the 21st century. Those hospitals were built for a 19th and early 20th century world, and the cost and complexity of modern medicine have left them behind.

Anyone who doubts this should consider the recent history of the Vermont smalls. In the 1970s, the two hospitals in St. Albans merged into one; in the decades that followed, Rockingham Hospital in Bellows Falls went out of business; Fanny Allen Hospital in Winooski, Central Vermont Medical Center in Berlin and Porter Medical Center in Middlebury joined the UVM network to avoid going on the rocks; earlier this year Springfield Hospital went on the rocks and is now in bankruptcy court; and Gifford in Randolph and Copley in Morrisville are losing money…

I believe any credible policy analyst would concede the point, but that doesn’t mean that a solution will be easy. There is a huge sunk cost in the physical infrastructure, which adds up to massive over bedding for the state, but which can’t be readily converted to other use. Moreover, the hospitals in small community towns are often the largest employer; and not just the largest employer, but the best-paying employer. An orthopedic surgeon can be a million-dollar earner in a small town, and there aren’t many of those jobs. Finally, the small hospitals in the state have a powerful presence in the Legislature.

Despite these formidable constraints, the Board has launched the first credible initiative to deal with community hospital financing. The proposal, crafted by Board member Jessica Holmes, called for any hospital that is either just breaking even or running in the red to be required to submit a “sustainability plan” to the Board, showing how it would change its operations so as to get reliably into the black.  Holmes added a second criterion: if a hospital’s request for a charge increase for commercial payers exceeded medical inflation for three of the last five years, it would also be required to submit a sustainability plan.

In laying out the plan at the Board’s last budget session, Holmes described it as a “first pass,” but she elaborated on it at some length, laying out a broad path that essentially captured the latest thinking in policy circles about how to grapple with the community hospital crisis. (the following quotes are taken from the notes Holmes spoke from at the meeting.)

To get at their basic financial structure, she said, hospitals could explore collaborations with other facilities, shared services, shared work force, centralized purchasing… a second consideration should be to prepare for the possibility that the 340B program, which provides federal help to pay for drugs, might go away. For some small Vermont hospitals, 340B is the difference between red and black ink.

A critical piece of the sustainability question for small hospitals would be an assessment of the financial efficiency of their various service lines. For example, in the Springfield bankruptcy case, the new management of the hospital closed a new maternity wing because it was delivering just one baby every three days and losing huge amounts of money in the process.

“Some hospitals resisted this question in the hospital budget process,” Holmes said, “but other hospitals, even small ones, were able to identify service lines that were losing money.” If a hospital is losing money on a specific service line, dropping that line could help with their problem, she said.

Holmes also called for a concurrent examination of the quality of services being delivered. “Is our volume high enough to support this service at a high-quality level?” is a question that hospitals should ask of every service line, she said. “We know volume and health outcomes are related…the literature is clear that for certain procedures, patients in low-volume hospitals experience more adverse health events.”

For example, she said, the Vermont Department of Health reports that some hospitals are doing as few as 15 hip replacements and 30 knee replacements per year. Germany, Holmes said, won’t let a hospital do knee replacements unless it does at least 50 per year. “Hospitals need to look at volume and justify continuation of low volume services,” she concluded.

Another necessary perspective in the Holmes proposal was the access question. “What services are critical to deliver close to home?” she asked. “What services could be delivered more cost effectively or at higher quality elsewhere? Would increasing transportation be a better approach? Or increasing telemedicine?”

In its final budget orders, the Board ordered seven of the state’s 14 hospitals to provide a “sustainability” analysis in the coming fiscal year. Hospitals in Brattleboro, Berlin, Morrisville, Randolph, Townshend, Newport and St. Albans must work with the Board to determine specifically what the new template must cover in its report.

The Holmes proposal and its attendant questions get to the heart of the broad questions that formed the basis of the Vermont health reform project when it was designed and adopted by the Legislature in 2011: what should the Vermont hospital-doctor structure look like in the 21st century? The answer, in essence, is that the care should be accessible, that it should be high quality, and it should be financially efficient—that is, affordable.

The system doesn’t look like that today, and it will be hellacious to actually make it do so.

Can We Actually Get at Costs?

A maddening enigma in the whole health reform landscape is teasing out the actual cost of care as money flows through the system. I wrote about this two years ago and I will summarize the content here. Traditionally, hospital financing has operated in a funhouse atmosphere. What they basically do is calculate the amount of money they need to run the place, and then they just build their public set of charges any old way. Doubt that? Here’s what the Green Mountain Care Board found when they decided in the spring of 2017 to look at the pricing of various procedures in the state’s hospitals. Consider a patient with a broken leg. At Rutland, the listed cost to fix was $6,379. At Gifford, $31,941 (not a misprint), five times as much. At Northwestern in St. Albans, $9,709. Copley in Morrisville, $25,731…

Below the surface of the funhouse, there is a level of financial detail that is opaque and complex, but at least is not as patently ridiculous as the world portrayed in the charge masters of the individual hospitals. The details are something of a bureaucratic nightmare, however, and not worth tracing out for the purposes of this discussion. For the fact is that people who have the best picture of a small hospital’s costs by service line are the people running the hospital itself. And right there is the crux of reform.

Everyone will agree the care provided by each hospital should be of high quality and make sense financially. What no one in the Vermont firmament has been so far willing to talk about is the prospect that some, or maybe many of the state’s small hospitals will not be able to do that. And if they can’t meet modern quality and cost metrics, then what happens—do those hospitals close, or recast down to something less a full-scale hospital—a primary care practice, for example, possibly with an emergency room, and some other basic functions?

Or will they fight like tigers to keep everything they’ve got, despite the metrics. Or just try to drag the process out as long as possible, to avoid grasping the very painful nettle. An even blacker cloud hovers just over the horizon. In pure medical and financial terms, it makes no sense that a state of just over half a million people supports as many as 12 hospitals doing hip replacements, but what if abandoning the hip replacements means that the hospital can’t afford to do the stuff that people in their service areas absolutely need, like primary care, or emergency services?

The reality is that in the current small hospital business model, stuff those hospitals shouldn’t be doing may be the only way to pay for stuff they must do. Nothing the big players on the field – the Green Mountain Care Board, OneCare, the Scott Administration, the Vermont Legislature – have said so far indicates that they have any clear idea what to do about the crux of the reform movement.

The single thing I have heard so far that points to a potential resolution was the comment by Dr. John Brumsted, the chief executive officer of the University of Vermont Health Network, to the effect that the only workable structure involves small, medium and large hospitals affiliating into integrated structures. Such a process is widely underway in the U.S.; it is especially prevalent in the northeastern tier, including Maine, New Hampshire and northeastern New York.

In Vermont, however, vertical integration faces myriad challenges, not the least of which is a political environment that is hostile to UVM’s health network. I’ll comment on that in my next post.

Does New York's North Country Have Lessons for Vermont?

by Hamilton E. Davis

Over the last few years, a storm has been gathering over Vermont’s community hospitals, especially those with the “Critical Access” designation that gets them extra federal financial support. Despite that support, the storm is right overhead: Springfield Hospital went bankrupt a couple of months ago; hospitals in Morrisville, Randolph, Newport, Windsor and St. Albans are on track to lose money this year, with dropping patient flows and rising expenses. Two others, Porter in Middlebury and Central Vermont in Berlin, were on a similar path when they sought shelter in the University of Vermont’s health network.

There is no mystery about the financial storm and the damage it is causing, but there has been a total dearth of critical thinking about how to repair the damage. The Scott administration, the Green Mountain Care Board, OneCare Vermont—all have viewed with alarm, but with no serious discussion about a sustainable vision for the state’s small hospitals. Which is interesting, given that precisely the same storm passed over the northeastern corner of New York State a few years ago and the damage there has been fixed.

The North Country Model

New Yorkers call the far northeastern part of their state the “North Country.” The northern and eastern most part is a three-county swatch that includes the northern Champlain Valley and the eastern foothills of the Adirondacks. Ranged along the Canadian border are Franklin and Clinton counties, with Clinton to the east, on the west shore of Lake Champlain. South of Clinton lies Essex County, also bordering the lake. Those three counties are our focus here. There are four medical facilities in this rough quadrangle. The anchor is Champlain Valley Champlain Valley Physicians’ Hospital in Plattsburgh, a smallish near-tertiary center with about 340 staffed beds. I say near-tertiary because until recently, CVPH would perform open heart surgeries. To the northwest is Alice Hyde in Malone, about half the size of CVPH. Due South of Plattsburgh is a 25-bed critical access hospital in Elizabethtown in Essex County; and east of E-town, overlooking the lake, is Moses Ludington in Ticonderoga…Ludington was a full-service hospital, and now isn’t.

So, call it four hospitals in a depressed, mostly rural area in the shadow of the Adirondacks. Beginning some 30 years ago, the four hospitals began to fall victim to the plague that is afflicting the small, rural hospital environment across the country. Little towns began to hollow out, American medicine grew vastly more complicated, as well as expensive; the little hospitals strained to keep up, medically and financially.

My tiny corps of brilliant readers has read about all this before, but I think they should hear from someone else on the subject. In December of 1997, the Wall Street Journal sent its top medical journalist, a woman named Lucette Lagnado, to Ticonderoga to write about Moses Ludington Hospital. I’ll pick out a few highlights, but my readers should click here to see a superb description of a slow-moving, financial, social and medical train wreck. And keep in mind that her report was printed in 1997, 22 years ago.

At that time, Lagnado wrote, Moses Ludington in Ticonderoga was a 40-bed hospital that “may have outlived its usefulness. Its beds are empty: On one recent night only four patients were on hand. Yet it still employs more than 100 people, almost half of them nurses. Operating at a deficit for years, it has been in default since 1990 on federally guaranteed debt that now totals $9.5 million.

“Only New York State’s peculiar system of hospital bailouts and price controls has kept Moses Ludington alive. Propped up by artificially inflated rates, it has been one of the most expensive hospitals in the country, though it lacks such basics as imaging equipment for MRIs and CAT scans. In 1994, a routine baby delivery cost about $3,800 at the illustrious Columbia-Presbyterian Medical Center in New York; at tiny Moses Ludington, it cost twice the end of 1994, Moses Ludington was commanding an average of $12,650 to treat conditions like peptic ulcers and bronchitis with complications, compared with about $3,000 for rivals in the region.

As far back as the 1980s, the local hospital issue was tearing the little town of Ticonderoga (pop. 5,000) apart. Some residents wanted to save Ludington, whatever the cost. Others thought the whole thing was crazy. Both sides also hated one another. Lagnado herself couldn’t see any sensible way forward, and she closed her piece with a quote from the town’s top official:

‘“There is incredible passion about the hospital,”’ says Michael Connery, the town supervisor, current funeral director and owner of the local radio station. But he says the sentiment largely misses the point: The time for Moses Ludington is long past. We should have lost that hospital 10 years ago,” he says flatly, adding that downsizing sharply is the only hope. “There’s a lot of growing up to do around here.”

Growing Up, c. 2015

About four years ago, the medical players in the North Country began to do just that. The key to the solution was linking the four hospitals with one another and then affiliating them with the University of Vermont’s health care network. The designer of the recast North Country system was Dr. John Brumsted and his senior management team. Brumsted is the CEO of the network, which is based on the University of Vermont’s academic medical center in Burlington, and includes two other Vermont facilities, Porter Medical Center in Middlebury and Central Vermont Medical Center in Berlin.

Long Ties

There have been informal ties between the North Country and the Burlington medical community for years. In 1975, Dr. Art Levy, a cardiologist at the Medical Center in Burlington, began traveling regularly to Malone to advise patients and doctors at Alice Hyde. The UVM College of Medicine sent students and residents for rotations in Plattsburgh; one of those was  Brumsted himself, then an obstetrics and gynecological surgeon in training; residents living in the Ticonderoga area often traveled across the Champlain Bridge to have their babies at Porter Hospital in Middlebury, Vt.  

The North Country, however, is a relatively depressed area, and while the health care system in Ticonderoga had been severely troubled for decades, similar problems began to show up in places like Plattsburgh and Malone. And when it did, the New Yorkers began reaching out to UVM for help. The detailed story of how all the pieces went together is too complex a saga for today, but the results have been both clear and striking.

The solution looks like this:

  • The problem in the southern tier was Moses Ludington Hospital; there was no way to render that facility sustainable as a full-fledged hospital; so Brumsted shuttered the hospital, and converted it to what they called a Medical Village, with strong primary care and a fully equipped Emergency facility, supported by both lab and imaging services.

  • By far the most solidly run player in the area was the critical access hospital in Elizabethtown. When I talked to John Remillard, the CEO there, he told me that the hospital had 10 straight years in the black; and that the hospital did no inpatient surgery at all. I was amazed at that—most critical access hospitals in Vermont fight like tigers to rack up every surgery they can get. In any event, Brumsted turned the management of Ticonderoga over to E-town. Effectively, the move collapsed two management teams into one; and they have been affiliated into the network as one unit.

  • Meanwhile, the big hospital in Plattsburgh sought out a relationship with UVM because the New York managers thought they needed more access to the professional resources in Burlington. So, Plattsburgh affiliated with the UVM network.

  • At around the same time, Alice Hyde in Malone was increasing its ties to Plattsburgh, by sharing doctors and other functions. Eventually, Alice Hyde affiliated with the UVM network by virtue of its ties with Plattsburgh. The effect was to collapse those two managements into one, which now reports to Brumsted.

      The vision for the North Country solution can be summed up in Brumsted’s mantra that medical care has to be delivered to the right patient at the right place and at the right time. That is so obvious that it has become a cliché, but it happens only rarely in American medicine. An example of where it mostly doesn’t happen is Vermont, which is the whole point of reform in our state, about which more later. 

   For now, some critical details about the way the North Country actually works:

Most surgery short of the most complex takes place at CVPH in Plattsburgh. There is no standard in-patient surgery in Ticonderoga or E-Town; it all goes to Plattsburgh, or Burlington. Example: about a year ago a young man of my acquaintance suffered a severe attack of appendicitis. His mother drove him to E-town where the ER docs immediately sent him by ambulance to Plattsburgh, where the docs yanked the appendix. That kind of thing means that instead of maintaining routine surgery in the southern tier with low volumes and high fixed costs the volume goes up at Plattsburgh, which means that the fixed costs are spread and the surgical teams stay sharp.

Another critical example: When the UVM system took over Plattsburgh, Brumsted and his team looked at the high-end surgery there. A major question was the efficacy of the cardio-thoracic team, which did open heart procedures like coronary artery bypass graft, CABG, known in the biz as “cabbage” or just, “bypass.”  Plattsburgh was doing about 110 bypasses per year; barely two a week, which routinely led to millions of dollars of losses per year—one of the reasons the key players at CVPH wanted help from UVM in the first place. Moreover, Brumsted knew that 150 or so residents of the North Country were going around Plattsburgh each year to get their bypasses in Burlington.

Still, the changes UVM was imposing on the four-hospital system were wrenching and politically fraught, so Brumsted worked hard not to be overbearing. Gathering the cardiac team and the hospital senior managers, he told them he wouldn’t make any changes for three years—on one condition: that they tell him face-to-face that they were confident enough about their quality that they would bring their own family members there for a bypass.

Shortly thereafter, the hospital management told Brumsted they couldn’t meet the condition. So the cardio thoracic surgery team went away and the New York bypasses came to Burlington. What the Plattsburgh docs could do was the catheterization procedure that precedes bypass surgery, so Brumsted kept them doing that work, and increased the volume there by shifting the catheterization of New York patients back to Plattsburgh.

Cases like that are dramatic, of course, but according to John Remillard at E-Town the integration of the North Country medical resources leads regularly to cost savings. A couple more examples: about a year ago, E-town lost its top computer manager to a nearby university and Remillard faced the need to replace him. Instead, he simply called Michelle LeBeau, the CEO in Plattsburgh, and she assured him that if he ran into a bad computer system problem she’d send her IT person to help him fix it. Savings: low six figures.

   Another example: two critical players in the southern tier are the docs running the E-town-Ticonderoga primary care and Emergency systems. In most places, those jobs are full time, and very well paid. The chief of primary care at E-town and Ti is Dr. Rob Demuro. In the UVM system, Demuro manages the primary care side—in 10 percent of his time. The remaining 90 percent of his time he works as a primary care doc. His Emergency system counterpart is Dr. David Claus. He both manages the E-town, Ti and emergency systems, and takes a regular turn as an ER doc.

   “If I had to pay for two full-time management jobs there,” Remillard says, “I couldn’t make my budget.”

   Is the job complete in the North Country? Net yet. Alice Hyde in Malone is integrated with Plattsburgh only partially, mostly at the management level. Michelle LeBeau is the president of both Alice Hyde and CVPH, and there are also single top management jobs that now cover both hospitals. But the service lines at Malone might need more work.

   I have not yet been able to quantify the specific dollar savings flowing from the integration of the North Country medical system, but it has clearly been more than welcome to the New York State Department of Health. The department invested some $15 million in the conversion of Moses Ludington from a hospital to a “medical village” and, according to John Remillard there was no way the state would have done that without assurances that the UVM health network would oversee the North Country system.

   The reason for laying out the North Country experience for Vermont readers is that there may be very valuable object lessons there. It will be interesting to see whether the Vermont reformers take a close look at the North Country—UVM network nexus. For example, might the problem at Springfield be solved along the lines of the Ticonderoga experience? And what does the Plattsburgh experience suggest for the small Vermont hospitals scrabbling for the most complex—and lucrative—cases they can possibly manage, even if they don’t make medical or financial sense?

So far, there is no evidence the Vermont reformers have even glanced.

Deep Stresses in the Vermont Hospital System Surfacing This Summer

by Hamilton E. Davis 

Vermont is now entering the eighth summer of its health reform project, and this one promises to be different from all the rest. So far from being the doldrums of the policy year, summer in health policy is actually the crest. On July 1, the state’s 14 hospitals submitted their Fiscal Year 2020 budgets and they will be critical—cost containment is still the highest priority for the reform managers. In a couple of weeks, the Green Mountain Care Board will hold its annual hearings on the rates that Vermont Blue Cross and the New York-based carrier MVP can charge customers on the federal insurance Exchange. And sometime soon, federal Medicare officials will visit the state to check on the most important state reform effort in the U.S.

All of these processes have taken place in recent years, of course, but this summer will be different both qualitatively and qualitatively. The broad shape of reform is now clear, but the structure in place is still far from mature: major decisions remain to be made, and many of them will be as difficult as the initial steps were. For there have been tectonic shifts in the geology of the state’s hospital system.

Let’s count the ways:

The Community Hospitals

One of the anomalies that make reform in Vermont complex is its asymmetrical hospital infrastructure. The UVM health network’s Medical Center Hospital in Burlington dwarfs the other 13 facilities in the state. UVMMC delivers roughly half the care in the state. A not-so-obvious anomaly is that the dominant hospital for the eastern half of the state is Dartmouth-Hitchcock Medical Center in Lebanon, N.H. D-H is the referral center for community hospitals in Randolph, Newport, St. Johnsbury, Windsor, Springfield, Brattleboro, Bennington, and to some extent, Rutland.

One of the most difficult problems facing Vermont reformers is that most of the community hospitals are too small to function efficiently, either in financial or quality terms, in the 21st century medical world. Of course, nobody wants to talk about that because of the very important role the small hospitals play in their home communities. But the issue is becoming too pressing to ignore much longer. Consider the evidence. In the modern era, three hospitals have basically gone away. Kerbs Memorial in St. Albans merged with a second hospital in town; Fanny Allen in Winooski gave up independence and joined UVM; Rockingham Hospital in Bellows Falls went broke and closed. In the nearer term, Porter Hospital in Middlebury joined the UVM health network as it was going on the rocks; as did Central Vermont Medical Center in Berlin, although CVMC wasn’t obviously going on the rocks. And right now, Copley Hospital in Morrisville, and Gifford in Randolph are losing money. Plus, Springfield Hospital is actually on the rocks—AKA bankruptcy court.

In response to this trend, which is national as well as regional, the Green Mountain Care Board has launched a study of the rural hospital issue. A major driver of this trend is the fact that many community hospitals have built their financial structures around relatively sophisticated medical procedures, like hip and knee replacements, that bring in big money per case, but are not economically efficient because their volumes are too low. The weakness in that strategy is getting more and more obvious every day. In the last three budget review cycles by the Green Mountain Care Board, the members have pointed out a persistent pattern in small hospitals of expenses rising, while revenues coming in are declining. That pattern makes it clear that the financing for the small hospitals is not sustainable.

Nobody so far has suggested what to do about the problem, but the issue won’t wait much longer. Watch the hearings for a hint.

Hospital Budgets

The hospital budgets for Fiscal Year 2020, which open Oct. 1 of this year, will have to be looked at in a different light than in the past. One of the main reasons is the decline of the small hospital network, as set forth above. The small hospitals usually exceed the Green Mountain Care Board’s cap target, but they are not usually held to account for that. The thinking seems to be that, what the heck, the overage for each individual hospital is small, and everyone understands that the little guys are struggling. So, let it go. There would be some stern talk about falling patient volumes, increasing expenses, and negative margins, and exhortations to change the business model. But that would be about it, until the next year, when the whole dance would occur again.

Any who doubts that is invited to consider the Springfield experience. When Springfield Hospital stunned everyone by telling everyone last winter that they couldn’t pay their bills, the reformers leapt into action. The Agency of Human Services wrote them a check for $800,000 to keep them afloat. And when the hospital administration came into the Board a few months ago and asked for a rate increase, they got it, basically no questions asked. Hey, you can’t kick ‘em when they’re down.

And once the hospital brought on Mike Halstead of Quorum to run the place, it hasn’t sugar coated anything. Halstead very clearly said that the hospital couldn’t survive without a “partner” (read: someone to drop a bag of money on the place to rebuild it); he said just as clearly that he hadn’t been able to entice Dartmouth-Hitchcock into that role. In other words, nobody has an answer to what is a very serious illness. Moreover, the reformers have to worry about Copley, Gifford, Mt Ascutney (Windsor) and North Country (Newport) that are showing many of the same symptoms.    

A second conundrum for the Board is how to regulate UVM’s Medical Center budget, and the other two units in its network—Porter in Middlebury and Central Vermont in Berlin. The UVM Medical Center is an entirely different beast from the community hospitals. It’s not just that the UVM facility is much bigger than anyone else, although it is. It also has a different financial structure. Its doctors don’t get paid fee-for-service, they get paid salaries. Which is a huge difference. Paying for each unit of care is a powerful incentive for overuse. At UVM, by contrast, the big challenge is getting the work done that walks in the door.

For the first five years of the Board’s reign, the UVM Med Center came in right at or under the cap. The most illuminating evidence came in 2017, when the Med Center went $40 million over its budget and yet the system wide cost dropped from a 4.4 increase in 2016 to a 2.8 percent bump in to 2017. The only way that happens is if some of the patients that had been going to small hospitals went to UVM instead, and if, when they got there, they were dealing with different medical practice patterns that are less driven by the profit motive, and more by medical necessity. In fact, nearly all of the positive elements in the first five or six years of the Vermont reform era in the budget dimension were delivered by the UVM Med Center.

At the same time, however, a narrative was born in the political environment that UVM was a really bad actor, that it was trying to destroy the other elements in the delivery system. That narrative never infected the Board itself, but it made it much easier for the Board to think of UVM as a piggy bank for the state. Example:  last year’s hearing on Blue Crosses insurance premiums. In the last couple of years, Blue Cross has been coming in for rate increases inflated far above the rate occurring in the hospital system. When the Board gets in the hearing room in Room 11 of the State House, they know they will be dealing with a whole bunch of people in red tee shirts contending that no one can afford those insurance rates. They’ll hear the same thing from Vermont’s Health Advocate.

The Board will cut the Blue Cross rate ask some—it’s over 15 percent in the rate case that will be held in the next couple of weeks. But there is no way they can keep the advocates happy. So, when the Board got to the UVM Med Center budget last year, they refused to let UVM charge Blue Cross for its share in the underpayment by Medicare and Medicaid. That took a bite out of the UVM bottom line, which is essential to UVM’s ability to borrow money in the bond markets.

The same issue will be on the agenda in this summer’s hearings. But UVM’s ability to function as the Vermont reform piggy bank is rapidly declining. The reality is that Medicare and Medicaid do not pay the actual cost of the medical care they buy, and if they can’t shift any of that loss to private payers then they will have to cut into their own muscle. And if that happens, the real victims will be the thousands of Vermonters who pour through the state’s biggest and most important hospital every day.

So, big challenge for the Board. And, of course, there will be no shortage of voices saying it’s all UVM’s fault. And their job will be to evaluate that side of the ledger. The real issue underlying all of this is whether the Medical Center’s inflation rate is being driven by new patients getting high quality care. The problem:

Neither the Green Mountain Care Board nor the Scott administration, nor the Legislature, nor the insurance industry, nor any other element of the regulatory system has any ability whatsoever to distinguish medically justified care from that which isn’t.

It isn’t as though the Board hasn’t thought of it. Several months ago, the GMCB staff and the finance people from the hospitals began looking at ways to shift the regulatory base from Net Patient Revenue (the total spent by each hospital for delivering care) to the cost per capita spending in each hospital service area. That metric turns the financing picture upside down. If you focus on Net Patient Revenue the UVM system look wildly expensive. In the past, by contrast, Cost per Capita has showed UVM to be, by far, the least expensive care in Vermont.

The reality is, however, that the contemplated shift is nowhere near ready for prime time; there is no assurance that it would even be ready for the 2021 budgets, which will be going together in just six months.

The question on the table, then, is whether if UVM exceeds the 3.5 percent cap, it will get punished by the Board. Which would be a major mistake, because UVM, after five years of grinding costs out of its own system, is starting to run too lean.  

Evidence? Compare the experience of Porter Medical Center in Middlebury and Springfield Hospital on the eastern side of the state. When Porter went on the rocks a few years ago, they just joined the UVM network and their problems went away. UVM provided the financing to get by the crisis, and their vastly superior organizational muscle was available to ease other problems at the Middlebury facility. The same thing is true for the Central Vermont Medical Center in Berlin.

A very different recipe at Springfield. That hospital, like all of the community facilities in the Connecticut River valley, refer their complex patients to Dartmouth-Hitchcock Medical Center. in Lebanon, N.H. When Springfield went into the weeds, they pleaded—actually begged—D-H to rescue them. Not a chance. Despite the fact that the New Hampshire facility gets some 40 percent of its traffic from Vermont, and realizes several hundred million dollars in revenue in the bargain, D-H evinces no interest at all in the Vermont situation. Its focus lies instead on its prospects to the southeast, where Boston’s medical behemoths are pushing north. Another probable constraint is the very heavy regulatory regime in Vermont compared to New Hampshire, and the near impossibility of getting any investment support from state government. The fact is that the costs of reform are being borne entirely by the hospitals themselves, and D-H has no interest in taking on that burden for the state’s east coast.

So, Vermont is on its own when it comes to problems in Newport, St. Johnsbury, Windsor, Springfield and Randolph. Not all of those are in trouble now, but several are; and neither the Scott administration, nor the Green Mountain Care Board, nor OneCare Vermont has a clue what to do about it.


One of the most persistent challenges Vermont reformers face goes by the name Scale. The scale problem grows out of Vermont’s agreement with federal Medicare officials to get 70 percent of its eligible population (and 90 percent of its Medicare recipients) into fixed price contracts by 2022. Under these so-called risk contracts, the various payers—Medicaid, Medicare, Blue Cross and, sort of, self-insured employers contract with a bunch of doctors and hospitals to provide all necessary care to large groups of people for a set price. That process is the central element in Vermont reform.

The problem so far has been that while the number of Vermonters included in the system has grown steadily, it has not grown fast enough. The number involved in risk has grown from 30,000 in 2017 to 110,000 in 2018 and to about 170,000 in 2019. (These numbers are approximate). The shortfall currently is a little over 200,000 lives; and the question is whether the reformers can make up the slack between now and 2022. What will that take?

A part of the bottleneck in the system is the number of primary care physicians that will attribute their patients to the OneCare Vermont, the entity that can contract with payers under fixed price contracts. For the past three years, there has been considerable reluctance on the part of elements in the primary care community to do that. That reluctance is easing, but it is not clear whether it is easing fast enough. We’ll know more about that by fall, when the payers and OneCare put the 2020 agreements together.

Another piece of the bottleneck is the posture of Blue Cross of Vermont. Blue Cross attributes part of its customer base in the federal insurance Exchange, but the real issue is whether the Blues will try bringing a big chunk of the big-employer-self-insured community into OneCare. The Blues don’t bear the insurance risk for those patients, but they manage the paperwork for them, and therefore have a strong role in the decision. Over the last few years, the Blues were basically having no part of it.

That may be changing, however. Kevin Stone, the acting CEO of OneCare, has been working closely with the Blues top management, and if they can craft a product that the big employers will buy, it could go a long way toward getting to scale.

Other Problems

Those are the big issues, but there are others. One is that OneCare Vermont has been without a permanent president since February, and it needs to get a new leader on board soon. Another is that Al Gobeille, one of the most important players in the system, has now left his post as Secretary of Human Services, and it’s not clear when the Scott administration will fill his job. Yet another is that while Dartmouth-Hitchcock dominates the whole eastern half of the state, its budget and strategies are a black hole to Vermont reformers. Finally, the single most important driver—federal Medicare and Medicaid officials—is in an ambiguous position. They have lead the national effort to achieve “alternative financing systems,” but it is not clear yet how they will handle their end as Vermont works to get the required 90 percent of Medicare recipients into risk contracts.

Hence the conclusion that this summer is different from earlier summers, and while the whole apparatus could just keep chugging along, it’s worth considering the geology metaphor I opened with. We can live for many years with tensions building up beneath the surface of the earth, but every once in a while they become too much to bear, and the resolution is an earthquake that can shatter whole cities. The same risk is out there this summer in Vermont’s health care delivery system. The dysfunction in the community hospital network, the complexities of the hospital budgets, the shortfall in scale—any one of them could be seriously destabilizing, and all of them together constitute a major threat.

Wish the reformers luck.

Bernie’s Medicare for All Plan Needs a LOT of Work

by Hamilton E. Davis

Back in the years when Bernie Sanders was mayor of Burlington, command central of Vermont state government was the committee room of House Appropriations, a cramped, ornate aerie on the third floor of the state capitol. The centerpiece was a long rectangular oak table with 12 chairs, one for the witness of the hour, the other 11 for the committee members. Every dime spent by Vermont government had to receive its blessing here.

When the custodians of one or another portion of the state budget would pull their chair up to the table, they might notice a small piece of tape affixed to the edge. “Fasten your seat belt,” it read. Having absorbed that, they would raise their eyes to the opposite wall where there was another small piece of white tape. “What is it about No that you don’t understand,” it said. And at the end of the legislative session, the advocates and bureaucrats who knew they could not possibly live with the amount of money they had been allotted were invited in for one last appeal. The committee called it, “Whine Day.”

I’m not sure whether Bernie ever subjected himself to the rigors of the House appropriations process, but the enduring reality about government financing manifested there illustrates why his “Medicare for All” initiative is orders of magnitude more complex than he imagines. The reason: Neither federal nor state government can raise taxes fast enough to pay for the American health care system as it is now organized and financed. The only people who can keep up with costs that rise at multiples of the underlying rate of inflation in the economy are big employers. If IBM or John Deere get hit with a big increase in health insurance premiums they can build it into the price of computers or tractors very quickly. And they do. It has become a cliché that the biggest single cost of building a General Motors car is the cost of health care for its workers.

That does not mean that Medicare for All is impossible, only that it would require changing the way health care is paid for. That in turn means recasting its current corporate structure so as to shift the financial risk from the public to the doctors and hospitals themselves; and if you do both of those things you’ve uprooted the whole culture of the delivery system. Carrying out such an enterprise is hideously difficult—but it can be done, and one of the supreme ironies of the whole Bernie thing is that it is being done in Bernie’s home state of Vermont, and nowhere else. It is doubly ironic that Bernie has never evinced any interest whatsoever in the Vermont reform project.

The essence of the Vermont reform project is that it aims first to solve the problem illustrated by the House Appropriations process—getting costs under control. Only then can you think about shifting the 50 percent private share of the whole cost onto government financing. Vermont’s reform law, passed in 2011, established as a first step a regulatory body called the Green Mountain Care Board, with two mandates. The first was to put a cap on the annual increase in the costs of the state’s 14 hospitals; the second was to oversee a shift in hospital reimbursement from fee-for-service to block financing for blocks of patients.

The latter step means midwifing fixed price contracts between various payers, like Medicaid, Medicare or Blue Cross and groups of providers—doctors and hospitals—that can deliver a full range of necessary services to sizeable blocks of patients. The Vermont reform initiative has been quite successful in stage one, which amounted essentially to capping the cost of its 14-hospital system at an inflation rate of 3.5 percent per year. In fact, the final figures for Fiscal Year 2017 came in at just 1.7 percent over the previous year.

Keeping that sustainable rate, however, will require that the second stage—the fixed price contracts—also succeed, and accomplishing that goal will be far more difficult. Vermont has an agreement with the federal government to get 70 percent of its eligible population into risk contracts by 2022; the feds will require that 90 percent of Vermont’s Medicare recipients be enrolled.

Vermont’s current trajectory on the risk contracts is well short of that necessary to meet the 2022 deadline. The reasons for the slow pace amount to an augury of the kind of dynamic that could destroy a badly designed national Medicare for All program. By badly designed I mean a program that leaves fee-for-service reimbursement in place, and then loads that unworkable system with a huge new slug of demand.  

A simple example, in approximate figures: the acute care delivery system in Vermont spends about $2.6 billion per year. That figure comprises the cost of doctors and hospitals; it does not include non-acute care like nursing home services, home care and social services associated with acute care.

Roughly half of the acute cost is now paid by government in the form of Medicare and Medicaid. It is important to note that government payments do not cover the actual cost of delivering the care. A rule of thumb is that Medicaid pays about half the real cost, while Medicare pays about 75 percent of the real cost. That means that the shortfall has to get picked up by private sector payments from insurance companies or large, self-insured employers. The shortfall, or “cost shift,” in Vermont in 2017 was $455,111,000, and we’re headed for a cool half billion dollars—the budgeted figure for the cost shift in 2018 is $486 million and in 2019 the number is $492 million.

That shows that some 20 percent of the total acute care cost has to be absorbed somehow. I’ve read the health care material in Bernie’s book, and some of the ocean of commentary from the health policy community, but I haven’t seen anything to indicate that people are yet focusing on the key metric, which is the allowable inflation rate and how that would impact the operations of the delivery system. They typically note that Medicare for All would have an impact on doctors and hospitals, but that’s just Homer Simpson commentary. The critical question is how to deal with the impact.

We have seen the political hit the idea took when former Governor Peter Shumlin tried to install a Vermont-level single payer—same concept—in 2014. Shumlin’s reform team worked on it for more than two years, and they concluded that there was no way the state could afford it. The payroll tax necessary to pay for it was too big a lift. That policy train wreck destroyed Shumlin’s political career.

And those numbers were just for the first year. The first year is always easiest in a political sense. The number will be big, but if you can generate enough political momentum then it gets passed, and everyone thinks, “Whew, it’s done.” The real problem, however, comes in the out years, when the big number you survived once grows, and grows and grows. And if the inflation rate exceeds the inflation rate in the general economy, you run into the iron realities of Appropriations Committees everywhere.

That conclusion isn’t just some theory. It is precisely what happened when Medicare and Medicaid fired up in 1966. By the early 1970s, the federal government, and all the state governments were running for cover, because the increased demand was generating inflation rates at three, four, five times the rate in the overall economy. The cover they found was to dump the unbearable part of the cost onto the private sector. With Medicare for All, there is no place to hide.

So, if that’s the case, why would anybody say that Medicare for All is possible?

The answer to that gets us to the second part of the Vermont project, the part that Bernie has never shown any interest in. Medicare for All would work if the health care delivery system costs could be well enough managed to keep the annual cost increases to the level of general inflation in the economy. In current terms, that would be something a little south of two percent.

Vermont’s regulatory apparatus is probably the most rigorous in the country. The Green Mountain Care Board has the power to approve hospital budgets, as well as to approve all major new capital expenditures by the hospitals. It also has the power to regulate the rates that Blue Cross and MVP, a New York-based carrier, can charge for policies sold on the federally sponsored Exchange. And as noted above, the rates so far are closer to sustainable than most.

  It is also true, however, that the Vermont program is built on the proposition that just “regulation” will fail to deliver sustainable costs over time. The program, therefore, instructs the Green Mountain Care Board to foster, or oversee, recasting of the delivery system so as to shift reimbursement from fee-for-service to block financing, or capitation. The federal government clearly believes this is necessary—they are doing all they can to encourage a shift to”alternative payment models,” the clearest manifestation of which is fixed-price contracts between payers and groups of providers assembled into an Obamacare gizmo called an Accountable Care Organization (ACO). An ACO is just a baggy sort of company that allows a group of providers, say, a tertiary referral hospital, or two; several smaller community hospitals; and primary care doctors to deliver all the care needed for a big bunch of patients for a fixed price.

The fixed price attacks the engine of cost inflation, which is the total volume of care delivered by a system. All other regulatory schemes are based on unit costs, which can be fixed absolutely, but which are vulnerable to overuse. The payer can decide what it will pay for an MRI, but only the doctors can decide how many MRIs to order, a perquisite they exercise every day. With a fixed price contract, they can perform MRIs until the machines smoke, but they can’t make any more money thereby.

When considered in the light of the Bernie plan to install Medicare for All across the country, Vermont is closer to being in a position to manage that than any other state—by far. Consider: there are roughly 850 ACOs in the country. In 2016, when the feds were pushing the idea of rebuilt financing, they chose 20 ACOs to participate in what they called the ”Next Generation” project.

Of those 20, the only one driving directly at fixed price, capitated financing is Vermont. The implication of that datum is that an infinitesimally small piece of the national acute care system is anywhere near ready for full government financing. And anyone who thinks that moving the national system to a radically different financing structure in a short time is easy is living in a cave. Vermont has been working on it for eight years, and we aren’t there yet.

I have written about the issues involved in that quest for several years. But a highlight reel would include opposition from important elements of the press, the legislature and the primary care doctor community. Throw in a failure by Dartmouth-Hitchock to lead in eastern Vermont the way the University of Vermont has in the west, a reluctance by the Scott administration to lead, a diffident response by the business community, the inability of the small hospitals to cope with modern medicine, egregious foot dragging by Blue Cross, and the half-baked performance of the federal Medicare officials themselves in managing their end. Those are just the highlights…

The Vermont reformers working in the Green Mountain Care Board, OneCare Vermont, the Agency of Human Services, the Vermont hospital association, are pushing ahead steadily on all of these fronts, and they haven’t been stymied yet. At the same time, however, the movement is painfully slow. It is still not safe to shift the Vermont system to full government financing.

And the idea of trying to take the three trillion dollar U.S. system there without completely recasting that system so it could operate in an upside-down financial environment would be governmental insanity. No amount of Bernie ranting can change that reality.

Feds Salute Vermont Health Reform as Best in US in Phase One

by Hamilton E. Davis 

   Federal Medicare and Medicaid officials today issued a pair of detailed studies showing that Vermont’s health care reform project outperformed other key states’ efforts from 2013 through 2016, the first phase of nationwide reform under the umbrella of Obamacare. Over that period, Vermont saved $97 million in Medicaid costs, the main study said.

   The studies compared Vermont against reform projects in Maine, Massachusetts, Minnesota, Arkansas, and Oregon on three key metrics—cost containment, utilization control, and quality. “Only Vermont’s (reform model) …had a statistically significant slower increase in total Medicaid expenditures after two and three years,” the main report said. Vermont also had statistically better performances on utilization—a measure of unnecessary care—and quality control.

   No other state in the studies came close. Minnesota and Massachusetts had no positive effects at all. Arkansas and Oregon made some progress on quality control while Maine did a little better on utilization. But no reform project other than Vermont had solid progress across the cost, utilization, quality front.

   The federal endorsement, which was reported by Governor Phil Scott, electrified the Vermont reform community. Scott said the findings are “incredibly encouraging and demonstrate the validity of our approach.” He credited what he called the “hard work of multiple administrations, and added: “Being innovative in our work to limit growth in health care costs is the key to long term affordability, and I’m pleased that Vermont is leading on that effort.”

    Al Gobeille, Scott’s Secretary of the Agency of Human Services, exulted at the news. "Huge!!!!," was his first notification to his team. Gobeille was first a member and then chair of the Green Mountain Care Board during the period examined in the studies, so he was a central player in the success of that phase.

    “This is concrete evidence that health care reform can work,” Gobeille said. “By working together on cost control and improving quality, we can save money and improve the patient experience.”

   Kevin Mullin, who replaced Gobeille as chair of the Green Mountain Care Board, said he was “proud of the work done by the reform, as well as the state’s providers…the report will function as rocket fuel to propel the reform project the rest of the way.”

   Kevin Stone, interim president of OneCare Vermont, also welcomed the report, which he said “validates the efforts of the provider community to change the way health care is paid for and delivered. This foundation provides the right momentum to build on the early successes of reform.”


   The federal blessing was particularly gratifying to reformers because the Vermont effort has been dogged every step of the way by political opposition across several fronts, including elements in the Legislature, the press, the primary care physician community, and others.

   For example, opponents mounted a strong effort last December to derail the budget of OneCare Vermont, the ACO that represents most of the hospitals in the state. And last summer, the Green Mountain Care Board was ripped for the way it dealt with insurance rates for Blue Cross. Former Gov. Howard Dean tweeted then that the Board had never accomplished anything.


    The Phase One assessment was sponsored by federal Medicare and Medicaid officials under contract with two organizations, RTI International, which included contributions by The Urban Institute, the National Academy for State Health Care Policy and the Henne Group, a market research firm; and the Milbank Memorial Fund, a New York-based group that specializes in population health.

   The RTI effort was massive, more than 650 pages long, including appendices for each state that teased out what appeared to be every tiny bit of data and submitted the results to all sorts of statistical and methodological steps. The Vermont appendix alone was 91 pages. The Milbank effort was more discursive, 37 pages, and less buried in health policy studyese, but its conclusion was the same: “Only Vermont showed clear progress.”

   The RTI study fastened on several aspects of the Vermont program to explain its success. For example:

  • High engagement of state agencies, payers, providers and community organizations

  • Patient-centered medical homes under the Blueprint program

  • Legislatively-granted authority in the Green Mountain Care Board to monitor state expenditures, expand trust and create standards for the ACP in the state.

   It is ironic that while the elaborate analysis of the leading reform players was impressive, the studies covered only the toe-in-the-reform water phase. The first three years of reform, from 2013 to 2016, involved so called one-sided risk, which isn’t really risk at all. Hospitals in Phase One got a wonderful deal: take your last year’s budget and increase it by some reasonable amount. If you spend less than that, you can keep the difference. If you spend over your budget, no problem. You keep that too.

Also, the expert analysis could be misleading in one sense: it credits the Vermont ACO “model,” which is valid as a model, and true in Phase Two, since OneCare is the lone statewide ACO. But during Phase One of the project, Vermont actually had three ACOs—OneCare, plus an ACO run by several of the Federally Qualified Health Centers (FQHCs) in the state. FQHCs are primary care clinics that get federal subsidies. Healthfirst, a smaller group of independent primary care doctors and some independent specialists, also had an ACO for a couple of years. There was never any serious chance that either the FQHCs or Healthfirst could run a functioning ACO, and both went away prior to Phase Two.


   For the last three years, 2017, 2018 and 2019, the situation has changed drastically. Now, your ACO associated hospital has to live with a fixed price contract, with monthly prospective payments. The prospective payments are all the money you get for the patients attributed to the program. You can still keep the budgeted money if you spend less. But if you go over, you have to eat it.

   The cost discipline inherent in a real risk system is orders of magnitude more powerful than the regime the feds studied. The Vermont hospital system that routinely increased its total spending by seven to eight percent in the decade of the ‘oughts has come in at under three percent from 2017 to 2019. That trajectory in a $2.6 billion system makes the $97 million savings cited by the feds look like chump change.

   Unwarranted euphoria, however, needs to be resisted. For one thing, the federal study results weren’t near a perfect score, even though Vermont’s lead over the other players could make it seem that way. Even in the fake risk, warm up period, the feds discovered problems with physician burnout, getting enough resources for mental health patients and similar rough spots and glitches.

   Moreover, the fed studies never really captured the depth and intensity of the political opposition to reform. That opposition is still in place, and vocal. And even the Vermont reformers themselves are just now confronting the challenges posed by taking a wickedly complex and expensive system like health care delivery and rebuilding it from the roots up. Anyone who doubts that is invited to dilate on issues such as the financial crisis in our small rural hospitals, the worsening problems of attracting and keep enough doctors, nurses and other providers, and the demographic shortfalls that plague most of the state.

   For today, though, the reform workers scattered around the state, in Al Gobeille’s shop in Waterbury, and OneCare Vermont in Colchester, and the Green Mountain Care Board on State Street in Montpelier and the medical professionals all over should be forgiven for taking a teeny little victory lap. They are far from perfect, and they have made mistakes; but they are so far ahead in the game in the U.S. that the rest of the states aren’t even in sight.

   Not bad for a tiny, cold state at the end of the road.

Phil Scott Steps Out From Behind the Curtain

by Hamilton E. Davis 

Some weeks ago, I put up a post comparing the Vermont health care reform project to climbing Mount Everest, one of the supreme challenges of world mountaineering. In the analogy, the state reformers had reached Camp Three, with three more legs to go to reach the summit—a mature state delivery system that regularly produces high quality care at a sustainable cost.

   The most difficult problem to solve on the track ahead is recasting the community hospital system in the state: 13 small facilities, eight of which are classified as Critical Access Hospitals, a designation that qualifies them to get federal financial help in meeting their costs. Porter in Middlebury, Gifford in Randolph, Springfield, North Country in Newport, Northeastern in St. Johnsbury, Copley in Morrisville, Mt. Ascutney in Windsor, and Grace Cottage in Townshend carry the critical tag.

And many of them are in trouble, to various degrees. Some are losing patients or money or both. In several cases, their expenses are going up while their business is declining. Regulators are beginning to question whether the smalls are doing more sophisticated care than they can reasonably handle.

The problems with the small hospitals burst upon the public consciousness several weeks ago when Springfield Hospital disclosed that it was on the brink of bankruptcy. It would have closed already if Al Gobeille, the Secretary of the Agency of Human Services, hadn’t bailed the hospital out with an $800,000 loan, which kept the doors open. But it wasn’t clear that Springfield could stanch its money hemorrhage, running at $150,000 dollars a week. The hospital did jettison its crown jewel, a new maternity unit, and it has cut some staff; but it is still not clear whether the facility can avoid bankruptcy.

   The Springfield management may be able to right its ship, but the crisis there has put the small hospital travails at the top of the priority list for state’s political and regulatory apparatus. Last week, the Green Mountain Care Board, which regulates the hospitals, held a seminar on the whole problem of small rural hospitals; the House Health Committee, is preparing legislation to cope with the emergency; and, of course, there was the AHS loan to Springfield.

One of the most important developments in my view was the interview that Gov. Phil Scott gave to WCAX’s Neal Goswami on Vermont Public Television a few weeks ago. Scott has been, at best, a diffident advocate for health care reform since he took office in 2017. The reason Scott was even in office was that his predecessor, Pete Shumlin, had blown up his own political career by mishandling the reform project.

   Scott had no good political reason to jump on board something that felt far short of a bandwagon. But quietly, and behind the scenes, he has been working hard at getting informed on the mechanics and implications of reform. And in the Goswami interview, Scott stepped out from behind the curtain.

   In what was a very wide-ranging interview, Goswami had the perfect lead-in to the Springfield debacle and the potential implications for the health care delivery system. The lead-in was a question from a viewer in Lincoln:

   I was wondering if Governor Scott thinks there is a problem with the consolidation of hospitals and clinics in Addison and Chittenden counties as part of the UVM medical system?

I have described that as a “perfect” lead-in to Springfield and small hospital issue. And I can hear my tiny corps of brilliant readers saying, “Wait a minute, I thought this was about small hospitals…what has UVM got to do with it?”

Well, a very great deal, as it turns out. In fact, the question to Scott was an invitation to endorse the quite wide-spread anti-UVM theme that has been pressed by a variety of players, including leading state senators, the Vermont Health Care Advocate and others.

   Scott turned down the invitation flat.

There’s lots of consolidation across the country, and not just in hospitals. And actually, I think that’s part of the answer. I’m concerned about some of our small hospitals—we’ve seen this in Springfield. Unfortunately, some would see that (the UVM network) as somewhat of a monopoly, but I see it as a way to improve the system. Community hospitals can’t be all things to all people. They have to focus on what they do best. They have to focus; they have to evolve.

The Scott comments, which ran directly counter to the narrative that has held sway in the press and the legislature for the last several years were the leading edge of a gathering new narrative that has developed over the last several months. In the hospital budget hearings late last summer, the Green Mountain Care Board began to bore in on the community hospital infrastructure as a major issue for the reform project.

Maureen Usifer, a board member with considerable expertise in corporate finance, repeatedly criticized some of the stressed hospitals for maintaining high expense levels at a time when their patient flow was dropping. “That’s just not sustainable,” she kept insisting.

And Jessica Holmes, another board member, began to raise the issue of the types of services that are being delivered in small hospitals. Last week’s seminar at the Board meeting threw a spotlight on the whole rural infrastructure. The centerpiece of the three-hour event was an address by Eric Shell, a national expert, the burden of which was that the current health care payment system is a death trap for rural critical access hospitals. (Changing that system is the engine driving Vermont reform; I’ll do a full post on the seminar soon.)

The problems are clear enough. Small rural hospitals across the country, especially the critical access facilities with 25 or fewer in-patient beds, are going out of business entirely, or affiliating with bigger academic or tertiary centers that deliver a full range of complex care, and, not incidentally, have much bigger revenue streams. Neither Scott nor the Green Mountain Care Board have said they want any of Vermont’s small facilities to vanish, but they are clearly focusing on either cutting back the complexity of the service offerings, or encouraging affiliation with a larger system, or both.

In fact, the rationale for such a course correction has been building for years. Beginning in the late 1980s, some small Vermont hospitals began to ramp up their specialty services. That seemed to make sense to many of the local boards and managements. You’ve got a little hospital, say 20 beds. You can do some minor surgery, and you may have bought some primary care practices to ensure yourself a flow of patients. But the big-money items go the big centers, like UVM and Dartmouth. Nasty cancers, open heart procedures, knee and hip replacements, gnarly spine problems—all heading out of town and taking the big reimbursement dollars with them. For a small community hospital, a handful of serious orthopedic operations could change red ink to black. In recent years, Vermont, with just 625,000 people, has been doing hip replacements at 12 hospitals.

Why is it so clear in the health policy world that the infrastructure needs to be recast? Here’s why:

When a small hospital tries to overreach, it creates all sorts of negative incentives. It is harder to recruit high quality docs to a small place that the outside world has never heard of. Becoming a professor of whatever at UVM or Dartmouth medical schools is one thing, becoming a spine surgeon in a small Vermont town is something less.

Once there, the new doc will be under heavy pressure to earn his keep, a powerful incentive to overuse the procedure. And even if high quality can be maintained, there is seldom sufficient volume to achieve economies of scale. So, the unit cost is often higher.

These dynamics are at work in Vermont every day. In Springfield, for example, the community extended itself to build a superb maternity unit, bright, cheerful rooms, fully staffed. But when Quorum, Springfield’s consultant, came in to pick up the pieces a few months ago, he found that the unit was delivering one baby every three days.  No one on God’s green earth could make any sense of that: one baby every three days was nowhere near enough to permit the staff to retain its skills, and the cost was ridiculous. They had no choice but to close the unit.  

Another case in point is Copley Hospital in Morrisville. A few years ago, a couple of very capable UVM orthopedic surgeons migrated to Copley and began replacing knees, hips and shoulders. Based on their practice, Copley built expanded surgical suites and began to attract patients from well outside the Lamoille County area. A few years ago, the then-Copley president told the Green Mountain Care Board that if it wasn’t for the orthopedic team “there wouldn’t be a hospital in Morrisville.”

The problem with building a whole hospital around a couple of ortho stars was what happens when you lose one of them. Which happened when one of the team became ill and had to stop doing surgery.

The hospital is now losing money. And, in fact, Copley’s costs have been serious outliers for years, and those chickens are now coming home to roost. Copley got a new president, Art Mathisen in April of 2016; he replaced Mel Patashnick, who led the Morrisville facility for 30 years. A few weeks ago, Mathisen bailed out after just three years to run a hospital in northern New Hampshire. One of the issues in the Copley case was whether it should affiliate with the UVM health network. The Copley Board wouldn’t hear of it.

Affiliation, however, is clearly what stands between oblivion and a continued, if reduced future, for many of Vermont’s community facilities. There is huge question, however, how that process will play out in Vermont. In that regard, it is worth noting that affiliation can work in this area. Case in point: northeastern New York.

A few years ago, the UVM network was invited to extend its reach to the four hospitals operating in what New Yorkers call the North Country, Essex, Clinton and Franklin counties, snugged into the northeast corner of the state between the Canadian border and Lake Champlain. Medically speaking, the place was kind of a mess, which is what occasioned the New Yorkers to approach UVM.

The big hospital in the area is Champlain Valley Physicians Hospital in Plattsburgh; it was losing money regularly when the UVM network arrived. In even worse shape was Moses Luddington Hospital in Ticonderoga; it was hemorrhaging red ink. Alice Hyde in Malone was just so-so. The best by far was the small critical access hospital in Elizabethtown; E-Town had rung up several years of solid financial performance.

One of the network’s first moves was to shift the heart bypass operations from Plattsburgh to Burlington. Plattsburgh was averaging just a couple of the heart operations a week, not enough to keep up its skills, and the low volume made the cardiac service a money loser. Another was to recast Moses Luddington as a clinic, with a strong foundation in primary care and high-quality emergency room, supported by lab and imaging services. Management of the new Ti campus shifted to the strong unit at E-Town. Yet another significant factor in the refashioning of the North Country system was enthusiastic participation by Hudson Headwaters, a Federally Qualified Health Center, with 18 primary care sites across a huge swatch of northeastern New York.

The New York State Health Department obviously loves what the UVM network is doing in one of the most socially and financially disadvantaged portions of the Empire State. Once UVM affiliated with the four regional hospitals, the Health Department coughed up $22 million to repurpose the failing hospital at Ti.

According to John Remillard, the CEO of E-Town Hospital, the state would never have done that without the involvement of UVM. Getting the smaller community hospitals into an affiliation with an academic medical center means that the various units can share resources in all kinds of ways that help them all. “Whenever I have a problem,” said Remillard, “I can call Brumsted, and I always get a respectful hearing.” There are some 200 hospitals in New York State, and at any given time dozens of them are on the financial dole. New York health officials are betting that the affiliates of the UVM network won’t be in that company. “Without UVM, we don’t get any of that state money,” Remillard says.

The same impulse—link small rural facilities with big tertiary centers—is animating reorganization efforts across the country. And in the broader northeast it’s moving rapidly. There are some 30 hospitals in New Hampshire, and nearly all of them are in or contemplating affiliation; the same is true in Maine, where small community centers are beginning to orbit around Maine Med, the big tertiary center in Portland.  

That isn’t always a good thing: integration can confer huge economic power on a collaborative unit. But 50 years of competition in health care have delivered stratospheric cost increases, and the kinds of steps being taken in the North Country of New York, in much of Vermont, and across New Hampshire and Maine are the most promising solutions to stem the cost tide.

No state is as well-equipped as Vermont to stay on the integration track, without running into the weeds of corporate exploitation. The Green Mountain Care Board has virtually unlimited power to prevent it. And while the process hasn’t been perfect, the state hospital system has costs that are at least one third lower than the rest of the country.

None of this guarantees high performance by the Vermont apparatus, taken as a whole. UVM, beloved in New York State, is hated by elements of the political left and the press here. The Legislature routinely throws up proposals that range from unworkable to bizarre. OneCare Vermont, which represents most of the hospitals and a majority of the doctors, is so far not really engaging in the issue of the services that should be delivered in small hospitals.

Still, the Scott comments on public television, and the gathering Green Mountain Care Board momentum in the direction of small hospital analysis, and the hints that the Legislature may be starting to figure out health care reform are hopeful auguries.

Taken together, they amount to a tailwind for reformers, and anyone who has climbed as much as Camel’s Hump, or Mt. Philo for that matter, knows what a blessing a tailwind can be.

Health Care Reform Delivers Huge Savings to Vermonters

Thinking big numbers: guess how long one million seconds is, in days, weeks, months, years?
A billion seconds? No calculating—just take a shot.

by Hamilton E. Davis

Health care reform has had a long gestation period in Vermont, nearly 50 years, and for most of that time the galvanizing issue has been the need to get costs in the delivery system under control. Costs began their meteoric rise in 1966 with the birth of Medicaid and Medicare, national programs to pay for health care for the poor and the elderly. At that time, health care costs in Vermont amounted to 6.6 percent of the Gross State Product. The federal programs put a blowtorch under the tea kettle of demand, and costs began a meteoric rise that took health care’s share of the total state output to today’s level of just under 20 percent.

I am dredging up this history now for two reasons. The first is that the cost issue has faded from the reform environment over the last few years, which could skew the process; and, secondly, because we are now able to assess the financial impact of the reform project over its first seven years. That impact has been huge: Vermonters have saved nearly $2 billion in that time, and that is before the full force of reform has really begun to bite. The current Legislature has no real sense of that; and in fact, it’s general posture recently has been at best skeptical and at worst hostile toward the project in its current form. The negativity appears focused on the role of the UVM health network and the state’s Accountable Care Organization, OneCare Vermont. The huge savings over the last seven years could not have been achieved without the combined efforts of UVM, OneCare, and the Green Mountain Care Board.

In my last post, I used the metaphor of climbers challenging Mt. Everest to illuminate the reform saga. We are now at Camp Three in the Everest metaphor, and one of the biggest potential obstacles between here and the summit would be some kind of harassment by the Legislature.  I'll write more about this in a future post, but for now consider that possibility as a cloud in the sky on Leg 4 of the Everest climb.

Following is my analysis of the effect to date on the financial dimensions of reform.

The first step to rein in costs came in 1983 when the Legislature established the Hospital Data Council with a mandate to figure out how costs worked in the system. The hospitals did not account for all of health care costs; other costs included sectors such as long-term care and independent physicians; and it did not even include all the hospitals—the VA hospital in White River, and the Brattleboro Retreat were left outside the regulatory tent. Still, the state’s community hospitals that were, and are, the engine of cost inflation.

In 1987, the Council issued a report showing the spending track for the period 1981-1988. It looked like this:  

In 1981, Vermont hospitals spent $149,500,000. By 1988, it was $271.1 million, resulting in a compound annual growth rate (CAGR) of 8.9 percent during that seven-year period (CAGR is like an average only better). That was clearly unsustainable. And it was playing hob with private insurance rates. Medicare and Medicaid together account for roughly half of acute care spending, and since the federal and state governments don’t pay their full share of the costs, the difference has to be made up by private payers—the dreaded cost shift.

The Data Council had no actual power to force lower inflation rates, but that changed in the mid-nineties with passage of a reform bill that gave the state the power to “establish” hospital budgets. The new regime was called BISHCA, and it regulated the hospital system until 2011, when the Legislature adopted the current reform plan. The new sheriff was the Green Mountain Care Board, and for the first time in modern era a regulatory body began to act like, well, a regulatory body.

I say that because costs roared along out of control throughout the period of the 1990s and the ‘oughts. The sole break in that trend came between 1994 and 1997, when the inflation curve flattened markedly. The change came not from Vermont regulation, but rather from nationwide voluntary restraint by the industry during the managed care era. Once managed care went away, the cost resumed their climb on the same slope as the ‘70s and ‘80s.

Our contemporary view begins in 2001, which is where the GMCB data gathering really begins. (The earlier data exists but is in the archives where it is hard to get at.) The easiest way to follow the analysis is to look at the following graph.

graph text.jpg

From 2001 to 2009 costs inflated by 8.01 percent. That figure is labelled CAGR, which means Compound Annual Growth Rate, a number that is close to a simple average, but is considered slightly more accurate by the money priesthood. In my analysis I have ignored the actual spending figures for the Fiscal Years 2010, 2011 and 2012. The reason for ignoring 2010 is that the marked drop in the inflation rate was not the result of any regulatory effort by BISHCA, but rather occurred by a big reduction in demand from the 2008 recession.

In 2010, we entered the modern health care reform era, when Pete Shumlin, a state-senator from Putney, won a very close race for Governor, first against four very credible opponents in the Democratic primary, and then an equally credible Republican in the general election. Shumlin won his long slog through difficult political terrain in large measure because he promised to solve the problems of the health care delivery system. He called his project Single Payer.

Shumlin launched his reform project in 2011, with a strong focus on cost containment by the newly established Green Mountain Care Board. At about the same time, the UVM health care system, in partnership with Dartmouth-Hitchcock Medical Center, formed an Accountable Care Organization (ACO) to attack the cost problem at its roots by shifting reimbursement to doctors and hospitals from fee-for-service to fixed price contracts that put providers at risk for the financial performance of the system they run.

The first hospital budgets considered by the Green Mountain Care Board were submitted in FY 2013. The first system inflation rate in the new system was derived from the actual spending in FY 2012 compared with the 2013 figures. The figures for the succeeding year are shown in the bottom leg of the graph, culminating in the 2019 system budget of $2.6 billion. The average (or CAGR) was 3.91%.

Beginning with the same base—the 2012 system budget of $1.99 billion, I have shown an inflation track of a 7.0% for 2012 to 2019, on the assumption that those numbers would be expected from the regulatory regime preceding the GMCB. The actual figure for 2001 to 2008 was 8.01%, but I cut it back to 7 because some of the money mavens I talked to thought that 8.0 was a little high, based on some national data. I also wanted to be as conservative as possible. Anyway, for each of the seven years I compared the actual spending with the “what-if” or “but-for” figures on the top line to get a savings for each year. The total savings came to $1.9 billion for the seven-year period.

I was frankly astonished by that number. I believe it demonstrates two realities when you are dealing with health care costs. The first is that the financial demands of health care delivery system are absolutely voracious. The second is the sheer mathematical power of compounding. An example: I used the 7.0 figure in order to be conservative and not boggle the priesthood. The 7.0 figure yielded a total savings of $1.9 billion. The priesthood, however, has no Vermont figures whatsoever to support their 7.0 view. On the other hand, the numbers from 2001 to 2009 that generate the 8.0 figure are as solid as the Green Mountains.

The savings at the 8.0 level come to $2.6 billion, a difference of a cool $700 million. To get some sense of the potential financial rewards of pursuing reform aggressively, recall that last spring the Legislature and the Scott administration collaborated in a titanic battle, involving a blizzard of vetoes, a special session, and a threat to shut down Vermont state government, over a Scott effort to save, possibly, $26 million.

Given these huge savings, it passes understanding why there is not more appreciation in state government of the results of just the early phase of reform. Nothing that either the Scott administration nor the Legislature has even thought of doing approaches the benefits that have flowed from the reform process since the passage of Act 48 in 2011. And there are a lot more savings where the last ones came from.  A brief suggestion: put the state employees and the state’s teachers into OneCare Vermont so that their health care can be delivered under fixed price contracts that keep inflation under control…

The health care numbers are so big they are literally bewildering to think about. If we used the 8.0 and found a savings of more than $2.6 billion, that figure would amount to half of the whole General Fund budget for the state. Just shifting from millions to billions is hard for ordinary people to get their heads around.

Speaking of which: did you try the test at the beginning of this piece? A million seconds versus a billion seconds.

A million seconds is around 12 days, enough for a short vacation.

A billion seconds is some 32 years, a third of a very long life.

Health care reform lives in a B for billion world.

Correction on Gifford Medical Center

In my most recent post, the one with the Mount Everest theme, I said that Gifford Medical Center in Randolph was one of the Vermont hospitals that was not taking part in the state’s reform project. That was incorrect. In 2019, Gifford will participate in a contract between the state’s Medicaid agency and OneCare Vermont, the state’s Accountable Care Organization (ACO), which acts on behalf of its member hospitals. Of the state’s 14 community hospital, just two—Copley in Morrisville and Grace Cottage—remain outside OneCare. The text of the blog post has been corrected. 

The Everest Conundrum: Will the Legislature Bring Bad Weather?

by Hamilton E. Davis 

Todd Moore, the outgoing president of OneCare Vermont, summed up the progress of Vermont’s health care reform project the other day by comparing it to climbing Mount Everest. The highest and one of the deadliest peaks in the world, Everest tops out at just over 29,000 feet above sea level. Only the most capable climbers make it to the summit, where there is barely enough oxygen to sustain life. Even the best of these athletes often die in the attempt.

Climbers first trek into base camp at 17,500 feet. On day one, they go to Camp One at 19,500 feet. Day two, Camp two at 21,000. Camp three at 23,500. Camp four at the South Col, 26,300. On Day five, the ones that make it that far try for the summit, and then go back down as far as they can. Days four and five are especially brutal: climbers face can face screaming winds, far-below-zero temperatures and the constant threat of blizzards, while their bodies deteriorate fast, posing the twin threats of pulmonary and cerebral edema.

In Moore’s view, the Vermont project is roughly at Camp Three, a strong performance over the last eight years, but with the toughest challenges still ahead. Some will say that metaphor overstates the case. Not in my view: Vermont has blazed a trail for the whole country in its campaign to get health care costs under control. The annual increases for our hospital system have come in at under general inflation since 2017, and infrastructure changes now coming on line hold out the clear potential to improve on that in the future. A comparison of the Green Mountain Care Board’s data for the hospital system shows that total spending in the 2013-2019 term represents a savings of hundreds of millions of dollars over the inflation trend of hospital spending from 2000 to 2009. That accomplishment, unprecedented in Vermont, was the product of the regulatory structure established by the Legislature in 2011, in which the Green Mountain Care Board oversees the operations of OneCare. For the benefit of doubters, I’ll lay out the actual figures in my next post and they can do the calculations themselves.

   Despite this striking performance, the reform effort has been dogged every step of the way by opposition from a wide range of stakeholders and other players. They include organizations like Vermonters for Health Care Freedom; important cogs in the process like the Health Care Advocate; and some key individuals like Dr. Deb Richter, a primary care doctor from Montpelier, who has been a long-time reform advocate, and Dr. Allan Ramsay, a former member of the Green Mountain Care Board. Richter and Ramsay are both reform advocates, but they strongly dislike the course reform is now on. It may also include Vermont Blue Cross, whose reform posture is considered ambiguous by some; the Blue Cross issue is a hairball on its own.

What is their case? They charge that OneCare is failing in its responsibility to function as the vehicle for doctors and hospitals in contracting with payers for care to groups of Vermonters. People are leaving OneCare, rather than joining it, they say. OneCare is not only failing in its obligations to provide care management and quality assurance across their network, they are deceiving their regulators, the Green Mountain Care Board, about those facts. (That is just a general summation. In a future post, I will report the anti-case in full detail.)

The first thrust by this informal coalition came last December when they tried to persuade the Board to reject the 2019 budget proposed by OneCare Vermont, the reform vehicle for the state. Since OneCare has contracts to begin paying for health care delivered to its insured members on Jan. 1 of this year, a denial by the Board could have derailed the reform effort. The Board turned the opponents’ attack aside, and approved the budget.

The relevance of this now is the possibility that the opponents will take the occasion of the 2019 legislation to try to kill off OneCare. If they fail, the reform structure probably will be mature enough by next year to be invulnerable to the kind of assault that OneCare survived in their budget hearing.

It is important to note at this point that no formal attack has yet appeared in the Legislature.  No anti-OneCare bill or package of bills has been introduced in the 2019 session. And it is entirely possible that none will. Which does not mean that the reform project can be considered safe to just keep grinding its way ahead. As of this writing we are just entering the third week of the session, and the health care committees have already spent an unusual amount of time on the reform issue. And there is no shortage in the Legislature itself of harsh critics of OneCare and its parent, the UVM health network.

Hence the relevance of Todd Moore’s comments about the classic Everest climb. When the climbers emerge from their tents in the morning at Camp Three, they are already heavily stressed. They are at 23,500 feet above sea level. No humans live permanently at that level. The climbers have 5,500 vertical feet of climbing left, over what will inevitably be the two most challenging days of their lives.

What will probably determine their success or failure, or even their life or death, Is the weather. A couple of bluebird days will mean that most of the people who can make it to Camp Three have the capacity to summit. But if the weather turns bad, and one of Everest’s blizzards scourge the track, all of our climbers will be in terrible danger. For the Vermont health care reform climbers, the Legislature is the weather.  

The equivalent to the two bluebirds on Everest would be to have the Legislature do—well, nothing. They don’t have to do anything; all the necessary statutory machinery for reform is in place. There is obvious angst in the Legislature, however, when it comes to health care reform. The source of the anti-OneCare sentiment is based in significant degree on unhappiness with the University of Vermont’s health network. In the last legislative session, for example, the Senate passed legislation aimed at forcing Vermont Blue Cross to pay UVM less for primary care, a move that failed. A particularly significant piece of legislation that runs counter to the integrated system contemplated by OneCare is the universal primary care bill, which calls for the state to pay the cost of primary care for all Vermonters. A bill to that effect failed in the last session but could come back again this year.

It is still not clear though what an effective anti-OneCare legislative initiative might look like. Even if the two bills cited above had passed, they would not have necessarily derailed reform. So, the outlook at Camp Three now is mixed sun and clouds. As the reformers move ahead, I offer the following as a description of the track ahead, and follow that with a sketch of the very tough obstacles that lie ahead, no matter what the weather…

At least part of the reason for the miasma of unease that overhangs the legislature is the difficulty of the policy problem itself, which is exacerbated by the way the policy wonks talk about it. Act 48, the reform law was passed by the Legislature in 2011, and since that time various reform bureaucrats have testified about the project before the money and policy committees of the House and Senate. What the legislators hear is stuff like: “OneCare is an ACO that is administering the All-Payer Model, which converts fee-for-service payments to value-based financing. The idea is to shift the health care system from just treating disease to healthier populations by keeping people out of the hospital before they get sick.” None of that is false, but nothing is clearer after eight years of exposition than that neither the Legislature, nor the press, nor the public understands it.

Consider: in just the third week of the ninth legislation session to grapple with this issue, the House Health Care Committee, and Senate Finance have invited Jessica Holmes, an economics professor at Middlebury College and a member of the Green Mountain Care Board to give the members two-hour seminars on the basics of health care financing in the U.S. Earlier this week, the Scott administration’s reform policy team and GMCB staff spent three hours in front of House Health Care talking about the way reform is supposed to work on the ground in Vermont. And that’s before there has been a single bill on reform introduced.

In the interest of helping in this regard, I offer the following primer:

Costs in the health care system are unsustainably high. The solution to a dynamic that is now consuming nearly 20 percent of the state’s economic output is to change the financing of health care from pay for each episode of care to paying doctors and hospitals a set price for caring for blocks of patients. The central idea is to approximate a private economy enterprise like Toyota, where every person in the company works every day toward the common goal of building a high-quality vehicle that will sell for a price people can pay. The whole American economy works like that, whether you’re buying a computer, a lawn mower, or a bag of carrots.

The key to the whole health care puzzle is that the way we buy medical services is upside-down different from how we buy everything else. In the U.S. system, we pay for each episode of care, so that the more providers do the more they get paid. If a provider gets it wrong the first time, the patient has to pay a second time to get it right. This dynamic generates one of the most common errors in public understanding: the cost of a given service is not simply the price per unit, but the volume of care delivered. Hence the need for a fixed price.

The first step in getting to a fixed price is to assemble the resources necessary to deliver a full range of needed care to a block of patients. You need primary care at the base; then specialty care, often in small community hospitals; and finally, the most sophisticated services at a tertiary hospital or academic medical center. The last is a bit tricky in Vermont.

The only tertiary care available to Vermonters is delivered by UVM’s Medical Center in Burlington and Dartmouth-Hitchcock Medical Center in Lebanon, just across the Connecticut River in New Hampshire. UVMMC is also, by far, the biggest community hospital in the state. The UVM system also includes Porter Hospital in Middlebury, and Central Vermont Medical Center in Berlin. The network is already an integrated system. The other 10 hospitals in the state, however, are independently owned and run. The only way to knit the state into an integrated delivery system is to create a vehicle called an Accountable Care Organization (ACO), a structure established in federal law known as Obamacare. Despite the fancy name, an ACO is very simple—it’s just a grouping of providers that serves as a loosely organized company that can deliver services at a fixed price. A working example is the 2017 contract between Vermont’s Medicaid agency and OneCare Vermont, the state’s ACO, to deliver care to 31,000 recipients in northwest Vermont for $93 million. About $60 million was funneled through OneCare to pay the four Vermont hospitals; the remainder was actually withheld by the Medicaid agency to pay on a fee-for-service basis for care delivered outside the network.

Under the terms of the contract, each of four hospitals—UVM’s Medical Center in Burlington, Porter Medical Center in Middlebury, Central Vermont Medical Center in Berlin and Northwestern Medical Center in St. Albans got a check at the beginning of each month to cover treatment for any of those 31,000. If a hospital spent more than the budgeted amount, they would have to eat it. If they spent less, they could keep it. For the first time ever in Vermont, doctors and hospitals were financially responsible for the system they run, not the patients.  Not all of the $93 million was spent on the fixed price care. Part of the money was retained by OneCare to pay fee-for-service costs at hospitals outside the home area, either out of state or in other parts of Vermont.

To sum up: Vermont now has as a fully functional ACO, OneCare Vermont. OneCare is owned by UVM health network and Dartmouth-Hitchock, the only nearby providers of tertiary care. The organization also includes as members all but two of the state’s small hospitals, Grace Cottage in Townshend and Copley in Morrisville. The number of primary care providers has grown steadily, although possibly not fast enough.

The above shows that the Vermont reform project is about half way to the goal it has to reach by the end of 2022. In Todd Moore’s metaphor: at Camp Three with two very hard days of climbing ahead. Following is a sketch of what lies ahead:

Follow the Money: The reform project is now in year three of a six-year implementation phase. To date the effort has saved Vermonters hundreds of millions of dollars. I don’t believe the public or members of the Legislature have a clue about that. The conclusion lies in publicly available data that a mildly promising seventh grader can follow

  • The Opposition Case: The opponents of the Vermont project have advanced a multi-pronged attack on OneCare Vermont, the vehicle for reform. Some of the claims, including some of the most important, are simply false, which is pretty easy to demonstrate. Some of the arguments, however, are perfectly valid. The issue in those cases is whether it reasonable to expect that OneCare should be abandoned because it has not completed six years of work in two years. Recall Todd Moore’s assessment that Vermont is at Camp Three on Everest, with the two toughest legs still to go.

  • The Scale Issue: Under its contract with the federal government, Vermont is committed to converting 70 percent of its residents to fixed price arrangements by 2022. The total under that umbrella comes to about 44 percent as of the first of this year. While that figure puts the lie to opponents’ claims that OneCare is fading away, it is nonetheless below a trajectory that would reach the target by 2022. The Legislature needs to understand this issue, and to consider how to think about it.

  • Care Management and Quality: Health care reform in this country has focused so far on getting costs under control. Fixed price contracts, however, raise the question whether the delivery system will cut necessary care in order to save money. Moreover, the health care reform statutes require the Green Mountain Care Board and OneCare to ensure that Vermonters get the highest possible quality care across the full range of services. These are complex and vitally important considerations, and they need to be vetted fully by legislators.

  • A major practical question during the transition of the acute care delivery system to a different infrastructure is the role to be played by Vermont Blue Cross. The Blues, in one way or another, impact the health care insurance of more than 200,000 Vermonters, and their level of participation has been very limited. That fact, and the tense relationship with the UVM system, need to be considered by the Legislature, as well as the whole regulatory apparatus.

  • The slide of Springfield Hospital toward insolvency has raised the issue of how to rationalize the small hospital system in Vermont.  A couple of years ago, Porter Medical Center got in financial straits and had to seek shelter under the wing of the UVM network. In a recent report to the Governor, the Green Mountain Care Board assessed the financial health of eight other small hospitals that could face challenging finances.  A huge question in that policy sector is how Dartmouth-Hitchcock Medical Center in nearby New Hampshire will relate to the community hospitals that lie along the Connecticut River, from Newport to Brattleboro. Eastern Vermont supplies some 40 percent of D-H’s traffic.

  • Finally, overarching all of the issues generated by reform is the general hostility toward the UVM health care system, which clearly dominates the health care environment. An important factor in that dynamic is the network’s president, Doctor John Brumsted, and his $2 million salary. Brumsted has become the focal point for the tensions generated by the challenges of reform; but he has been an indispensable player in Vermont’s leadership role in reform nationally. How these tensions get resolved over the next few years will determine the shape of the Vermont system out into the future.

The above challenges are critical and tough—no one in the United States has solved them yet. But they are all do-able. They resemble climbs that only the best performers can carry off, but the Vermont players who have gotten us this far seem fully capable of getting it done. There are some 850 ACOs in the U.S, and just 20 were chosen by federal Medicare officials to go for a fully integrated state system operating under fixed price contracts, the summit for health care reform.

If the Vermonters were actually on Everest, what they would see as they left Camp Three would be just a handful of climbers, far behind them. Ahead there would no climbers at all.
The big question would be the weather. That depends now on the Legislature. 

Assessing the Reform Opposition: The Dog-Whistle Test

by Hamilton E. Davis 

   The Green Mountain Care Board will vote this morning on OneCare Vermont’s 2019 budget. The vote will almost certainly be approved with some kind of conditions to account for the fact that not all the necessary figures are available yet. The importance of the Board decision lies in the fact that the 2019 OneCare budget is an important milestone for the Vermont health care reform project, which was launched in 2011 and is now on the cusp of full maturity.
   Perhaps that is the reason that a single step in a bureaucratic process has flushed out an illuminating sample of the opposition to reform that has marked the project’s environment over the last four to five years. The most important example is the recommendation by the state’s Health Care Advocate that the Board reject the budget because of what the Advocate says is a series of errors, failures and other sins by OneCare.  I wrote about that last week here.
   The occasion of the vote has also drawn a range of criticism from other players, however, and it is important to know where the opposition is coming from, and what it is based on. For some of the commentary is factually based, and therefore deserves to be considered on the merits. Other aspects of the critiques are entirely bogus: they are either plainly wrong, or they are shaped so as to be obviously misleading.
   I call those instances “Dog Whistles”—material aimed at simply discrediting the whole idea and process of reform, and aimed at people who have, at best, limited understanding of the issues involved, and might therefore be recruited to a movement to destroy reform.
   A couple of examples. The first is from last week’s post. There, Mike Fisher and his colleagues in the Advocate’s office, urge the Board not to “privilege profits” in the hospital system over cost containment. The problem with that is that there are no profits in the hospital system, all of which are non-profit entities. Big dog whistle.
A second example: Many opponents like to mention with obvious alarm that the OneCare budget is $900 million, obviously a princely sum to bestow on a couple of dozen people working in a suite of offices in Colchester.
   What none of the opponents bother to mention is that more than 98 percent of that money is simply distributed to doctors and hospitals for the medical care they deliver to Vermonters. Those Vermonters have been buying that level of care year in and year out. The difference between the $900 million now and the cost of the same services we’ve been buying for years is that the 900 would be tens of millions of dollars higher in the absence of the reform project. Dog Whistle.

From the Green Mountain Care Board Website

  • Dr. Deb Richter:  Doctor Richter is a primary care physician who has been a leader in the reform movement in Vermont for many years. Following is her communication to the Board:

I am a practicing family physician and addiction medicine physician. I am deeply troubled by the amount of public money Vermont has spent on the floundering ACO experiment while Vermonters struggle with the costs of paying for basic medical care. How can we allow Vermonters to suffer worsening health and in some cases death from preventable causes due to delayed or avoided care because patients were unable to afford their care due to high out of pocket costs? This experiment is putting the cart before the horse and should be terminated until we ensure that all Vermonters are covered with comprehensive coverage.

HED: Doctor Richter has long favored reform, but she doesn’t like the way we’re doing it. Hence the reference to the “floundering” ACO, and the implication that the reform project is contributing to the fact that health care is still unaffordable. The fact is that the ACO is not floundering. The number of Vermonters participating in contracts with OneCare has grown from 30,000 in 2017 to  112,000 in 2018 to  172,000 in 2019. And as I said in last week’s post, the reform project has already saved Vermont some $600 million. The whole statement is a dog whistle.

  • Julie Wasserman: Ms. Wasserman is a health policy consultant. She formerly worked for the Vermont Agency of Human Services as a policy analyst. She has submitted a lengthy statement to the Board that is broadly critical of OneCare. Two of the subject areas in the Wasserman commentary are scale, the percentage of Vermonters who are attributed to OneCare, and the performance in managing the quality of care. In each of these areas, the OneCare systems are not fully built out and probably won’t be for some time in the future. I’ll write about both of these in more depth later. If any of my brilliant readers want to dig into them further, the Wasserman statement is available on the Green Mountain Care Board website.

There is one remarkable Dog Whistle, however. It comes on the scale issue. To see it, you need to know how the attribution system works. When OneCare and a payer like Medicaid or Blue Cross contracts with OneCare, the start date is Jan. 1 and the number of lives involved are fixed on that day. In other words, you can’t add new members to the contract because the total price has been fixed. What you can do, is take names off the list. A patient may move or leave the cohort for any reason. The going-in number, therefore, can go down—and in virtually all cases will do so—but it can’t go up.

In her statement, Wasserman looks at the in-year drop in the various OneCare contracts. Here is her table showing that.


The total number of All Payer Model attributed lives as of September 2018 is 101,079. From January 2018 to September 2018, there was a decrease of -10% in the number of attributed lives due to the inevitable attrition that occurs over the course of an ACO year…Can Vermont justify OneCare’s 2019 budget, and the substantial publicly-funded costs and resources devoted to supporting the OneCare ACO Model given the small and decreasing number of Vermonters currently participating in the All Payer initiative? Participants make up only 16% percent of Vermont’s total population. Vermont taxpayers are paying for this publicly- supported project but only a minority of Vermonters is being served.
The Dog Whistle is clear right there. Is OneCare hitting its scale targets entering its third year? No, but it is far from the Wasserman claim that there is “a small and decreasing number of Vermont currently participating in the All Payer initiative.” As I noted in the commentary above, the participating levels have grown from 30,000 to 112,000 to 172,000 in a three-year period. That is not fast enough, but a 600 percent increase is hardly a decline.

   At this writing, the Board has not acted on the budget, but I will conclude with the detailed prepared statement delivered by Jessica Holmes at last Wednesday’s session on the OneCare budget:

Mr. Chair, with your permission I would like to respond to some of the public comment we have received and share some thoughts on the APM and the One Care budget.
First a genuine thank you to the staff for all of their hard work reviewing this budget. I know they have spent hundreds of hours ensuring that we have the necessary information to make important decisions about how we pay for and deliver health care in this state. So Thank you. I also appreciate the carefully considered recommendations the staff has made today. As I review the ACO budget again this week, I will keep those recommendations in mind.
I will also keep the following in mind, and I hope others will too.
The first is
patience. Patience has become a lost virtue in our society. With one-click we can instantaneously see any movie we want. We can swipe right and find a date for tonight. We can post a picture and within an hour get the instant gratification of 200 likes. That works for some things but not everything.
We cannot radically change the health care system with one click or one swipe. Nor should we.
Innovation takes time. Fundamental system change takes time. We need to be patient. It is important to remember that we are in Year 1 of a 5-year model. Despite the unrealistic expectations of some critics of the APM, it may take years before we see significant quality and financial results. And achieving scale will take time—and it should. That does not mean that the APM idea is bad or that implementation is not going well. What it means, as any successful entrepreneur will tell you, is that innovation requires a willingness to take risks, constant iteration, testing, and pivoting and above all, patience. We need to take the long view here.
The second thing we need to do is stay focused on the
vision we had when we signed the APM agreement. The key question will be whether this ACO budget helps us get closer to achieving a better health care system for all Vermonters.
About two weeks ago, I asked my “Health Economics and Policy” students to describe the features of an ideal health care system. Smart kids--they said an ideal system should ensure access to care; it should emphasize population health; it should reward high value, evidence-based care such as preventative care, early intervention, and disease management; it should discourage wasteful overutilization of low value care and the costly duplication of services; it should incentivize the development of innovations that both save lives and save costs; it should promote better care coordination; and it should recognize that a holistic approach to health care must extend beyond medical care to include the social determinants of health. 
Then I asked them how the current system of FFS measures up against those ideals. They unanimously agreed that FFS fails along almost every dimension. They also agreed that the ACO APM model with its shifting of risk from payer to provider through capitation and its quality accountability has the greatest potential to move us closer to our ideal. Again-Smart kids.
The APM incentivizes care coordination and the utilization of the most cost-effective treatments. It promotes preventative care, early intervention and disease management which both save lives and lower costs.  (Contrast that to FFS which does not distinguish between good care and bad care – under FFS all care is incentivized, so you get lots of utilization, even the kind that does absolutely nothing for you or even worse, harms you. And complex care mgmt….well, that is not reimbursed so why bother under FFS.)
In an APM, technological innovations that deliver high value care at low cost will be rewarded and adopted. (In FFS there is no incentive to develop cost-saving innovations because high costs are easily passed through to payers/consumers).
In an APM, providers are held accountable for quality—not volume—so what a provider does, not how much she does, really starts to matter. So population health should improve at lower cost. And as costs come down and waste is eliminated, access should increase for all Vermonters. Ideally, the APM is better positioned to achieve the triple aim than FFS, which many of us, including most health care experts, agree is failing along all dimensions.
But again, the APM requires a complete overhaul of our payment and delivery system. While we monitor the entities we regulate, we need to be patient with the ACO, and with the providers, hospitals and payers who must completely transform their business models. Operations have to be reengineered…provider practice patterns have to change…IT systems have to be developed to allow better flow of information…THAT ALL TAKES TIME!
And yes, the system needs to be regulated and fortunately, because of the GMCB’s statutory oversight, we have one of the most highly regulated health care systems in the country. But I urge us to regulate patiently as the system transforms itself.
Innovation is risky but fortune favors the bold. I find it particularly disappointing that the state’s Health Care Advocate has chosen to ignore the steps we’ve taken and the progress our state has made towards a better health care system, with unsubstantiated and misleading accusations, including a claim that the UVMHN is “exacerbating Vermonters’ affordability challenges and undercutting the success of the all-payer model.” To the contrary, the All-Payer model would not have been possible but for the leadership of the UVMHN. And in fact, the communities in the UVMHN have among the lowest per capita Total Costs of Care in the state.
Healthy skepticism is important but for naysayers, change will never be fast enough or indeed welcome. For those patient observers who remain optimistic and are willing to support the hard work that needs to be done to bring necessary reform to an unsustainable system, we are already seeing signs of change.
Hospitals that once survived by maximizing tests, treatments and lengths of stay are now working with their provider networks and community partners to find new ways to keep patients healthy and out of the hospital. We are seeing hospitals hire care managers and social workers for their EDs; they are embedding providers directly in schools, subsidizing the costs of housing and nutritious food for their most vulnerable patients; and they are investing in service lines like mental health, cardiac rehab and palliative care that would be revenue losers in a FFS world.
The model is showing early signs of success and we should be grateful to the early adopters such as UVM, Porter, CVMC, NW, Springfield, and Brattleboro and payers like DVHA who are leading the change... The health care delivery system is changing in the ways we hoped when we signed the APM agreement. And the ACO is facilitating that change. An ACO I might add that must be the most highly regulated in the country. Despite misleading comments by the Health Care Advocate and others about the ‘lack of transparency of OneCare’, no other ACO budget could possibly have undergone such careful regulatory and public scrutiny as this one.
So, as we analyze the ACO budget for the final time over the next week, the public should know that my colleagues and I have the best interests of the 625,000 Vermonters in mind. I will be working to ensure that this budget reflects a responsible use of our scarce health care dollars and also that the ACO’s programming continues to encourage the types of system change that we envisioned and committed to when we signed the APM, and I’m certain my colleagues will be doing the same.
And I would urge all stakeholders in the room, particularly those working for state agencies, to consider ways in which their organizations can help move the APM forward, for the sake of all Vermonters.

Health Care Advocate Morphs into a Threat to Reform

by Hamilton E. Davis 

   One of the marginal but still important players in Vermont’s health care reform project is the Health Care Advocate. The Advocate is an arm of Vermont Legal Aid, a stand-alone non-profit law firm, but it is funded by the Legislature and has permanent status as a party to the regulatory functions of the Green Mountain Care Board.
   The current Chief Advocate is Mike Fisher, a former legislator who played a key role in the early days of reform. A social worker, Fisher served seven terms in the Vermont House, representing the eastern Addison County towns of Bristol, Lincoln, Monkton and Starksboro. In his last three terms, he served as Chair of the House Health Care Committee. He lost his seat in the 2014 election; he was named Advocate in 2016.
   In his first two years as Advocate, Fisher pressed hard on the issue of the affordability of health care, especially for purchasers of insurance on the federally subsidized Exchange. For example, in the 2017 GMCB hearings on the rates that Vermont Blue Cross and the New York-based carrier MVP could charge its Exchange customers, Fisher hired an actuary to challenge the findings of both the Blues actuary and the actuary for the Board itself. It was pretty clear, however, that Fisher’s guy simply couldn’t compete with the other two experts, and the Board basically ignored him in the decision-making process.
   It wasn’t that Fisher’s views on affordability were invalid, it was that they didn’t contribute much of anything new. Everyone who has been paying attention over the last, oh, 30 years, knows that health care isn’t affordable. That is precisely why the federal Exchange, and the Green Mountain Care Board itself, and indeed the whole health care reform project exist in the first place. The relevant problem is what to do about it…
In recent months, however, Fisher’s tone has become increasingly strident. In September, for example, Fisher took the occasion of a medical issue in the Vermont prisons to suggest that the Vermont Department of Corrections had mis-allocated or lost $2.2 million of the payments to the contractor that delivers care to inmates. The medical issue was substantive, but there wasn’t any credible evidence to support the claim. The Advocate’s tone, however, was clearly prosecutorial…
If there was any doubt about that conclusion, it vanished early last month.
On Nov. 9, the Fisher urged the Green Mountain Care Board to reject OneCare Vermont’s 2019 budget on the grounds that the state’s Accountable Care Organization (ACO) “has not provided the Board with adequate information to exercise meaningful oversight.” Specifically, Fisher said OneCare still does not have final figures for its contract with Vermont Blue Cross for care delivered in 2018, or for 2019.
The Advocate’s letter also questioned OneCare’s ability to manage the quality of care delivered under its contracts, the way patients are managed, the transparency of OneCare’s operations, along with a series of lesser errors of omission and commission. The letter also charged that OneCare was deliberately misleading the Board; and it implied that the problems of the Vermont delivery system can be laid at the feet of the University of Vermont’s health network.
The question of budget approval is a critical one for OneCare and the issue of reform generally. The Board has scheduled a vote on the budget for Dec. 12, with a fall back date of Dec. 17. The decision is difficult because significant pieces of budget picture will not be available by then. That is not a failure on the part of OneCare. It is the result of a way-too-tight regulatory schedule: the state’s hospital budgets were not completed until Oct. 1, but OneCare’s budget, most of which goes to hospitals, goes into effect Jan. 1, 2019. The single most important element in the budget – the money that will be available to pay for Medicare recipients – has not come in from federal Medicare officials yet; last year, the numbers didn’t arrive until two days after Christmas.
Unless the Board loses its collective mind, it will reject the recommendation by the Advocate because that could threaten the reform project itself. Without budget approval, OneCare might not be able to disperse the prospective payments to hospitals that are the vehicle for the shift to a new financing mechanism. What the Board is likely to do is approve the budget on some sort of contingent basis, and then issue a final decision once all the numbers are available.
The Board is under no legal obligation to comply with the Advocate’s recommendations; but the content and tone of Fisher’s letter could have political ramifications down the road. That fact makes it important to look closely at the Advocate’s performance. The place to start is the following paragraph from Fisher’s five-page letter:
The University of Vermont Medical Center and UVM health network control an increasing proportion of the state’s providers as well as OneCare, the state’s only ACO. The Board must ensure it is regulating the health care system to prevent this monopoly from further exacerbating Vermonters’ affordability challenges and undercutting the success of the all-payer model…Our health care system must not privilege provider profits over cost containment and consumer affordability.
This paragraph alone indicts Fisher and the Advocate’s office for being intellectually dishonest, and politically irresponsible. Too strong? Let’s look at the evidence:
The central problem is the claim that the UVM health network is responsible for “further exacerbating” the cost problems in the system, and that it is “undercutting” the all payer model, the buzzword for the shift in the reimbursement of hospitals and doctors from fee-for-service to block financing at fixed prices. That claim is simply outrageous: it is not just wrong, it flies directly in the face of all the data that exists, as well as the history of the reform effort.
Beginning in the late 1960s, spending by all Vermont hospitals exploded, rising at eight percent or more year over year. In the decade 2000 to 2009, Vermont hospitals doubled their budgets, a performance that inspired the health care reform effort that began in 2011 with the Legislative passage of the basic reform law.  
By 2013, however, the Green Mountain Care Board was in charge and the whole cost environment began to change. The cost increase in the 13-hospital Vermont system from 2014 to 2015 was 5.0 percent, from 2015 to 2016 was 4.4 percent, and from 2016 to 2017 was 2.8 percent. The 2017 figures were the last actual numbers we have, but both the 2018 and 2019 budgets came in under 3.0 percent. During UVM’s budget hearing earlier this year, the Vermont Association of Hospitals and Health Systems submitted an analysis showing that the shift from the high 2000-2009 inflation track to the much lower 2013-2018 track saved Vermonters some $600 million.
How did that happen? The Green Mountain Care sets the cap of about 3.5 percent on the system, but the Board itself can only push for a given result. The actual work of getting the whole system cost down was carried out by the finance team at the UVM health network. Evidence? If you take the recent numbers and strip out the UVM figures, the system cost goes up by about 25 percent (from around three to four percent). Not convinced?
Take a look at the actual figures for the 2017 fiscal year. In that year, UVM’s Medical Center run over its budget by about $40 million, driven by an unusual influx of new patients. At the same time, some of the small community hospitals lost a large number of patients, although their budgets did not actually drop. The system result: the total cost increase dropped from 4.4 percent to 2.8.
If UVM represents about half the system, and its budget blows through the cap, how can the system cost go down? It’s simple, actually. UVM’s costs per capita are far below that of the community hospitals, mainly because UVM’s docs get paid salaries and therefore have no financial incentive to do more than less. The actual increase in UVM’s 2019 budget over 2018 was just over one percent, far below the 3.5 cap and also far below national inflation, which was running at three percent in the middle of this year.  
The fact that UVM’s cost per capita in its primary service area—basically Chittenden County--has been very low in Vermont since the early 1970s. It has also been true, by the way, in many other states. In Wisconsin, for example, costs per capita in the area surrounding the state’s academic medical center in Madison are far below the big tertiaries in Milwaukee; same between the academic center in Iowa City, compared to similar hospitals in Des Moines. The same result shows up in Maine, Washington, Massachusetts, and with particular effect when comparing costs in Boston and New Haven, where New Haven has one world-class facility at Yale, where Boston has several. Per capita volumes in New Haven are half the level of Boston….
These numbers lie buried in data bases that are accessed by health policy analysts, and it is not surprising that the average person doesn’t know anything about them. But the Advocate is not the average person. Fisher gets paid to understand them, and there is no evidence that he does so. And it’s not just Fisher himself. He has a professional staff of three or four, including lawyers and at least one credentialed policy analyst.
To me, the final sentence in the paragraph is the one that indicts the Advocate team as intellectually dishonest. That’s the one that says the Board must not “privilege profits” over cost containment and affordability. That is pure dog whistle material.
The fact is that there are no “profits” in the Vermont hospital system. All of our hospitals are non-profits. The hospitals do have margins of revenues over expenses that they retain on their balance sheets. It is often harmless to refer to these “margins” and “bottom lines” as profits. But it is not harmless in this case because margins are very different from profits in a private system.
In much of the economy, the profits for a company are the money that the owners of the business can take home and spend on whatever they want—cars, boats, ice cream, trips to Vegas. In a non-profit system, the margin money has to stay inside the entity itself. It can only be spent on stuff for the hospital, not the people that work there.
The most important single reason for maintaining a two to four percent margin or bottom line is the need for medical systems to borrow money in the national financial markets to pay for new infrastructure. If a medical company wants to issue bonds to pay for a new patient wing, for example, their bonds will be assessed by ratings agencies, and those ratings will depend heavily on whether your margin is considered healthy. UVM, for example, has been building a new, $180 million patient wing. The total cost of that over 30 years will approach half a billion dollars. Last year, UVM won a bond upgrade by the rating agencies, and it saved UVM, and thus Vermonters, tens of millions of dollars.
That does not mean that hospital big feet—senior administrators and specialist docs—can’t give themselves more money. They can and do. But profits have nothing to do with it. The salary increases just become expenses on the hospital’s books. That way, they can take the money home. If you want to see that process at work, look at the doubling of hospital budgets in the first decade of the millennium: given that 60 percent of hospital budgets are labor, the big feet took home some serious raises in that era.
Those days of wine and roses are over in Vermont hospitals. There are still very high salaries in the system, but they are constrained now by the steady pressure from the Green Mountain Care Board and the continuing commitment to cost containment by the UVM health network. The 2019 budget approved UVM’s Medical Center increase by a parsimonious 1.1 percent over 2018.
The reason for belaboring this point is that making OneCare Vermont appear a blundering spendthrift is that it could feeds the anti-reform sentiment still alive in the reform environment, particularly the Legislature. It is also true that the Advocate’s broadside could be used as a club to beat on the Green Mountain Care Board itself. During the recent political campaign, for example, Gov. Phil Scott mentioned that he might consider trying to cut the Board from five members to three. And in an earlier kerfuffle between the Advocate and the Board, former Gov. Howard Dean tweeted that the Board had never accomplished anything worthwhile.
In its letter, the Advocate listed several other shortcomings that it found in OneCare’s operations in such areas as transparency, quality control, and case management. All these issues are complex, and in general the Advocate’s factual positions are often valid, but its expectations for high performance at this early stage of the game are simply unrealistic. It’s like complaining about heat loss in a new house that doesn’t have a roof yet.
The argument set forth above is a quick overview of a reform issue that must be addressed in the next two weeks. There are a number of other issues that stand in the way of achieving a final form for the whole Vermont project. I have suggested that the last pieces of the puzzle need to be put in place by early spring of 2019. I will post analyses of all of these in the coming winter.
The important question right now is whether the Board approves the OneCare budget in some fashion or whether it accedes to pressure from the Advocate, and threatens the reform movement itself. We’ll know the answer to that question in the next two weeks.

Reform Moves Ahead Against Strong Headwinds

by Hamilton E. Davis


Vermont’s health care reform initiative, now in its eighth year, has achieved a significant level of success, and is within sight of its ultimate goal of sustainable costs for its acute care hospital-doctor system. No such system in the United States has accomplished that since health care spending began to soar in the late 1960s. At the same time, however, the reform landscape is marked by powerful tensions between the players that could derail the whole enterprise.
The administration of Gov. Phil Scott, the Green Mountain Care Board, OneCare Vermont (the state’s Accountable Care Organization), the University of Vermont’s health care system, Blue Cross and Blue Shield, the state’s small community hospitals, the primary care doctor community, the Vermont business community, the Vermont House, the Vermont Senate—all face serious challenges as reform enters the home stretch.
Will Phil Scott step up to the difficult task of leading a reform project that he has been ambivalent about since he took office two years ago? The Green Mountain Care Board has presided over a striking course of cost discipline for hospitals; but it has also made some serious mistakes to the point that there is now serious consideration of changing the Board structure itself. Blue Cross and the University of Vermont’s Medical Center are locked in a bitter dispute over payments by Blue Cross for care at UVM, which is just a symptom of the fact that the Blues and UVM and OneCare Vermont appear to be operating at cross purposes on reform. If they can’t get on the same lily pad, then reform will be far more difficult.
The primary care community has supported reform with the considerable reluctance to the point where both the Green Mountain Care Board and OneCare have discussed changing the way patients are referred to OneCare’s contracts. Will the Board go that far?
Since the late 1970s, the state has assessed hospital budgets on the basis of how much they spent each year. There has been increasing dissatisfaction with that metric, however, and OneCare and the Green Mountain Care Board are discussing whether to shift to the per capita cost of care in a given hospital service area. That would be a much better way to do it, but what would be the effect on the small community hospitals?
The UVM system has led the way to the cost containment success, but it has been plagued for years by bitter opposition from elements in the press, in the Legislature and in the larger political community. Question: will UVM figure out how to tell its own story? And the House and Senate, which demonstrated considerable hostility to, as well as ignorance of reform, will see important changes: possibly a new Speaker in the House, definitely a new chair of Health and Welfare in the Senate. How will either chamber react if the final phase of reform needs legislative action?
It has taken eight years to get this far, but the answers to these key questions really need to be hammered out in the next four to six months. By late February, Vermont’s hospitals will begin building their Fiscal Year 2020 budgets, and if their regulation system is going to change the financial teams will have to know by then how to deal with a new system.
Following is a quick sketch of the major issues affecting the reform initiative. I’ll look at each one in more detail as it plays out through the fall and early winter.

The Scotties:

Phil Scott, by all insider accounts, is fully committed to reform. Being on board, however, is far from taking any kind of an active role, and even farther from taking ownership. On the current regulatory track for the state’s hospital system, which began in FY2013, the reform effort has saved Vermonters in the neighborhood of $600 million, compared to the first decade of the millennium. The regulatory system, in short, is basically working. 
The real bite in the reform project, however, will come in the shift from fee-for-service reimbursement that will put hospitals and doctors at financial risk for the system they run. In FY2018, which closed on Oct 1, 20 percent of the Vermont population has been in fixed price risk contracts that for the first time in modern history have protected the public against skyrocketing health care costs. And there hasn’t been any noticeable level of complaint.   
Moreover, the potential for further cost savings dwarfs anything that Scott has even dreamed of. Earlier this year, he threatened a shutdown of state government in an effort to save $26 million in the state’s education system. Scott could work to get the state employees, and possibly the state’s teachers, into risk contracts that would cap health care cost inflation at half its historic rate.
During most of his first term, Scott treated the Vermont reform like a live hand grenade. Over the last several weeks, though, he has sounded something of a different note. In one of his early debates with his gubernatorial opponent, he mentioned that he might consider cutting the Green Mountain Care Board from five members to three. That was probably a reaction to outrage in the hospital community about how the Board managed the hospitals’ FY2019 budgets. He went even further in the most recent debate, when he said that the state reform project is working, and that it would be expanded. Assuming Scott gets reelected, it will be interesting to see whether he’ll take decisive action, like trying to move the state employees, and possibly the state’s teachers, into the reform structure.

The Green Mountain Care Board:

The Green Mountain Care Board is in a strange kind of limbo. From one perspective, it has done a terrific job, better than any single health care entity in the United States. Vermont’s 13 hospitals, whose costs rose at three and four times the rate of inflation since the 1970s, have trended steadily downward since 2015, when the inflation rate was 5.0 percent, near the U.S. average, to 4.4 percent in 2016, to 2.8 percent in 2017. Those are actual numbers. The budgets approved for 2018 and 2019 run about 2.9 percent. In July of this year, national inflation came in at 2.9 percent. The forecasts for the national health care system range from four to six percent, as much as twice as high.
These striking results, for which the Board can take some credit, are masking the fact that the Board has made some serious mistakes; it also masks the fact that the numbers have been accomplished almost entirely by efforts undertaken by the University of Vermont’s health care management team. If you take out UVM’s Medical Center, then the inflation rate in the system rises to a far more pedestrian four percent or so.
What are the mistakes made by the Board? The first came two years ago when the Board approved the construction of a for-profit, stand-alone surgical center in Colchester. The apparent reason for this decision was that the Center could provide some price completion for UVMMC. That decision ran directly contrary to the principle underlying the Vermont reform project that the state system needed to move away from competition to integration. They compounded that error when they declined to weigh in with the Senate on the question of whether there should be any regulation of the center.
The Board wandered into a much denser thicket during the September hospital budget hearings. The Board told the hospitals last spring that they should not increase 2019 spending by more than 3.2 percent. Regulators have given hospitals this sort of “guidance” since the mid-1990s, and the understanding has always been that if the hospital came in under the cap, the Board would not mess with the internals of the budget.
Not this time. During hearings on Sept. 5, 11 and 12, the Board members decided to change the rates that hospitals would be allowed to charge commercial carriers like Blue Cross and MVP or Cigna for care they delivered. The most important order came on UVMMC’s budget, which called for an increase of 4.0 percent in commercial rates. The Board also ordered changes in the rate structures of several community hospitals. The first problem arose in the way the discussions themselves ran. The members just started wondering how they might change those rates; there appeared to be no connection with the amounts of change contemplated and what was actually happening on the ground. “So, Robin, I’m comfortable with three percent, what are you comfortable with?”
There are hundreds of pages of transcripts of these three hearings, and I haven’t gone through all of them; but I will, and I’ll report on what I found later this fall. For now, trust me that the whole hospital community flew into a total rage at this performance. They saw it as arbitrary, and further evidence of what they have believed for some time, that the Board doesn’t really understand the industry they are regulating. Worse than that was the clear inference to be drawn that the members don’t grasp the difference between regulation and management.
The above just scratches the surface of this issue, but its importance is clear enough. The reaction in the industry has led to a plethora of insider speculation that the Board may need to be constrained, modified, or otherwise recast or even eliminated. Governor Scott himself alluded to this speculation in a recent debate with his political opponent when he said that he would consider trying to cut the five-member board to three. Any such step would trigger a full reconsideration of the whole reform infrastructure. Be interesting to watch, especially if the Governor is on the sidelines.
The decision on whether to mess with the Board itself will probably turn on its decision on the OneCare Vermont budget, which came before the Board last week. The key element in that budget is whether to interdict the federal government’s decision to increase payment for care to Vermont’s Medicare recipients by 3.8 percent. That number is well above the Board’s target spending of 3.2 percent going forward; it exceeds by even more the hospital system inflation rate of just under 3.0 percent.
At the same time, however, it is clear that the whole hospital system, and especially UVM, needs every penny it can get in federal funds as it moves ever deeper into financial risk. If the OneCare budget goes through reasonably unscathed, the players will probably overlook their unhappiness over the Board’s September machinations on the commercial insurance rates. If the Board reduces the Medicare rate in an effort to maintain a lower system level cost, it will probably face a challenge in court. That eventuality would very likely trigger a reexamination of the Board’s structure and processes.

The Scale Problem:

The population of Vermont is about 625,000. Some 75,000 of those are ineligible to participate in reform because they are attached to the military, or work for out-of-state employers. The state’s contract with the federal government requires that 70 percent of the remaining 550,000 be enrolled in risk contracts by 2022. The state is nowhere near that 385,000 target, nor is it on a track that is likely to lead there. Call it the scale problem.
There are several issues contributing to that shortfall. One is that the primary care doctor community has been reluctant to engage with OneCare in the implementation of reform. The backstory there is the rule that patients can only be attributed to OneCare by being referred there by their primary care physician. About 300 of the state’s primary care docs are employed by hospitals, so the attribution question there depends on the hospital. That’s too small a network to reach the levels of enrollment demanded by federal officials.
One of the sources of reluctance to engage with reform has been the Federally Qualified Health Centers (FQHCs)—small groups of primaries in mostly rural areas that get federal subsidies to keep them in business. That is changing now, but slowly. And even if all the FQHCs jumped in, it would not be enough to get hit the scale targets. Still, the foot-dragging by the FQHCs has galvanized discussions about changing the attribution rules to permit attribution to an ACO by a community hospital, or even by place of residence. That decision needs to be made in the next several months.
Another major player from a reform perspective is Vermont Blue Cross. Blue Cross enrolls some 210,000 Vermonters in some form of health insurance. Of that number, 52,000 are in the federally subsidized Exchange; and of that number the Blues attribute 18,000 to risk contracts with OneCare Vermont. The remaining 160,000 or so patients are divided into those who purchase insurance and those who are part of self-funded health plans, where the Blues handle the paper work. The Blues don’t break out that split, but a fair guess would be that at least 100,000 Blues patients could be attributed to a risk contract. With less than one in five Blues policy holders going that route, Vermont probably can’t hit the scale target. A critical question, therefore, is whether there is some kind of political problem between the Blues and OneCare; and, in any event, what it will take to resolve it.
Which illuminates yet another problem: hitting the scale target will require significant participation by self-funded plans, like those of large employers. The Vermont business community, with some exceptions, has been missing in action on health care reform, even though it is a major beneficiary of the cost savings that have flowed from it thus far. The federal target probably cannot be met without more participation from the self-funded sector.

The Vermont Legislature:

In the early days of reform, the Vermont Legislature was fully on board the train. The members didn’t understand it very well, if at all, but they had confidence in the team that then-Gov. Peter Shumlin put on the field. That all began to go south in 2013 and 2014, when the Shumlin administration bungled the rollout of the federally financed insurance Exchange; the tatters of the program’s credibility vanished in late 2014 when Shumlin abandoned the financing element of the reform plan.
By 2015, the Legislature was free-lancing on health care reform, and it wasn’t pretty. From 2011 through 2014, the members didn’t need to understand health care reform, probably the single gnarliest public policy hairball that ever afflicted the halls of the statehouse. They have no staff of their own—the handful of players in the Joint Fiscal Office watch health care, but they do little to nothing to actually drive it. In the early days, however, lawmakers didn’t need to do much, if anything. And if they wanted something explained to them, they could call in the actual architects and managers of the program.
Once there were no adults in the room, however, the members began to rock and roll. One of the themes that appeared was that the problems of the health care system were caused by the University of Vermont’s health network. The UVM system was too big and dominant. It bullied the small guys and tried to buy up the little guys or run them out of business. Some of the most virulent criticism came from the Progressive-Democratic left: leading critics included the Chittenden County Sens. Tim Ashe, Michael Sirotkin, and Chris Pearson.
The anti-UVM campaign was spectacularly wrong in virtually every dimension. Plainly simple, there wouldn’t be any Vermont reform without UVM’s leadership, let alone an effort that is outperforming every state-wide hospital-doctor system in the country. Moreover, so far from being a malign influence, UVM’s medical college and its tertiary hospital is one of the most vital cogs in the state’s economy; and its quality performance leads the whole hospital system.
Given the toxic political environment for UVM, I don’t expect even my marvelously perspicacious readers to accept my mere assertion. But hang on, you’ll see the full panoply of evidence in this space soon.

GMCB Needs to Get Out of the Weeds, Fast

by Hamilton E. Davis


The University of Vermont Medical Center sent a very strongly worded letter to the Green Mountain Care Board Wednesday, urging the Board to reverse its decision to cut UVM’s proposed increase in the rates it charges Vermont Blue Cross for care delivered to Blue Cross patients.
This letter is very significant: it illuminates a catastrophically botched budget process by the Green Mountain Care Board and if that process is not repaired the failure will endanger Vermont’s health care reform, which has already saved Vermonters more than half a billion dollars and has placed the state in the forefront of the country’s effort to get health care costs under control.
The decision at issue was made on Sept. 12, when the Board ordered UVM to drop the increase to commercial carriers from 4.0 percent to 2.5; the move trimmed $6.75 million from UVM’s proposed budget of $1.2 billion budget for Fiscal Year 2019, which begins Monday, Oct. 1.
 The core mistake by the Board was the effort to solve the problem of the Blue Cross rates not by addressing the obvious problems with Blue Cross, but by treating UVM as a piggy bank to solve those problems. Taking money away from one player in the system to solve problems of another player is to risk the whole reform enterprise. That dynamic was laid out in detail in the letter from John Brumsted, the CEO of the UVM health network, to Kevin Mullin, the chair of the Green Mountain Care Board.

The UVM case

   Following is an outline of the case made by UVM. I have published the full text of the letter in another post on A Vermont Journal. For those among my tiny corps of brilliant readers who are really concerned about health care reform, the full text will be a revelation. So, herewith the precis:
The framework for this discussion is the so-called All Payer Model, which nobody talks about in simple terms and which most people, including important ones like members of the press and the Vermont legislature, have no serious understanding of regardless how simple the terms. The essence is this: For the last, oh, hundred years or so Americans have paid for health care by paying for each episode of care. That Fee-For-Service reimbursement scheme has led to exploding health care costs because the volume of care is highly variable and is decided not by the consumer, but by the doctors. That turns conventional economics on its head: competition tends to drive total costs up, not down.
The All Payer Model is simply a federal waiver to permit a state like Vermont to switch its reimbursement from fee-for-service, which is breaking health care budgets everywhere, to capitation, which means that a group of medical providers can contract with doctors and hospitals to provide a full range of care to big groups of patients at a fixed price. That dynamic shifts the risk for the financial performance of the delivery systems from patients and payers to the providers themselves.
That kind of shift, in turn, means recasting the health care system from competition mode, to cooperation and integration. Vermont has been doing just that the last eight years, and it is now proving to be amazingly effective. The inflation rate for the last year with full figures showed that the Vermont hospital inflation rate from 2016 to 2017 was 2.7 percent, about half the rate in the rest of the country. If you compare that performance with the results from the hospital system in the decade of the ‘oughts you get a savings to Vermonters of more than half a billion dollars. Here are the bones of the UVM case.

  • Governor Scott, Kevin Mullin, the chair of the Board, and Al Gobeille, Sectretary of the Agency of Human Services, signed a binding agreement with federal Medicare and Medicaid officials on Oct. 27, 2016 to use the All Payer Model structure as the framework for delivery system management reform in Vermont. That agreement, Brumsted wrote, committed the Board regulate the system so as to permit hospitals to assume “the enormous new financial risk associated with the fixed payment system that is the key to wringing value out of our health care system.”

  • The UVM Health Network hospitals “have been all-in” on the (All Payer Model), redesigning our entire system of care in order to deliver on the APM’s promise.” That claim is actually understated. Everyone wants to take credit for the Vermont performance, especially the Green Mountain Care Board itself, but the reality is that the entire result has been driven by the performance of Brumsted and his senior financial and management team. I don’t expect my brilliant readers to accept that judgment without evidence, but stick around, you’ll see it before Halloween…

  • Here is the essence of the UVM case: “Unfortunately, the Board’s decision to reduce the UVM Medical Center’s budgeted commercial rate does not…honor the commitment the GMCB made to the federal government or the All Payer Model participants. It does the opposite…
      “By weakening the UVM Medical Center’s financial health, the Board’s decision makes it far less likely that the Medical Center can responsibly assume risk under the APM, either now or in future years. By setting the UVM Medical Center’s commercial rate at an artificial level, rather than allowing the Medical Center to (manage) that rate within (the Board’s total spending cap), as the Board had previously agreed, the (Board) may actually make continuing to pay ‘fee-for-service’ and attractive option for insurers, employers and patients.”
      While the UVM letter did not mention it, another anomaly embedded in the Board’s decision was the fact that while the hospital was ordered to cut north of $6 million out of its revenue figure, it was allowed to keep its budget total the same. The implication of that is the Board was encouraging UVM to ramp up its volume, just to make up the shortfall from Blue Cross. Given that excess volume is the cancer at the heart of the hospital cost problems, such a proposition is not just unwise, but disgraceful. That is true even if UVM is highly unlikely to lean toward bogus utilization.

  • What angers the UVM group, and in fact most of the hospitals, is their belief that the Board isn’t complying with its own rules. According to the GMCB rules, Brumsted wrote, “the Board may adjust a hospital’s proposed budget if it does not meet the ‘benchmarks established by the Board…This year, the Board’s budget guidance limited hospital (growth) to 3.2 percent…The Board’s guidance did not set a benchmark related to commercial rate increases, hospital operating or total margins, or any other financial metric…
    “The UVM Medical Center followed all the rules laid down by the Board,” Brumsted wrote. “It submitted a budget with a low 1.1 percent (total spending figure), approximately one-third of the growth rate allowed by the Board…It is worth noting that the Board’s guidance allowed the Medical Center to propose an additional $19 million in patient revenue, and twice the increase in commercial rates the hospital ended up proposing.
    “Yet, the Medical Center did not propose a budget designed to take advantage of that financial headroom. Instead it held the line on both revenue and rates…” Brumsted wrote.

  • The last item in the UVM letter criticized the way the Board reached its decisions on how to cut commercial rates. The decisions didn’t seem connected to any real issues on the ground for each hospital. That last was seriously understated. The discussion in the Board was an absolute shambles, a toxic mix of hubris and whimsy. The members just wandered around for what seemed like hours, speculating on how they might change the “ask” for each hospital. There was no apparent connection to anything specific.

It is unreasonable to ask even my exquisitely capable readers to wander around in the transcripts of three days of Board hearings to assess the arguments put forward by UVM. I will do that myself, however, and publish the results as soon as possible.
Meanwhile, the issuance of the UVM letter has triggered a cascade of important questions about the future of reform, and I am going to lay those out as best I can over the next several weeks. Stay tuned. By the time the leaf peepers have come and gone, my brilliant readers will have a better grip on this saga than anybody else.
Count on it.

UVM to Board: Reverse This Decision

September 26, 2018

Chair Kevin Mullin
Green Mountain Care Board
144 State Street
Montpelier, VT 05620

Dear Chair Mullin:

I write to express my deep concern regarding the Green Mountain Care Board’s decision to adjust the UVM Medical Center’s FY 2019 budget as well as the process that led to that decision. Simply put, the Board’s decision is at odds with the long-term success of the All-Payer Model (APM) and will ultimately result in higher, rather than lower, health care costs for Vermonters.

The GMCB’s Proposed Order Will Destabilize the APM

On October 27, 2016, the Governor, Chair of the Green Mountain Care Board and Secretary of the Agency of Human Services signed the Vermont All-Payer ACO Model Agreement with the Center for Medicare and Medicaid Innovation. By entering into that binding Agreement, the parties committed to supporting the APM as the primary tool through which the State of Vermont controls the cost and improves the quality of health care for all Vermonters. Since then, The University of Vermont Health Network has been “all in” on the APM, redesigning our entire system of care in order to deliver on the APM’s promise.

The APM will only succeed if Vermont’s hospitals and other providers are able to continue to make the significant investments necessary to support OneCare Vermont and to assume the enormous new financial risk associated with the fixed prospective payment system that is the key to wringing value out of our health care system. Those costs and risks are at their greatest during the formative years of this “bold experiment” because all of the participants are learning how to handle unprecedented, and at times unpredictable, change in both care delivery and payment.

The UVM Health Network’s hospitals have kept their commitment to support the APM, shouldering the bulk of the associated expense and risk. Of course, that commitment is not without cost, and the UVM Medical Center’s budget was carefully calibrated to provide the necessary continued investments in OneCare Vermont and to maintain the financial health required to assume risk on fixed prospective payments of nearly $200 million. I believe these investments will ultimately be seen as among the wisest and most forward-looking our health care system has ever made – reducing the cost of care and improving the health of all Vermonters – but only if our regulators also support the long-term success of the APM.

Unfortunately, the Board’s decision to reduce the UVM Medical Center’s budgeted commercial rate does not demonstrate that support. Nor does it honor the commitment the GMCB made to the federal government or the APM’s other participants. It does the opposite. By reducing the UVM Medical Center’s ability to invest in OneCare, the Board’s decision undermines the foundational infrastructure of the APM. By weakening the UVM Medical Center’s financial health, the Board’s decision makes it far less likely that the Medical Center can responsibly assume risk under the APM, either now or in future years. By setting the UVM Medical Center’s commercial rate at an artificial level, rather than allowing the Medical Center to “solve for” that rate within the Board’s NPR growth benchmarks, as the Board had previously agreed, the GMCB may actually make continuing to pay “fee for service” outside of the ACO an attractive option for insurers, employers and patients. It also appears misaligned with the targeted rate of growth for health care delivery under the APM, which was developed over years of discussion among CMMI, GMCB leadership and provider stakeholders.

In sum, the Board’s proposed order will destabilize both the UVM Medical Center and Vermont’s All-Payer Model just as they, working together, are beginning to bend the cost curve. If that occurs, the Vermont hospitals’ prior investments in the APM will have been for naught.

The Board’s Order Will Not Result in Lower Rates for Commercially Insured Patients

Nor will the Board’s decision do anything to predictably reduce the cost of commercial health insurance for Vermonters in the shorter term. As you know, the UVM Health Network has long been urging a higher level of coordination among the hospital budget review process, the commercial insurance rate-setting process and the ACO budget review process. At best, those processes currently do not communicate with one another; they are ships passing in the night. At worst, they work at cross purposes to one another; as described above, decisions made in one process affirmatively harm the stated goals of another. As a result, Vermonters have no way to understand, and regulators have no way to explain, how changes to hospital budgets affect commercial insurance rates, either inside or outside the APM.

The UVM Health Network remains committed to reforming these regulatory processes so they work together to transparently illuminate and then control the true reasons for rising commercial insurance rates in Vermont. For instance, the regulatory processes should use consistent, per-patient measures of the cost of care. They should all regulate on actual-to-actual bases, rather than budget-to-budget. They should all be designed to build reserves at the entities charged with assuming risk, or facilitate a shift in reserves from those delegating risk to those accepting risk. They should then be sequenced in such a way as to allow the processes to meaningfully inform one another. Only when we make these and other related changes will regulators and hospitals ensure the savings we achieve are passed along to Vermonters.

The FY 2019 Budget Review Process Was Unpredictable At Best

Until this year, when a hospital submitted a budget in line with the GMCB’s guidance, the hospital could be confident that its budget would be approved without major adjustments. This consistent and principled approach by both the hospitals and their regulators has succeeded. Vermont is bending the health care cost curve more effectively than nearly any other state.

In contrast, the budget review process that led to the Board’s decision regarding the UVM Medical Center’s FY 2019 budget was unpredictable, at best. The Board repeatedly failed to judge hospital budgets by standards it had previously articulated. As a result, even hospitals that followed all of the rules had their budgets adjusted downward.

According to the GMCB’s own Rules, the Board may adjust a hospital’s proposed budget if it does not meet the “benchmarks established” by the Board to “guide . . . its decisions whether to adjust a hospital’s proposed budget.” (GMCB Rules 3.303, 3.305, and 3.202.) This year, the Board’s budget guidance limited hospital NPR growth to 3.2%, including 0.4% for health reform investments. (FY 2019 Hospital Budget Guidance and Reporting Requirements at p. 9.) The Board’s guidance did not set a benchmark related to commercial rate increases, hospital operating or total margins, or any other financial metric.

The UVM Medical Center followed all of the rules laid down by the Board. It submitted a budget with a low 1.1% NPR increase, approximately one-third of the growth rate allowed by the Board. Through simple math, that patient revenue produced a 4% commercial rate increase. It is worth noting that the Board’s guidance allowed the Medical Center to propose an additional $19 million in patient revenue, accompanied by an 8.2% increase in commercial rates. Yet, the Medical Center did not propose a budget designed to take advantage of that financial headroom. Instead, it held the line on both revenue and rates, proposing a budget that contained only the patient revenue necessary to meet its obligations to its patients, it community and the APM Agreement, but no more.

Nonetheless, the Board’s decision cuts the UVM Medical Center’s commercial rate increase by 37.5%, from 4.0% to 2.5%. The transcript of the budget hearings reveals that the Board mentioned many and varied factors in support of its decision. The one thing those factors have in common is this: none of them was previously identified by the Board as governing the budget process.

The Board should not rely on new or newly articulated factors to cut hospital budgets. In the short term, that approach risks producing the sort of unintended consequences discussed above. In the long term, it risks far more than bad outcomes. It undermines the strength and transparency of our regulatory process, transforming it from one based on principles to one based on politics.

We look forward to working with you, your fellow Board members and GMCB staff to address these concerns.



John R. Brumsted, MD
President and Chief Executive Officer

Opinion Makers on Health Care Reform Turn in a Boneheaded Performance

by Hamilton E. Davis

   Vermont’s health care reform initiative is now in its eighth year and it is actually doing amazingly well, given the godawful difficulty of the central task—getting health care costs under control. Annual inflation rates in the Vermont hospital system are half those in the rest of the country. Every once in a while, however, some brush fire blows up that illuminates the adverse political pressures that reform has to overcome. The recent brouhaha about insurance rates for the Obamacare Exchange is one of those.
   Every year Vermont Blue Cross and MVP, a New York-based insurance carrier, ask the Green Mountain Care Board to approve increases in the rates each charges for insurance purchased from the Exchange; the federal government subsidizes this system, but, especially at higher incomes, the policies can be very expensive.
   The proceedings take place in a rigidly legal format; they are a courtroom trial, governed by state law and the rules of evidence. And the Green Mountain Care Board has to walk a very narrow line in the process: on the one hand, the Board has to get premiums for consumers as low as possible, given the costs generated by the medical delivery system; on the other, the Board has to ensure that the carriers rates are sufficient to keep them solvent, a requirement enforceable by the Vermont Supreme Court. A bankrupt insurance company could leave tens of thousands of Vermonters with no coverage.
   A major cog in this government machinery is the Health Care Advocate, whose assignment is to press the Green Mountain Care Board to ease these the very considerable burdens on the 80,000 or so Vermonters who get coverage on the Exchange. In the past, Mike Fisher, the Advocate, has hired an actuary to joust with the actuaries for the Board and for the carriers over what the rates should be.
   This year, Fisher took a different tack. He petitioned the Board to allow him to testify as an “expert witness” on the issue of whether the policies sold on the Exchange were affordable. The Board denied the petition on the grounds Fisher didn’t fit the legal definition of an expert witness. Of course, he could carry out his normal functions as a party to the proceedings. He could ask questions of witnesses, and he could put on his own witnesses, either an actuary—or a real health policy “expert.” Moreover, he could testify himself on “facts” that he wanted the Board consider; he just couldn’t be labelled an “expert witness.”
   The cascade of errors began about 10 days ago when VTdigger reported that Fisher would not be allowed to participate in the hearings all. “Consumer Advocate Barred from Insurance Rate Hearing; State Won’t Say Why”, the headline read.
   Pandemonium ensued. Former Governor Howard Dean tweeted his outrage: “The Green Mountain Care Board has never been effective,” he wrote. “The people who serve on it are good people but this action makes them look like they are in the pocket of the insurance companies. GMCB should be disbanded.”
   Sen. Michael Sirotkin, the Chittenden County Democrat, weighs in on Front Porch Forum, taking credit for passing the law establishing the Health Care Advocate and urging the Front Porchers to comment on the affordability issue to the Board. Tim Ashe, a Democrat/Progressive and the President pro tem of the Senate went the tweet route:
   “Totally tone deaf of the state’s two health insurers to try to block the consumer advocate from, well, representing consumers when they are proposing big price increases for insurance. The regulators should toss the request in the wastebasket.”
   Tom Pelham, the newest member of the Board, told the press he didn’t see any harm in Fisher testifying about affordability, thereby undercutting his own Board’s decision. And Jon Margolis, Digger’s political columnist suggested the Board was a “lapdog” for the insurance companies, in a way that that appears to make the Board and the carriers “arrogant, blasé, about adding to the financial woes of their customers, and hostile to democracy.”
   Wow, that sounds like a very big deal…Actually, it isn’t. The insurance company rates are important, but the Health Care Advocate will have no impact on them at all. That isn’t the advocates' fault: Mike Fisher wants the Board to understand that the cost of health care is not affordable, which it obviously isn’t. But every sentient being who hasn’t had his or her head under water for the last 20 or 30 years knows they aren’t affordable—that’s why the health care reform effort, and, indeed the Board, exists. The problem isn’t knowing health care costs are too high, the problem is what to do about it. And paroxysms of stupidity don’t help in that regard at all. Let’s count the ways:
   In the first place, the first VTdigger story was wrong—the health care advocate wasn’t being barred from the hearing by the Green Mountain Care Board. They couldn’t do that if they wanted to—which they didn’t. Under state law, the Advocate is a party to issues like insurance rates. Fisher not only gets to go to the hearings, he gets a privileged seat there. He can question the various witnesses, and he can put on his own witnesses in support of any argument he might want to make. What he did get barred from doing was acting as his own “expert witness” on the question of affordability. The reason is that he doesn’t begin to qualify as such as witness under the law. Fisher cited his service as vice chair of a Vermont House health care committee, but that proposition is simply laughable. An academic health care economist sociologist could probably qualify. Fisher doesn’t. In fact, Fisher talked earlier in the year about putting on just such a witness, and obviously changed his mind. He spent his money on an out of town lawyer who would question him (Fisher) on his views about affordability.
   And in fact, the Health Care Advocate got his arguments before the Board, with no real problem. In the Blue Cross hearing, Jay Angoff, Fisher’s Washington lawyer, went after Blue Cross hard, eliciting a concession from a Blues witness that the Blues couldn’t even define “affordability”. Angoff easily made his point that the Blues products on the Exchange are not affordable in any real world sense. As in an ordinary person would have huge difficulty paying for them. It would have been a signal accomplishment if the Board didn’t already understand the point as well as, or possibly much better, than Angoff did…
   In the MVP hearing, Fisher himself spoke to the Board on a “fact” basis about affordability; and no one would be surprised to hear that the insurance rates aren’t affordable.
   As I said earlier, the rate question is very important. The path through that minefield is worked out in the contest between the actuary for each carrier, and the actuary for the Green Mountain Care Board. The actuaries study the cost data and supporting information for each book of business and then strike what each believes is an equitable rate level. The Board almost certainly will cut the rates requested by each carrier; at least that’s what it has done in the past. The size of the cuts, however, will fail to achieve “affordability.” The Board will rely on soft spots suggested by its actuary, and it will throw in whatever amount of political reduction aiming at easing the burden on Vermonters it thinks it can get away with. That’s basically how the system works.
   What was the significance of the whole Health Care Advocate flap? Basically, nothing at all. In his capacity as advocate, Fisher just nibbles around the edges of the tangle of issues the Board deals with. The whole reason that health care costs, and the consequent reform efforts, have galvanized the whole country is because health care costs are unsustainable, and the public can’t afford them. The real question is what to do about it. Nothing in the rate hearings shed any new light on that.
   The issue of political leadership on health care reform is directly pertinent, however, and it is worthwhile looking at the fallout from the rate hearing to assess that. Several important players fell short there.
   One was VTdigger, whose reporter got the initial story wrong: The Advocate was never “barred” from the hearings. Digger corrected its story a few days later, but it never corrected the headline. And given that there is really not any other day-to-day journalism coverage in Vermont, the damage a bad Digger story can do is considerable.
   The tweet storm cited above serves to demonstrate that point. Neither Dean, Sirotkin or Ashe bothered to check whether the Digger story was valid. The Sirotkin comments on Front Porch Forum were reasonable and harmless, despite the fact that they were inspired by error. But Dean and Ashe just launched right into the yahoo mode. Ashe’s suggestion that the Board throw the motions by the insurance carriers “in the waste basket” may sound good on the street, but would be irresponsible in a courtroom.
   The really bad performance came from former Governor Howard Dean. Dean really wasn’t interested in the insurance rate issue. His claim was that the Green Mountain Care Board “has never been effective”, that it appears to be “in the pocket of insurance companies,” and he concludes:
   “The GMCB should be disbanded.”
   That proposition is preposterous, right out to the point of being irresponsible. Dean, who is a physician and who, as Governor, managed the health care system, more or less, for 11 years, has got every element of his tweet wrong. There is not a scrap of evidence that the members of the Green Mountain Care Board are in anybody’s pocket.
   As for the Green Mountain Care Board never accomplishing anything, that is simply false. The Green Mountain Care Board has cut the annual inflation rate for the Vermont hospital system by two thirds; and its oversight of the process of shifting health care reimbursement from fee-for-service to capitation has put Vermont in the forefront of health care reform in the United States.
   It is fair, therefore, to ask just how boneheaded commentary by major players in the system, from political leaders to the press, actually impedes the progress of reform. In fact, it hasn’t blocked reform in any serious way-yet. But it remains a constant threat. In the 2017 legislative session, for example, Senator Sirotkin pushed hard for something called the pay parity act that was so wrong-headed that it finally fell of its own weight. (My tiny corps of elite readers may recall my posts on that).
   A contrary example occurred in this year’s session when Ashe, in his capacity as the Senate boss, steered the so-called universal primary care bill into the weeds, which is where it belonged. (My elite readers may recall those posts, also). That was a signal piece of courageous leadership, given how popular the universal primary care idea is and how damaging it would have been to Vermont reform. The narrow point here is that Ashe is a very important player and it matters whether he plays well, or not.
   The broader point is that the same is true of the other opinion makers. Remaking the health care delivery system and driving its unsustainably rising costs down to the Consumer Price Index is hideously difficult, and in the long run the outcome will have to be acceptable to the public.
   The opinion-maker performance in the insurance rate cases was simply shameful. Anyone who thinks that such a performance isn’t a dangerous risk to the whole reform effort needs to think again.

Takeaways from the Disaster

by Hamilton E. Davis

Following are a series of only moderately ill-tempered conclusions I have drawn from the nervous breakdown suffered by the Vermont House on Friday. I sketched that process in my last post. Herewith my effort to see where we stand now:

  • All the issue blatheration that ruined a perfectly nice day Friday is dead. What the Senate is willing to do is to give Scott his tax-free request for Vermont homeowners in 2019, plus a little, say $4 million or so, off the non-residential and business category of property tax for the coming year. In financial terms, that would look like this: Scott wanted to use $40 million in one-time money to buy out both residential and non-residential tax increases. What he can have is $10 million for residential, plus the roughly $4 million or a little over for a total of $14 million. The $26 milllion he can forget about. He might have been able to plead for a little more, but that prospect went glimmering when he waited until five days before adjournment to drop his plan on the Legislature. You don’t try a bush-league stunt like that without paying something for it.
  • The Speaker, Mitzi Johnson, needs to get a grip in a big hurry because she has made the House a public embarrassment. She put herself in thrall to House Republicans at a time when Democrats outnumber Republicans by nearly two to one. Holding an ad hoc caucus with her inner circle and the Republican leadership wasn’t a mistake so much as it was simply bizarre. And trying to freelance her own agreement with Scott with no buy-in from the Senate was sheer incompetence. On the override effort, she couldn’t swing a single Republican; she couldn’t even get all her own votes into the building. Pathetic.
  • What about the House Republicans? They’ve been pretty full of themselves, but their performance really can’t be taken seriously. They voted for the very solid first budget that Scott vetoed, then supported Scott unanimously on the override, thereby propping up the bogus shutdown panic. One of their stalwarts didn’t get the Scott message: he told the press that Republicans knew their position wasn’t about principle or policy, but rather was an effort to get some “juice” in the chamber where they are outnumbered. The juice comment will fit nicely into a political ad. As for Kurt Wright screaming at the beleaguered Mitzi after their little fantasy deal fell apart…Wright has been in government since the Pleistocene—didn’t he wonder why he was getting all that stroking with no Senator in sight?
  • And Scott—didn’t he wonder the same thing? During his little private session with Mitzi, might he have inquired whether Ashe and the Senate were on board? The House members who were not involved in the process and who spent a long miserable day just sitting around, were reduced to wondering whether Mitzi and the Governor had shaken hands.
  • More Scott: the Governor is going to have accept the bill that contains the $14 million/$26 million split with himself on the short end. He is going to have fold, in other words, or he’s going to have to shut down the government. Which I don’t believe will happen. Scott has been bluffing right along. A couple of weeks ago, Susanne Young, Scott’s Secretary of Administration, in a meeting with three House committees, said that the Administration had done nothing all to prepare for a shutdown. That was a hint. Scott and Gibbs are perfectly capable of mounting a political campaign with a lot of misdirection to win some political battle; Gibbs is a specialist at it. But shutting down with no preparation would be hugely irresponsible, and I don’t believe either Scott or Gibbs would do it. The whole bluff idea snapped into focus more recently when agency heads in the Scott Administration assured their employees there would be no shutdown. The Scotties couldn’t say that if that if they didn’t know their boss would accept the best deal he could get.
  • In the short term, there is a pretty clear path to a solution. The House has to pass the Senate bill; if they want to mess with it they will have to have a conference with that body. Then they have to get the agreed-upon bill to Scott today, if they want to give him the full five days to decide what to do with it. The Republicans ought to press for that, since Scott could then let it become law without his signature, a minor conceit that the Governor might like for his reelection posture. Could the whole mess still blow up again? To ask that question is to answer it.
  • The long-term fallout from the current craziness is problematic at best. If my analysis about Scott taking the best deal he can get is wrong, and he vetoes the state into a shutdown, then I think state government could sink into a dark age of rage and recrimination that would make Montpelier resemble President Trump’s Washington. I also think it would presage the end of Scott’s political career. Even without such an outcome, there will be significant angst in the normal process of government. There are a whole range of pressing issues, from school financing to the environment to the underlying performance of the Vermont economy, that can only be worked out by the Administration and the Legislature working in some kind of harmony. That will require a change in style for the Scott Administration. Scott and Gibbs will have to give up Manipulation 101 and accept the reality that they have to use persuasion to accomplish their agenda. And within the Legislature itself, there will be very significant tensions between the House and the Senate. Right now, the House is rudderless and the Senate united, a formula for dysfunction. I can’t even imagine how all that will play out.

Vermont House Has Nervous Breakdown

Can’t anybody here play this game
Casey Stengel, manager of the new New York Mets (c.1962)

by Hamilton E. Davis

   The Vermont House of Representatives, which has been struggling mightily for weeks to cope with Gov. Phil Scott’s veto of their budget and tax bills for the fiscal year beginning July 1, blew up totally in a marathon session last Friday, leaving the issues of school financing, spending for the new year, and the potential shutdown of state government in such a shambles that it was nearly impossible to tell exactly what happened, let alone where the whole mess is headed in the next five days.
   Some things, however, were clear. There is no solution yet to the contest between the governor and lawmakers on using windfall money to eliminate property tax increases for residential property and second homes plus businesses in the state. Scott wants to use one-time money to buy out the increases, a pledge he made in his 2016 campaign. The House and the Senate rejected that idea in their original budget.
   The person primarily responsible for the mess was Mitzi Johnson, the Grand Isle Democrat in her first season as Speaker of the House. Johnson lost control of her chamber so completely that it is hard to see how she can recover her credibility. The Vermont House looked like a particularly unruly eighth grade class that had obtained some inappropriate refreshments.
   The grown-ups in the building over the veto session has been the Senate, although there is considerable irritation at their leader, Tim Ashe the Pro Tem, who can seem petulant when crossed. Petulant or not, however, Ashe has done a superb job of steering his chamber through all the political white water.
   On issue after issue, Ashe has delivered unanimous or nearly unanimous decisions and has pressed them skillfully. And it’s not because the Senate is full of lightweights that can be led around by the nose. Ashe has had to meld the hard left—Sens. Chris Pearson and Michael Sirotkin, moderates like Ginny Lyons and Jane Kitchell, and veteran wheelhorses like the Republicans Joe Benning and Randy Brock, and centrists like Democrats Dick Sears and Dick Mazza—into an effective political unit.
   There is no way to describe the House as an effective political unit. Consider:
   When Governor Scott held back his education tax plan back until five days before the scheduled adjournment, and indicated that he would veto anything that didn’t meet his demands it became clear that his aim was to force the Legislature to eat a very unpopular policy; and further, that he could harry them into submission by threatening to shut down government and blame the Democrats for it.
   The issue in the veto session therefore was not really about the financing issue itself, the question was could the Legislature escape with its self-respect. In the early days of the veto session, Mitzi Johnson and Tim Ashe realized that they had to stick together to survive the political weight of a very popular governor. So they agreed not to negotiate with Scott separately. The held joint press conferences and published a letter to that effect. Their basic job was to coordinate any movement from their position so as to splitting and being picked off one by one. Within days, though, the House discipline began to slip.
   Rep. Janet Ancel, chair of House Ways and Means, announced one day that the Legislature should concede the Governor’s position on the residential portion of property taxes. The cost in one-time money to buy the normal tax increase there is about $10 million. I don’t know whether Johnson knew she was going to do that, but It was clear that Ashe never saw it coming. Scott, of course, instantly said that was not nearly adequate. He also never made a counter offer.
   It was right there that the situation in the House began to go south. Ancel is one of the most experienced and credentialed player in the whole legislature, and in the normal course of the session, her foray would be perfectly normal. But in a veto session, free-lancing like that is a thoroughly bad idea.
   The reason is that you can’t have a budget unless both House and Senate approve it. Ancel had no clue whether the Senate would agree to her proposal, but it was clear that the new starting point for negotiation involved only non-residential property. Ancel had made a big concession on her own. Moreover, the fact that Scott accepted it and demanded more, with no counter offer, raised the very damaging possibility that the House would start negotiating against itself, giving up more and more while getting nothing in return.
   One of the striking thing about this mess is that, in my view, it never would have happened with truly competent political leadership. A speaker like Ralph Wright, for example, would have blown players like Phil Scott and Jason Gibbs out of the water. And you could be sure nobody would be freelancing. If Ancel made her move in a way that embarrassed Wright, she could look forward to moving from the rarefied atmosphere of Ways and Means to the Shrub Committee, the one that meets outdoors. In the current case, it’s hard to blame Ancel because there obviously no leadership coming from the Speaker.
   It only got worse from there. On Friday, well over a month after the end of the regular session, the House was entertaining new amendments like those from Cynthia Browning, a right wing Democrat, Scott Beck, a Republican. Whatever their merits, if those propositions couldn’t get any traction in the regular session, why were they wasting time on the floor at a time like this? And it wasn’t just extraneous amendments.
   The Speaker put together a 10-member ad hoc seminar with five Democrats and five House members to talk over what the House should do. That was simply bizarre: the Republicans, outnumbered two to one, were just a speed bump. The most important fact about the littler gathering was that it had nothing to do with Senate. The Speaker, meanwhile, was negotiating with the Governor on her own—without Ashe. And she thought she had herself a deal; so did Scott. Everybody was happy, happy. But they didn’t have the Senate and once that reality rained on their parade the whole thing fell apart. Following which, Kurt Wright, the Burlington Republican, blasted the Speaker on the House floor, accusing her of all sorts of treachery.
   At that point, full blown panic set in. A late sortie by Kitty Toll, the chair of House Appropriations, failed when Toll herself voted against her own amendment…
   Late in the evening, the Speaker pivoted back to the Senate bill, and got it passed on a voice vote.
   A voice vote? On the budget, the Big Bill, on a voice vote, no roll call? Yup.
   That’s where it stands today. The Vermont House, in full nervous breakdown mode, will try again to find its way out of the wilderness. The key question is whether they will grasp the essential reality that no budget can pass that has not been endorsed by both chambers.
   And they have to get it done today, if Scott is to have five full days to react to it. If passed today, Scott will be able to let it become law without his signature. That ought to focus the minds of the House Republicans, who would have to vote in favor of quick action. Will they? Who knows? Their leadership has been as much of a joke as that of the majority.
   The circus tent opens at 10 a.m. Get your seats early!

N.B. Given that the above screed is a bit scrambled, I’ll post my own takeaways from Friday’s performance in a few hours.

Big Choice for the Vermont Legislature: Real Part of Government or Doormat

by Hamilton E. Davis

   The whole Vermont school finance-government shutdown ceased to be about substance on May 1, when Gov. Phil Scott dropped his real plan in the lap of the Legislature, and told them to adopt all of it or he would shut the government down--and blame them for it. At that point it became clear that Scott intended to achieve his policy goals not by any normal governmental process, but by turning the Legislature into a rubber stamp.
   Scott said then and has said many times both before and since that he wants to “work with” the Legislature, and that the whole matter is very easy to solve if lawmakers would just do what they obviously should do, instead of being “political.” On Tuesday of this week, Scott’s top aides reiterated the whole argument, and noted in addition that they have done nothing to prepare for a shutdown. No need to, they said in effect, since it would be so simple for the Legislature to give them what they want.
   The fertilizer content of that whole proposition approaches 100 percent. Consider: on January 18, Suzanne Young, Scott’s Secretary of Administration, sent a memo to the Legislative leadership laying out 18 suggestions that lawmakers might consider and pledging to cooperate in that process. The memo was not accompanied by any draft legislation, a normal component of government process, and none was forthcoming over the following three and a half months while the Legislature was crafting the General Fund budget and the tax machinery to pay for it. During that time, a steady stream of grumbling emanated from the key legislative committees, particularly House Ways and Means, led by Rep. Janet Ancel; and House Appropriations, led by Rep. Kitty Toll. Both committees complained that they had trouble getting necessary data from the administration; they also fretted over the fact that they were not seeing a proposed “plan” or legislative language from Scott’s minions.
   Then, on May 1, with one week left to go before the scheduled adjournment date and work on the major bills virtually complete, Scott sent the Legislature his demands on the school tax issue and let it be known that he would veto a budget that didn’t include his plan. One week.
   That’s it, right there, the reason for the above conclusions. Nothing like that has ever happened in Vermont before. All Vermont governors maneuver as best they can to achieve their goals, but none has ever threatened to shut down the government to get their way. Moreover, it was the second time he was using that kind of caper. He got his way last year the same way. And while the public is unlikely to understand it, if Scott succeeds again he will turn the Legislature into a governmental joke.
   It is certainly possible that the Scott strategy could be employed in the service of truly superior public policy, but that is not what is happening here.
   The content of the school financing issue is important and has been vetted at length in the press, and in this space. The Scott plan and the budget passed at adjournment are both plausible, but the Legislature’s effort to avoid using one-time money is clearly superior to Scott’s.
   The evidence for that conclusion can be seen in years of Republican advocacy, which explains why the Republicans voted for it in large numbers. An exceptionally clear statement of that position can be seen in the recent commentary in VtDigger by John McClaughry, an industrial strength Republican policy analyst.
   The conclusion I draw from this is that Scott’s strategy to reach his policy goals is far more important than the content of the goals themselves. The Legislature has already agreed, in effect, to give Scott half of what he has demanded—flat taxes for Vermont homeowners. The value of the second half of the loaf—flat taxes for second home owners and businesses—runs to a few million dollars in a General Fund budget of roughly $1.5 billion. So the money is not a big issue, at least nowhere near important enough to shut down the government. 
   What is a big issue is the fact that Scott is using damaging methods to force compliance with a clearly unpopular policy. That kind of scorched earth, partisan tactic has been a cardinal feature of the collapse of American politics into a toxic miasma that hangs over the whole country. Scott is bringing it here.

The Question Now: Will the Legislature Hold or Fold?

   Impossible to tell. The Legislature will meet tomorrow to attempt an override for the latest iteration of the budget. An override is unlikely, but not impossible. Republicans have rallied behind Scott in the post season, but some could begin to remember that they voted for the regular session budget, and that, as members of the Legislature, they also have a stake in avoiding emasculation.
   A personal observation: a friend with long experience went to southern New England a couple of weeks ago and found his Vermont ex-pat pals atwitter about the possibility of a government shut down. “Won’t happen,” he assured them. He came back three days later, and changed his mind. “I don’t see how they avoid shutdown,” he said.
   One reason I think his insights are so compelling is that they match mine. I’ve gone back and forth three or four times between 40/60 shutdown and 60/40 no shutdown. The market value of this kind of speculation runs perilously close to zero.
   There are some certainties, however. One is that the whole Legislature, and particularly the House and Senate leadership, understand exactly what is happening. If you push their interview buttons, they can lay out an hour of reasons, basically all valid, about how they are being mistreated by Scott. In recent days, Tim Ashe, the Chittenden Democrat/Progressive who runs the Senate as Pro Tem, did just that in interviews on Channel Five T.V.  I talked with the Speaker, Mitzi Johnson, a few days ago. “Scott is treating us like his staff,” she said, before launching into a recitation of the Scott behavior over the last five months.
   Understanding what is happening to you, however, is far from doing something about it. And there the whole issue starts getting squishy. The fact is that the squishy syndrome is hard at work in the current environment. In both chambers, there are legislators who just can’t imagine a shutdown. Will the state parks be open on the Fourth of July? How will people get paid? “It’s our responsibility.”
   It is easy for outsiders, including your correspondent, to say that it’s just as much Scott’s responsibility, which is true, but that doesn’t make it easier. On the basis of what he says, Scott is willing to be irresponsible; but some will see a firm stand as matching irresponsibility to irresponsibility.

   A couple of final thoughts:

   Some of the very knowledgeable and experienced people I have talked to don’t think that Scott would shut down the government. That, in other words, he would accept the best deal he can get. I suspect that is true, but we will only find out if the Legislature holds…
   A second supposition is that the political consequences of this decisions are more complex than normal. I’ll comment more on this issue if it is still relevant after tomorrow. For now, I would just point out how asymmetrical the political landscape is. Scott is lined up against the Democrats as a body, but he doesn’t have a serious Democratic opponent in November. At the same time, while he may be able politically to hang a “Kick Me” sign on legislative Democrats, they only run locally. Who, I wonder, are the lucky Republicans who get to run against Tim Ashe in Chittenden, Kitty Toll in Danville, Janet Ancel in Plainfield…to ask the question is to answer it.
   So, uncertainty prevails. Twelve days left to the dawn of Fiscal Year 2019. Those 12 days are critical for Vermont, for the immediate future, and for the long-term future, to an extent we have never dealt with before.

Forget a Compromise, One Side Will Cave

by Hamilton E. Davis

   Over the last couple weeks, the administration of Republican Governor Phil Scott and the Democrat-dominated Vermont Legislature have moved even closer to the brink of a catastrophic shut down of state government, a move that would damage Vermont’s credit rating and dig a political and financial hole that could take years to crawl out of.
   The issue that led state government into this mess is the financing of elementary and secondary education. Wading through the morass of legislative and executive back and forth is onerous at best, but broadly speaking there are both substantive and purely political issues in play. I took a crack at them in my post on May 30, and concluded that the real responsibility for the mess belongs to Gov. Phil Scott and his chief of staff, Jason Gibbs.
   On the question of whether the administration position or that of the legislature represents the sounder public policy, I have decided to publish in its entirety a commentary by John McClaughry, a long time public policy and political analyst from Kirby, VT. The piece was originally published by VTDigger and is reprinted with John’s permission.
  Why McClaughry? Well, I am known to my tiny, rigorously selected corps of brilliant readers as being of the Democratic persuasion, and McClaughry is the polar opposite. We disagree all over the place, and I consider his political philosophy to be frozen somewhere in the second Jefferson administration.
   But McClaughry is smarter than any half dozen Republican bigfeet you can think of, he is absolutely lethal when it comes to the intricacies of public policy and he is cussed enough to wield a bipartisan shillelagh. I suspect him of enjoying bashing Democrats more than Republicans, so when he unloads on the Scotties, I take it seriously. Give it a look.  If you’re still unsure about McClaughry, you might consider that President Ronald Reagan considered him valuable enough to bring him into the upper policy realms of the most conservative national administrations in the modern era.
   Enough of the substance. The issue now is a brutal political struggle that Scott has elevated to a possible government shutdown, and an existential struggle with the Legislature about how government will work in Vermont. So far, Scott has been winning pretty easily, but I am beginning to think that the wind is shifting. We’ll know for sure by July 1.
   Here is the way the playing field looks to me now:


   Virtually all the action in the override session has taken place in the House. Part of the reason for that is budget and tax legislation, in Vermont and everywhere else, starts there, by tradition if not by constitutional fiat. The Senate has been quiet, but that can be deceiving. Sen. Tim Ashe, the Chittenden D/P serving as President Pro Tem, has his chamber under firm control; whereas Speaker Mitzi Johnson has struggled to manage the House. Keep in mind the underlying assumption here: that the contest now is mainly political, not substantive.


 The action so far has been a series of strategic retreats before the Scott shutdown threat. The budget/tax bill that passed before the Legislature adjourned essentially left in place the property tax increases driven by the school budgets passed earlier in the year by local communities and school districts. The increases were of two types; one rate covers residences; the second covers second homes (non residential) and businesses.

Scott demanded that the Legislature use windfall, one-time money to eliminate tax increases in both categories, Res, and non-Res in the shorthand. So, herewith the play-by-play, following the veto of the first budget:

1.      The House offers to separate the school financing aspects of the budget from the remaining costs of running state government, so that government would not shut down. Scott says, No Way.

2.      Rep. Janet Ancel, the chair of Ways and Means, recommends a major move toward Scott by proposing to use one-time money to eliminate the residential increase, while leaving the non-residential increase in place. Scott says, No Way.

3.      Cynthia Browning, a Democrat from Arlington in Bennington County, proposes to use the one-time money General Fund money to buy out the entire property tax increase. She would rewire the financing mechanism somewhat, and insist on eliminating state control over such administrative functions as class size. On the money issues, however, the Browning thrust amounts to a total capitulation on the part of the Legislature to Scott. And just to make it a little worse, she supports the Scott contention that it is the Legislature that is responsible if state government shuts down. Browning’s proposal gets some interest from and vetting by Ways and Means, but does not get into a bill, at least not yet.

4.      Throughout this process, Scott has not moved a millimeter, and his apparatus, his staff and particularly his press secretary deliver a steady stream of harsh comments about the way the Legislature is doing its job.

5.      On Friday of last week, the House and Senate sent Scott another budget, one that incorporates the Ancel initiative—residential homes would not see a tax increase, but  the second home and business tax hikes remain in place. That bill has been passed by both chambers. Scott is virtually certain to veto that measure today.

   That’s where we stand now, with the players and particularly the press waiting to see what the ‘”compromise” will be.
   My own view is that there won’t be a compromise at all. Scott has talked himself into a corner by refusing to move at all from his all-or-nothing demands. If he accepts the half-loaf on the table—Just letting the property tax increases go through on non-residential property and businesses—he’ll look silly, particularly to that portion of his base that already dislike his stand on issues like guns and marijuana.
   Scott’s intransigence, meanwhile, has forced the Legislature into a very serious box. Their original budget was a perfectly sound piece of work, whose overall numbers came in below Scott’s targets and had overwhelming bi-partisan support; in the Senate, every Republican voted for it.
   Scott’s magisterial refusal to move at all has put the Legislature in a position where the real issue they face is whether they can escape with their political self-respect in place, given their own belief that the public will blame them for a government shutdown.
   By this reasoning, the only real path forward is for the Governor or the Legislature to hold or cave in to the other. That would not be a compromise—it would be a very serious blow to the side that caves.
   There is no way at this point to guess which way the contest will go. But there are some interesting straws in the wind.
   I’ll look at those in my next post.

The School Property Tax Deadlock

Editor's note: John McClaughry is a conservative policy analyst at the Ethan Allen Institute.  This article is reprinted from VTDigger by permission of John McClaughry, the author.

   Gov. Phil Scott and the Democratic-controlled Legislature are well into crunch time over the FY 2019 state general fund budget and the related education finance bill.
   The governor obviously takes very seriously his 2016 campaign pledge to hold state general fund spending to a growth of 2.36 percent a year, and to oppose – and veto – any increase in tax rates. However, the actual homestead school property tax rates are not set each year by the Legislature and the governor. They are determined district by district based on each district’s spending per equalized pupil. The total tax dollars thus raised, when added to other specified revenue sources, must add up to the sum of all the voter-approved school budgets.
   Last year the governor (enthusiastically) and Legislature (unhappily) agreed to grab more than $40 million from various accounts and reserves, and put that into the education fund to produce a slight reduction in homestead school property tax rates. That was effectively an internal loan that has to be repaid this year.
   On May 1, two weeks before adjournment, the governor unveiled a sweeping new plan for curbing education spending and keeping homestead property tax rates flat.
   His plan promises to deal with a financing gap of $236 million over the next five years. It proposes to appropriate between $44 million and $58 million in one-time funds to replenish the now-depleted reserve funds and keep the homestead property tax rates flat for the coming year. The governor has apparently forgotten (again), that in his 2016 campaign he promised “We need to stop using one-time money to plug reoccurring budget holes.”
   The administration’s plan promises “nearly $300 million in savings” over the five year period. Reviewing the governor’s projections, the respected, nonpartisan Joint Fiscal Office fairly concluded that “the administration’s 5-year outlook is a mathematical exercise only: their analysis does not indicate specifically how this ‘gap’ will be closed.”
   The big ticket in the administration’s proposal to save the $262 million is “increasing student to staff ratios” in Vermont schools, ultimately (and supposedly by attrition). This is mathematically attractive but not credibly achievable unless the state seizes control of the schools.
   When the administration floated the idea of imposing fines on school districts that didn’t meet its 5.75 to 1 ratio test, it vanished within about two days. In truth, nobody can accurately predict just how districts would react to the mandate and associated penalties, and thus how much spending would be saved.
   A special education law enacted earlier this year could – possibly – produce some savings, but no one knows how much, because no one knows how the school districts will choose to make use of new flexibility, and how often service reductions will be challenged by plaintiff lawsuits.
   Establishing a statewide teachers’ health insurance program could, depending on its terms, produce savings, but no one knows what the terms of such a program would be. The governor also plans to spend some of those savings, if any, on preschool, state colleges, and technical education.
   What this comes down to is whether to put $34 million (or $58 million) from available one-time revenues into the education fund to keep homestead school property tax rates flat, and rely mainly on mandated student to staff ratio increases to produce enough “savings” to keep them flat for five years (Scott’s proposal); or letting the homestead property tax rates rise by maybe two cents to reflect increased school budget spending, while using much of the one-time revenues to pay down the enormous long-term liabilities ($2.4 billion) of the teachers retirement and health benefit funds (the Democratic proposal).
   To their credit, the Democrats have worked conscientiously to be fiscally responsible. They rightly believe that the governor’s projection of marvelous “savings” over five years, essential to holding the line on homestead school property taxes, is speculative at best. They also responsibly oppose, as Scott himself did two short years ago, using the one-time funds to hold down tax rates for one more year. Their recommendation for using those funds is to slightly but symbolically reduce the liabilities of the teacher retirement funds.
   The problem the Democrats face is that most homeowners badly want property tax relief, and are not very receptive to appeals for sound fiscal practice. It is after all an election year, and if Scott’s proposal prevails, his strong suit in November will be that “he stopped rising school property taxes.”
   At this writing, the resolution of the school finance issue, and thus the vetoed budget, has not taken shape. What does seem almost certain is that the terms of any resolution this month will produce exactly the same problem next year, when there’s no reason to believe that significant one-time funds will appear to cover another education fund shortfall.