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.