Did the Vermont Press Corps Save Robin Lunge's Seat?

by Hamilton E. Davis

   The health reform effort in Vermont has been moving more or less steadily ahead for the last six years, but I sometimes wonder how it survives, given the political follies it has to surmount. The latest case in point—the fiasco surrounding the appointment of Robin Lunge to the Green Mountain Care Board.
   Lunge was appointed to the Board late last year by then-governor Pete Shumlin and has been serving on the supposedly five-member Board since then. When the state Senate prepared to take up her confirmation recently, however, they couldn’t find the necessary paperwork.
  The Scott administration jumped on this glitch immediately; the rules allow for interim appointments, but such appointments vanish if the Senate adjourns in the following session without a confirmation vote. No paper work, no vote. Sorry about that, the Scotties said, but the governor would just have to start the appointment process over again.
  The effect of such a development would mean that Scott would be able to essentially build an entirely new Green Mountain Care Board to oversee a reform that he has shown absolutely no interest in and to which Scott’s staff, if not Scott himself, may be actively hostile to (more about this later). There are already two vacancies on the five-member Board—one of those is the Chair--and Scott can fill those positions any time he gets around to it. The Lunge seat, if vacated, would make that three and control. And board member Con Hogan’s term expires in September. The Hogan seat would make four Scott appointments.
   Nobody contends that Lunge is not extremely well qualified for the Board seat, nor that Shumlin had the right to appoint her, nor that he clearly intended to do so. But rules are the rules, the Scotties said. Sad.
   This construct began to unravel yesterday at Governor Phil Scott’s press conference, convened to tout his accomplishments in his first 100 days in office. The press corps, most of which ignores the substance of health care reform like it was a mutant form of quantum physics, tore into Scott on the Lunge issue. Pete Hirschfeld of Vermont Public Radio, Kyle Midura of WCAX, and Erin Mansfield of Vt. Digger led the inquisition, grilling Scott relentlessly. Didn’t he think she was qualified? Wasn’t it obvious that Shumlin intended to appoint her? What if the Senate just went ahead and voted to confirm her anyway?
   Scott in his aw shucks way just shook it off. “I just think it’s important that we follow the process,” he said. And that seemed to be that. Left to lawyers, there didn’t appear to leave any route to saving Lunge in the seat. That was certainly the position of Scott’s chief of staff Jason Gibbs and his lawyer, Jaye Pershing Johnson.
   The Vermont state house, however, is essentially a political rather than legal place and by afternoon the Scotties dream of mastery over health care reform began to go glimmering.
   Sen. Claire Ayer, chair of Health and Welfare told Terri Hallenbeck of Seven Days that the Senate would vote on the Lunge appointment, paperwork or not. And it then became clear that the frontal assault by an apparently united press corps had borne more fruit than it had appeared at the time.
   A question late in the Scott inquisition was whether Scott would accept a decision by the Senate to confirm Lunge, and he said he would. Voila. Ayer clearly had the support of the Senate leadership, particularly Senate President Pro Tem Tim Ashe and Judiciary chair Dick Sears. So, we can expect the Senate to vote on Lunge and if so, she will be confirmed by a large vote.
   The contretemps over the Lunge appointment seemed to me to illustrate an interesting characteristic of the Scott administration’s political personality. When Scott was slogging through his back-and-forth with the press, he said at one point that he didn’t want the Lunge seat to become a “partisan political” one.
   I, for one, believed him. I don’t think he cares one way or another whether Robin Lunge sits on the Green Mountain Care Board. He’s not a hard-edged political guy at all, which may be why the voters like him so much. But here is what I think is interesting:
   His staff is hard-edged as hell. They care deeply about winning these kinds of political battles. And in the long run, it is the staff that could define the trajectory of the Scott years.
   I am going to write more about the political implications of this. As far as health care reform is concerned, however, Scott still has control of the Board. He can already appoint two of the five members, including the chair. And he’ll get another appointment in September.
   Scott’s real views on health care reform, though, remain obscure, and the Lunge seat follies didn’t change that fact at all.

Did the Vermont Press Corps Save Robin Lunge's Seat?

by Hamilton E. Davis

   The health reform effort in Vermont has been moving more or less steadily ahead for the last six years, but I sometimes wonder how it survives, given the political follies it has to surmount. The latest case in point—the fiasco surrounding the appointment of Robin Lunge to the Green Mountain Care Board.
   Lunge was appointed to the Board late last year by then-governor Pete Shumlin and has been serving on the supposedly five-member Board since then. When the state Senate prepared to take up her confirmation recently, however, they couldn’t find the necessary paperwork.
  The Scott administration jumped on this glitch immediately; the rules allow for interim appointments, but such appointments vanish if the Senate adjourns in the following session without a confirmation vote. No paper work, no vote. Sorry about that, the Scotties said, but the governor would just have to start the appointment process over again.
  The effect of such a development would mean that Scott would be able to essentially build an entirely new Green Mountain Care Board to oversee a reform that he has shown absolutely no interest in and to which Scott’s staff, if not Scott himself, may be actively hostile to (more about this later). There are already two vacancies on the five-member Board—one of those is the Chair--and Scott can fill those positions any time he gets around to it. The Lunge seat, if vacated, would make that three and control. And board member Con Hogan’s term expires in September. The Hogan seat would make four Scott appointments.
   Nobody contends that Lunge is not extremely well qualified for the Board seat, nor that Shumlin had the right to appoint her, nor that he clearly intended to do so. But rules are the rules, the Scotties said. Sad.
   This construct began to unravel yesterday at Governor Phil Scott’s press conference, convened to tout his accomplishments in his first 100 days in office. The press corps, most of which ignores the substance of health care reform like it was a mutant form of quantum physics, tore into Scott on the Lunge issue. Pete Hirschfeld of Vermont Public Radio, Kyle Midura of WCAX, and Erin Mansfield of Vt. Digger led the inquisition, grilling Scott relentlessly. Didn’t he think she was qualified? Wasn’t it obvious that Shumlin intended to appoint her? What if the Senate just went ahead and voted to confirm her anyway?
   Scott in his aw shucks way just shook it off. “I just think it’s important that we follow the process,” he said. And that seemed to be that. Left to lawyers, there didn’t appear to leave any route to saving Lunge in the seat. That was certainly the position of Scott’s chief of staff Jason Gibbs and his lawyer, Jaye Pershing Johnson.
   The Vermont state house, however, is essentially a political rather than legal place and by afternoon the Scotties dream of mastery over health care reform began to go glimmering.
   Sen. Claire Ayer, chair of Health and Welfare told Terri Hallenbeck of Seven Days that the Senate would vote on the Lunge appointment, paperwork or not. And it then became clear that the frontal assault by an apparently united press corps had borne more fruit than it had appeared at the time.
   A question late in the Scott inquisition was whether Scott would accept a decision by the Senate to confirm Lunge, and he said he would. Voila. Ayer clearly had the support of the Senate leadership, particularly Senate President Pro Tem Tim Ashe and Judiciary chair Dick Sears. So, we can expect the Senate to vote on Lunge and if so, she will be confirmed by a large vote.
   The contretemps over the Lunge appointment seemed to me to illustrate an interesting characteristic of the Scott administration’s political personality. When Scott was slogging through his back-and-forth with the press, he said at one point that he didn’t want the Lunge seat to become a “partisan political” one.
   I, for one, believed him. I don’t think he cares one way or another whether Robin Lunge sits on the Green Mountain Care Board. He’s not a hard-edged political guy at all, which may be why the voters like him so much. But here is what I think is interesting:
   His staff is hard-edged as hell. They care deeply about winning these kinds of political battles. And in the long run, it is the staff that could define the trajectory of the Scott years.
   I am going to write more about the political implications of this. As far as health care reform is concerned, however, Scott still has control of the Board. He can already appoint two of the five members, including the chair. And he’ll get another appointment in September.
   Scott’s real views on health care reform, though, remain obscure, and the Lunge seat follies didn’t change that fact at all.

   This just in: The Vermont Senate is to vote on Robin Lunge on Friday

Richard Slusky's Take on Hospital Budgets

Note: The following commentary is by Richard Slusky, the former president of Mt. Ascutney Hospital in Windsor, Vermont, and a recently-retired member of the senior management of the Green Mountain Care Board.

                                                         by Richard Slusky

Hamilton Davis’ Vermont Journal Blog of April 1, 2017 is an important observation that needs careful consideration by the Green Mountain Care Board (GMCB).  The gist of the article is that five of the larger hospitals in the state exceeded their FY 2016 budget caps on Net Patient Revenue by over sixty million dollars.  The caps on individual hospital revenues are approved by the GMCB through an annual budget review process that, in fact, has had reasonably good success in moderating the increases in overall hospital system revenues over the past five years.

Unfortunately, as Ham notes in his journal, not all hospitals have been in compliance with their budgeted caps, particularly in FY 2015, and now in FY 2016.  Last year, the University of Vermont Medical Center was over its revenue cap by @$28million, but reached an agreement with the GMCB to use portions of that excess revenue to reduce future rate increases, and contribute several million dollars to community based programs in Chittenden County.  Other hospitals that had exceeded their budgets also agreed to reduce rate increases in their FY 2016 and 2017 budget filings.

The fact that the 2016 results show that the hospitals are continuing to generate revenues in excess of their budgeted caps is disappointing, but should also serve to remind us that in a fee for service environment, total revenue is a function of price times volume and that even if prices are controlled through rate reductions, volume is still a major factor in the generation of excess revenue.

Ham is probably correct in noting that the hospitals will provide the GMCB with a number of reasons and excuses why they exceeded their revenue targets in FY 2016.  They are very good at doing that, and often very convincing.  (In full disclosure, as a former Vermont hospital CEO for 28 years, I was very good at it also.) Regardless of the reasons and excuses for why this has continued to occur, the reality is that our health care system in Vermont is not sustainable when health care costs continue to increase annually at nearly two times the general inflation rate in the state and the country. 

In order to moderate the growth in health care costs the GMCB has placed revenue caps on hospitals since 2012; ACO Shared Savings programs were implemented in 2013; the State of Vermont entered into an All-Payer Model Agreement with CMS in 2016; and, in 2017, Medicaid entered into an agreement with the state’s largest Accountable Care Organization (OneCare) to pay a fixed amount to provide comprehensive health care services to thirty-three thousand Vermont Medicaid beneficiaries.  The intent of all of these initiatives is to move away from fee-for-service reimbursement, and to establish all-payer growth targets for Vermont health care expenditures that track more closely with anticipated economic growth in the state and nation.

In order for these actions to be successful, several things need to occur:

1.     The GMCB must be willing to enforce the targets that it has established in the hospital budget review process.  What that means is that:

a.      Excess revenues that hospitals generated in one fiscal year should not be incorporated into the hospitals’ base revenues for the next fiscal year;

b.      Rules should be established that clearly define the disposition of the excess revenue in any fiscal year.  Since it is difficult, if not impossible, to return revenue resulting from excess Medicare payments, that revenue might be used to invest in community health programs, more adequately fund primary care services, or fund the costs of transforming the current fragmented system into a more integrated system with value based payments.  In addition, excess revenues from Medicaid and Commercial Payers should be used to reduce future prices.  (It should be recognized that how these funds are distributed is not an exact science, and that some compromises and negotiations between the hospitals and the GMCB will be necessary.)  However, the overriding goals should be to moderate the annual growth of revenue and support the transformation away from a fee for service payment system.

c.     The GMCB should also promulgate and enforce penalties on the hospitals for repeated violations of the revenue caps over and above what is suggested above.

2.     The current plan is that the All-Payer Shared Savings Programs continue to be “upside only” through 2017, meaning that the participating hospitals and other providers bear no financial risk if they exceed the pre-determined expense targets.  These programs would then be transitioned to include some provider risk in 2018, and would ultimately be converted into fixed payment models in 2019 and beyond to meet growth targets of @3.5% per year.  The GMCB needs to develop the oversight and regulatory rules (in accordance with ACT 113) necessary to ensure that this goal is met.

3.     The DVHA (Medicaid) agreement with OneCare is an important first step in moving the state away from fee for service payments and toward fixed payments for comprehensive services provided to defined populations served by the ACO.  This agreement should serve as a model to be extended to commercial payers such as BC/BS and MVP and should be offered voluntarily to self-insured employer plans as well.

4.     The State and CMS must honor their commitments under the ALL-Payer Model Agreement to adequately fund the infrastructure costs needed to transform the payment systems, to meet expanded health information system requirements, and to build an integrated system of health care services in Vermont.  If the state budget cannot support this financial commitment for FY 2018, perhaps some portion of the FY 2016 excess hospital revenue could be used to temporarily fill the gap this year.  Ultimately, however, the state must find a way to meet its obligation to match the Federal dollars that have been committed under the All-Payer Model Agreement.

Transforming Vermont’s health care payment and delivery system to become more efficient and more affordable for Vermonters is no easy task, but that has been the intent of Vermont’s Legislature and its administrative leadership since ACT 48 was passed in 2011, and for many years before that.   In the past five years, much has been accomplished, and with the recent All-Payer Model Agreement and the Medicaid Agreement with OneCare, the formal structures for achieving the state’s goals are now in place.

In order to be successful from here on, everyone must do their part to fulfill their obligations.  The hospitals and other health care and community based providers must honor their commitments to the ACO, and the ACO must honor its commitments to its providers.  The hospitals must rein in their revenues and expenses and meet their annual budget targets.  The state legislature and administration must meet its financial obligations to reasonably fund the cost of this transformation. And the GMCB will need to exercise the necessary regulatory authority to ensure that the parties that they oversee and regulate meet their obligations.

We have the opportunity in Vermont to prove to the nation that health care costs can be contained, and that our health care system can be transformed to be more integrated and to become at least as much focused-on prevention and health as it is on treatment of disease.   Achievement of that goal will require collaboration, commitment, and sacrifice from us all.

Vermont Hospitals Blow Through Caps

by Hamilton E. Davis

   The Green Mountain Care Board accepted a staff report Thursday showing that eight of Vermont’s 14 hospitals had exceeded its spending cap for Fiscal Year 2016, which ended last Oct. 1. While the other six facilities came in under budget, they were all smaller facilities.
    The hospitals blowing through the cap account for 86 percent of the system’s $2.3 billion total spending for that year. The Board has summoned representatives of the six larger hospitals to appear before it Tuesday to explain the variances from the budgets. Scheduled to testify are the University of Vermont Medical Center, UVM’s sort-of-partner Central Vermont Medical Center in Berlin, Rutland Regional Medical Center, Northeastern Medical Center in St. Johnsbury, and Northwestern Medical Center in St. Albans.
   The Board opted to excuse two smaller institutions—North Country Hospital in Newport and Copley in Morrisville. According to Mike Davis, the Board’s finance chief, North Country wasn’t over the cap by much and its compliance with Board guidance has been good over the last few years. And Copley, whose budget was basically a shambles last year and is now under new leadership, rebuilt its budget as of last December and there hasn’t been time enough for those changes to take hold.
   On a system-wide basis, according to Davis, the hospitals exceeded the 3.4 percent growth cap by 2.6 percent, which amounted to $60.3 million. That figure did not include a total $10.5 million for the movement of independent doctors into the hospitals. Those doctors were not inside the Board’s regulatory structure, but were nevertheless getting paid for their services by federal and state governments and commercial insurers, so that at least part of the $10 million is a wash—it’s not new money to be paid by Vermonters.

The Actual Numbers

  These numbers include the physician transfers, but it doesn’t make a lot of difference. The pattern is clear enough. And what the pattern says is that plain old regulation isn’t strong enough to drive hospital cost inflation into the sustainable range.
  The inflation rate that Vermonters can afford to pay each year runs to just over three percent, or even less. And the inflation rate we’ve been living with is north of four percent per year, which isn’t one percent too high, but 33 percent too high.
   The three members of the Board (there are two vacancies) did not seem overly concerned about the final numbers for the last fiscal year. Con Hogan, for example, remarked that he felt good about the overall state of the overall state of the Vermont system. 
   There are at least three reasons for that. One is that the Vermont inflation rate is not yet sustainable, but it is lower than most of the rest of country, which is running at about six. A second is that spending for the first five months of the current fiscal year (FY2017) is tracking closely with the approved budgets; in fact, spending is running below budget by half a percent, whereas it was over by 1.1 percent at the this time last year. 
   By far the most important reason, in my view, is that Vermont is now embarked on the key to sustainable level reform, which is to shift reimbursement for health care from fee-for-service to capitation, about which more in a moment.  
   The immediate question, however, is what happens in the short term.
   Well, the Board will have to take the 2016 actuals and incorporate them into their determination of the FY 2018 budgets, which will take effect on Oct. 1 of this year. They have some obvious tools at hand. One is to calculate the extent to which the overspending has dropped to the budgeted bottom line, or profit in a non-profit system, and then order the institutions to cut its rates by that amount. That, in fact, is what they have done in the past.
   The real solution, however, lies not in more regulation, or tougher or better regulation, but in the move from fee-for-service reimbursement to block financing or capitation. That shift is already underway in the form of the capitation contract now in effect between state Medicaid officials and a four hospital cluster in northwestern Vermont.
   UVMMC, Central Vermont, Northwestern and Porter in Middlebury have agreed to deliver care to 31,000 Medicaid patients in that region for a set price per month. Each hospital gets a set payment each month for the target population—and that’s it.
   There isn’t any more money.
   That is the solution to the cost inflation problem, and the first iteration of the ultimate in reform is now underway in Vermont. The first checks went out for February.
   When the GMCB convenes Tuesday, they will spend a whole day listening to reasons, excuses, and rationalizations of all descriptions until their heads spin. Every single dime of inflation will be backed up by perfectly good reasons why it couldn’t be avoided. Vermont hospital CEOs and CFOs have been going through that exercise since the mid-1980s. and they are really good at it.
   The fact that shifting reimbursement and reorganizing the delivery system is the only way to cut that knot doesn’t mean that Vermont will actually follow through and do it. The health policy community from one end of the country to the other, and every hospital executive who doesn’t have his or her head under water, knows it is true.
   But that judgment doesn’t necessarily extend to our new Gov. Phil Scott, or to the Vermont Legislature, including its left as well as its right wing, or to the Vermont press corps, or to the public at large.
   I’ll explore that question in my next post.



On Health Care Reform: Calling Phil Scott

                                                           byHamilton E. Davis

   On the eve of its debut after five years of gestation, the Vermont health care reform project is has slid into a strange sort of limbo: technically it’s on track, but there appears to be no political leadership behind it at all.
   A major reason for that, of course, is that the father of the reform effort, former Governor Peter Shumlin, a Democrat, is gone and the new governor, the Republican Phil Scott, is just now getting his new administration into operation. Still, Scott has been extraordinarily disengaged about the reform project, especially given that it is the only credible route available to him to plug the single biggest hole in his state budget—Medicaid, the federal-state program that covers low income people.  
   It is true that Scott is permitting reform to go forward, when his national party and a significant chunk of Republicans in Vermont want no part of it. So, anything positive that Scott does is a plus. Still, there is no public indication yet that Scott really understands it, nor that he will do anything to support it. That is particularly disturbing, given that the reform project has been under construction since 2011 and is now underway.
   The inaugural step in the process was the contract between OneCare Vermont, a group of Vermont hospitals and doctors, to deliver care for 30,000 Medicaid recipients for an agreed-upon price per person. That shift, from paying for each episode of care (fee-for-service) to a per-person price (capitation) is the health policy community’s consensus answer to the 50-year-old problem of out-of-control costs in the American health care system.
   It works basically like this: The hospitals involved are the University of Vermont Medical Center in Burlington, Central Vermont Medical Center in Berlin, Northwestern Vermont Medical Center in St. Albans and Porter Medical Center in Middlebury. Also participating are a number of independent primary care doctors, as well as some stand-alone specialists.
   Each month, the state Medicaid agency will write a check for a month’s worth of care for the target population. The number for each provider can change over time, primarily because more or fewer Medicaid recipients will become eligible. There are some other operating details involved, but the essence is clear from the following example:
   On Feb. 3, the state Medicaid agency wrote a check for $5,057,828.05 to OneCare Vermont for February’s services to the target 30,000 recipients (Roughly a fifth of the total Medicaid population of 151,000) Of that amount, OneCare wrote checks in the amount of $4,796,639 to the four hospitals. The individual hospital figures were as follows:
   UVM Medical Center                                                        $2,724,008
   Central Vermont Medical Center                                     $938,797
   Northwestern Vermont Medical Center                          $794,140
   Porter Medical Center                                                      $339,694

   The single most important fact about health care reform in Vermont is this:
   The amounts listed above are all the money that the hospitals will get for that work. There won’t be any more money. That has never happened before in Vermont, or in the U.S.
   In a press conference shortly after taking office, Scott talked about this effort as though it was some kind of minor project he had inherited.  
   It’s just a pilot, he said several times. We’ll look at it for a year and if we don’t like it we’ll just dump it.
   Well, that posture doesn’t begin to make sense, except politically. In the first place, we’ll get to the go-forward point on the whole deal by mid-fall of this year. That will be when OneCare Vermont begins to finalize its 2018 pricing proposals for a broad expansion of the Medicaid project, as well as preparing to extend risk contracts with the federal government for Medicare—the federally financed program to cover the elderly.
   At that point, there will be roughly seven months of data available, nowhere near 12 months. And even 12 months is nowhere near time enough to begin to evaluate the project; it will take at least two to three years to do that. The most important factor, however, is that the only real alternative to the current path is to stick with what we have now. That structure has driven costs into the stratosphere over the last 40 years.
   So, the Scott posture appears far short of the political effort to keep reform moving. It isn’t possible, however, to be sure where he will go over the next several months. And there is a critical test coming up.
   The Green Mountain Care Board, which has done an excellent job holding back the cost tide for the last several years, is now at a critical junction. The five-member body has two vacancies, the most important of which is the chairmanship. The Board has had extraordinary leadership in the six years since its inception in 2011. The first chair was Anya Rader Wallack, a national class policy analyst who drew up the blueprints for the project. The second was Al Gobeille, a Burlington businessman who was named to the original Board as a member and who ascended to the chairmanship when Wallack left. Gobeille is still a major player, but his role now is as Secretary of the Agency of Human Services.
   The problem now is that the Board, the key manager in the whole health care reform project, is completely rudderless. Gobeille has been gone for two months, so no chair over that period. Plus, a second Board member, Betty Rambur, has also left. Scott has taken an inexcusably long time to move on this problem. The proximate cause was the need to fill a number of vacant positions on the nominating committee that must submit a list of nominees for Board positions to the Governor.
   The legislature got its nominees to the committee in a reasonable time, but Scott’s three members weren’t even named till a couple of weeks ago. The group held its organizational meeting on March 6. But with more than 40 applications for the two Board openings, it is likely to be at least another two months or more before the new members are in place.
   That fact places very heavy pressure on the Board as it transitions from pure regulation to both regulating hospital and overseeing the rebuilding of the delivery system itself. A system that runs basically on capitated financing functions very differently from one running on fee-for-service reimbursement.
   For example, the Board currently regulates individual hospital budgets, but it now will have to also regulate the budget of OneCare Vermont, the Accountable Care Organization that includes several of those hospitals. And just for good measure, it is necessary to factor in the retirement of Mike Davis, the finance chief of the Board, whose experience in health care financing extends back to the late 1980s…
   Having said all of that, Scott could recover much of the lost momentum if he can find—and persuade to serve—a highly credible chair for the Board. The only names that have floated through the political ether over the last few months are Paul Harrington, the head of the Vermont State Medical Society, and Shap Smith, the recently retired Speaker of the Vermont House.
   Harrington has told friends recently that he will not seek the post. Smith probably would take the job, and he would certainly be credible; but he is a Democrat and there is no way to tell how Scott would look at that fact. One key question is whether there might be a credible Republican for the job, but finding one would be hard.
   And even then the Governor will have to deal with the fact that the whole health care reform project is adrift in the Legislature, where there is already some talk about dumping the Board altogether and sending its functions back to the Department of Financial Regulation.
   A move like that would be extraordinarily stupid. If the reform project fails, the Legislature would lose the best chance it will ever have to get health care costs under control. In the current environment, however, who can rule out stupidity?

A Big First Step for Vermont Health Care Reform

by Hamilton E. Davis

   The State of Vermont took a giant step forward last week toward a major reform of its health care delivery system when it contracted with a coalition of hospitals and doctors to provide care to a piece of the Medicaid population for a set per-capita price.
   Shifting the reimbursement of acute health care from fee-for-service to capitated payments that puts doctors and hospitals at risk for the financial and quality performance of the system they run is the centerpiece of the health care reform law passed by the Vermont Legislature in 2011.
   Moreover, the reimbursement shift is considered by the national health policy community to be the only viable route to sustainable costs for the health care delivery system in the United States. That is the reason federal Medicare and Medicaid officials have selected Vermont to lead the reform effort in the U.S.; no other state is as far along the reform road.
   And the issue is certainly critical: Medicaid costs are a huge problem for every state budget and the costs of both Medicare and the federal share of Medicaid represent perhaps the most intractable element in the national budget.
   Having said that, the Vermont contract is a modest first step. Everyone involved describes the effort as a “pilot program” and Governor Phil Scott talks about it as if it’s a one-off experiment that Vermont can abandon in a year if we don’t like the results—more about this down in the story. In any event, the agreement looks like this:
   The contract is between OneCare Vermont, an Accountable Care Organization (ACO) established under the terms of federal law, and the Department of Vermont Health Access (DVHA), the state’s Medicaid agency. It covers 30,000 Medicaid recipients, about one fifth of the total 151,000 total covered by the program in the state. Care for the target population will be provided by four hospitals--The University of Vermont Medical Center in Burlington, Central Vermont Medical Center in Berlin, Northwestern Medical Center in St. Albans and Porter Medical Center in Middlebury—as well as some independent primary care practices.
    The total spending under the agreement runs to just under $93 million. Total spending for the entire population is estimated to be $453,000,000. (Note to reader: Be careful with the numbers that appear in some of the press coverage I have read, which is remarkably shallow, often misleading and in some cases simply wrong.) These numbers are built on the basis of actuarial analysis showing that, under the current fee-for-service system, the state would pay just over $3,000 per year for these enrollees.
   The first thing to note about this figure is that it does not include large chunks of service that Medicaid pays for now, and which it will continue to pay for. The biggest categories excluded are drug costs, long term care services, and payments to so-called Designated Agencies, particularly those dealing with drug and alcohol abuse and mental health. To get an idea of the effect of these carve outs compare the total state Medicaid cost of roughly $1.7 billion with the $453 million figure cited above.
   The key question about the deal, however, is simply this:
   How does the capitated reimbursement for the target population compare with what the state would pay under the current system of fee-for-service?
   The answer: a very small amount more. An analysis by the Wakely Consulting Group, the actuarial firm used by the state, shows that the state’s $93 million tab amounts to about $1.9 million more than the fee-for-service level. With the federal government paying 55 percent of the Medicaid cost, the added cost to Vermont is about  $855,000 more.
   So, how is that a good deal for the state?
   Well, it’s a good deal because for the first time since the advent of Medicaid in 1966, the state has a rein on hospital costs, the engine of cost inflation for health care in Vermont as well as everywhere else. Under the terms of the deal, the state will make a payment to OneCare, and OneCare will make monthly payments to the four hospitals.
   If the hospitals exceed their targets, they will have to pay for the overage themselves by up to three percent of the total. If the hospitals come in under the target, they can keep the savings amounting to up to three percent of the total. The bands in other words are from 97 percent on the downside. to 103 percent on the upside.
   An important factor in going to the new contract is that no one really knows exactly how it will work out. Considering the deal overall: it is pretty much a wash in the first year, but the risk is longest on the provider side. The reason why health care costs in the United States have soared so high in the U.S. is the cost of hospital care. In the decade from 2000 to 2009, for example, every hospital in Vermont doubled, or nearly doubled, its spending, with no significant increase in population. The population aged somewhat, but nowhere near enough to account for that kind of growth.
   The critical question is the trajectory of health care costs over the period of the reform horizon, from now until 2022. Some estimates for annual health care inflation have run as high as six percent. If that were the case, the roughly three percent growth cap established by the Green Mountain Care Board and enforced by the new capitation system would be a huge boon to the state’s budget. If national trends were closer to three percent, it would put very great pressure on the hospitals to grind the inefficiencies out of the system more rapidly.
   Also carrying considerable risk is OneCare Vermont, the ACO. OneCare will hand off just under 60 percent of the $93 million at risk to the four hospitals immediately. They don’t get more money if they overshoot their estimates.
    But the ACO itself will have to retain the risk for the remainder, which will have to go as fee-for-service payments to providers outside OneCare’s network. A Medicaid recipient, for example, could go to a doctor or hospital outside the network, and OneCare would have to pay for that.
   If the total of such payments exceeded amount ticketed for that category, OneCare would have to absorb the loss on its own. These issues have been parsed carefully by all of the three national-class actuaries involved in the contract negotiations—those for the state, OneCare itself, and the Green Mountain Care Board—and all have certified the estimates. But they are still just estimates.
   The above is just an outline of the contract entered into by Vermont and the block of Vermont providers. The agreement also includes provisions to ensure that the providers meet quality requirements; they can lose money if they don’t. There are also provisions for some incremental pay increases to free-standing primary care and other community providers.      
  The most important thing about the agreement is that it is a historic first step. That first step is always the hardest, but that doesn’t mean that there isn’t very difficult work ahead. The underlying question is how to integrate the elements in the system so as to optimize its quality and minimize its cost. Both are equally important, and getting there will be very hard. But Vermont is on its way.
   Some final points:
   While the contract is a vital step forward, the overall environment for health care reform in Vermont is very fragile.

  •    The new Republican governor, Phil Scott, is allowing the reform process to go on, but he is isn’t exactly leading any cheers for it. We’ll give it a year, he says regularly, and if we don’t like it we’ll get out. He is free to look at that way, and it certainly makes sense politically, given his party’s posture on health care reform.
       The most important thing he has done to move the reform project forward was turn the whole Human Services Agency, and health care reform with it, over to Al Gobeille, the former chair of the Green Mountain Care Board. Gobeille, now the Secretary of the agency, is the most knowledgeable member of Scott’s administration, and that counts for a lot.
       The idea that you can test fly this kind of restructuring of the delivery system in one year, however, is simply preposterous. It will take a minimum of four to six years to work the process through, almost certainly amending it along the way.
  • A second factor that has been but little remarked is the fact that Vermont has already signed an agreement with the federal government to do the same thing with the Medicare population next year that it is piloting with Medicaid. For both the Medicare and Medicaid population the kind of downward pressure on costs represented by reform is critical to the state and federal budgets.
       The state, and OneCare Vermont can withdraw from both agreements without penalty, but it is isn’t clear why they would be eager to. The reality underlying the whole issue is that nobody, Republican or Democrat, has any alternative way to attack the problem of cost inflation in health care.
  • A major source of political uncertainty for reform is the Vermont Legislature itself. After passing the basic legislation with overwhelming support in 2011, the Legislature lost much of its faith in reform following former Governor Peter Shumlin’s difficulties getting the federal Exchange running and then his abandonment of the financing side of the project.
       Where legislators stand now is anybody’s guess.

Pete Shumlin: Credit Where Credit is Due

by Hamilton E. Davis

   One of the conceits of the journalism trade is that its practice constitutes the “first rough draft of history.” That is true in important ways; simply constructing generally reliable reports on events is essential to the civilized functioning of society. When journalists begin to function as historians, however, the results are often much less satisfactory.
   For one thing, it’s much harder to do. The sheer lack of time means that the consequences of this action or that haven’t fully played out yet. The heat of contentious issues hasn’t receded enough to permit penetrating analysis. These problems are particularly acute in assessing the careers of important politicians.
   Case in point: Pete Shumlin, governor of Vermont from 2011 until a week or so ago.
   Shumlin was one of the most interesting and complex governors of the modern era. After a short tenure in the Vermont House, he got himself elected to the state Senate in 1992, and played a leading role in that body for most of two decades. He became minority leader soon after his election and in 1996 led the drive to achieve Democratic control of the upper chamber. In 1997 he became President Pro Tem and served in that capacity until 2002 when he ran unsuccessfully for Lieutentant Governor. Shumlin was out of office until 2006 when he won his old Senate Seat and got elected again as President Pro Tem.
   He ran for governor in 2010, and won two very difficult elections—a primary against four credible Democratic opponents, and then a very close race against a popular Republican Lieutenant Governor.
   The centerpiece of Shumlin’s platform in 2010 and of his tenure as the state’s chief executive was single payer health care reform. Early on he was also a strong advocate of closing Vermont Yankee, but there were also powerful outside forces acting on that issue, and those forces took Yankee out without a major struggle.
   The early stages of health care reform, meanwhile, went extremely well. Shumlin put a strong team in place, led by Anya Rader Wallack, a highly capable policy analyst; and Steve Kimbell, a veteran lobbyist who had unparalleled credibility in the Legislature and who took over the health care regulatory machinery. From a standing start in early 2011, the Shumlin team produced a ground-breaking reform bill that swept easily to passage in the Democratic-dominated legislature.
   Based on that performance, as well as public approval of the way he handled the recovery from the catastrophic floods and destruction of Hurricane Irene, Shumlin crushed a capable Republican in the 2012 gubernatorial election. The Republican, State Sen. Randy Brock, couldn’t crack 40 percent of the vote, the threshold of a serious effort.
   The whole thing began to go off the rails, however, when it became clear in 2013 that the Shumlin administration had botched the launch of the federally-financed insurance Exchange, a component of Obamacare. Shumlin made two serious miscalculations during that period.
   The first was his propensity to assure voters that getting his health care project up and running would be a cinch—no problem. The second was his failure to recognize and act on the fact that his management team at the Agency of Human Services had no capacity to cope with the technical complexities of getting the Exchange operating properly.
   It is important to understand that there is no direct connection between the Exchange and the Vermont reform project. The Exchange is simply an expansion of Medicaid, which has operated without major problems since 1966, 50 years. The Exchanges had problems in Vermont, and many other states, but they were essentially computer problems.
   The Vermont project was the ultimate attempt to remake the delivery of medical care: it aimed first at getting costs in the state’s health care system under control by shifting reimbursement from fee-for-service to capitation—block payments to a group of doctors and hospitals for delivering a full spectrum of care to a big group of patients. By agreeing to take such a block payment, the doctors and hospitals would, for the first time, take responsibility for the financial performance of their own system.
   The second goal of the Shumlin project was to eliminate the system of private insurance and self-financing by big employers and to shift the source of those funds to the state’s tax base. Roughly half the cost of health care now is paid by federal and state governments; the other half is private financing. A critical caveat in Shumlin’s original proposal was that the shift to full government financing could not take place until the costs in the state’s delivery system were reliably under control, fully sustainable year over year.
   I recite these factors simply to make the point that there is no necessary connection between the Exchanges and Shumlin’s project. You could have a state Exchange with no systemic reform at all. And you could have a fully-elaborated state reform project without an insurance Exchange.
   In the public mind, however, no such fine distinctions had any chance at all. In fact, there never appeared to be any such distinction in the minds of the Vermont legislature. In any event, the inability of the Shumlinites to get the Vermont Exchange up and running began to drain the health care reform project of its political momentum and Shumlin of his credibility, both as a manager and a political leader.
   The 2014 election completed that process. Shumlin very nearly lost to Scott Milne, a Republican candidate who had, in sharp contrast to Randy Brock, no credentials at all. Shumlin completed his own defenestration a month after the election when he pulled the plug on the whole financing side of the reform project. There was simply no credible way to shift north of two billion dollars to the state’s tax base.
   What tended to remain unremarked at the time was that the essential precondition to the shift—getting the costs in the system fully under control—had not been achieved. In fact, it wasn’t even close to achieved. The inflation rate in the system had been cut dramatically by straightforward regulation, but there was little visible progress on integrating the delivery system by changing the reimbursement structure.
    In fact, however, there was steady progress on integration; it just wasn’t visible to the public, the press or the legislature.
    By the date of his inauguration to a third term in January of 2015, therefore,  Shumlin’s political career had gone glimmering. He was a lame duck for a full two years, and he got basically nowhere over that period. Lt. Gov. Phil Scott began his move toward the governor’s chair, and the Democrats in the Legislature, deprived of strong leadership, began freelancing all over the place.

The Shumlin Legacy

   So, that was that for Peter Shumlin and we can now ask what he accomplished and how important was it.
   I believe his legacy is entirely limited to his health care initiative. In the financial management of the state, he was essentially a conservative, despite a lot of specious Republican yammering to the contrary. Over the last decade or so, the revenues available to state government have dropped markedly, meaning that there simply isn’t any serious money to play with. A powerful thread that runs through the governorships of Howard Dean, a Democrat, Jim Douglas, a Republican, and then Shumlin, is fiscal conservatism.
  That isn’t likely to change. The essence of Scott’s political posture is budget discipline. And it isn’t just Republicans. If you think that you can get some blue sky spending initiative by Jane Kitchell, the veteran Senate Appropriations chair, well, good luck with that. If you listen to the comments of the newly-elected House Speaker Mitzi Johnson, the message seems clear:
   There isn’t any money. If you have some big spending ideas, you can forget about it.
   So, the Shumlin legacy question rests on health care. When he abandoned the financing aspect of his single payer plan, Shumlin did more than just kill off his political career, he became the national poster boy for the failure of health care reform.
   In my view, that is a mistaken reading. The reality is that health care reform is in fact alive, if not particularly well at the current moment. The key to reform—shifting reimbursement in the delivery system from fee-for-service to capitation—has not been achieved, but it has made steady progress.
    The structure to do so is in place: in an agreement signed last summer, the state’s Accountable Care Organization (ACO) now contains nearly all the state’s hospital assets, and the bulk of the primary care doctors in the state, are now on board. The first actual “risk” contract is virtually complete. It involves an agreement by OneCare Vermont, the key ACO and the state’s Medicaid agency, to care for a block of Medicaid patients in the northwest quadrant of the state in return for a block-type payment.
   The period of that initial step will be 2017. By 2018, the program can be extended to the Medicare population. At present, the participants in the risk contract include the University of Vermont Medical Center, its partner, Central Vermont Medical Center; Porter Medical Center in Middlebury, which is in the process of aligning with the UVM system; and Northwestern Vermont Medical Center in St. Albans. That is just four hospitals, but their four county primary service area constitutes roughly half the state’s population. Within the next couple of years, nearly all of the rest of the delivery system is on track to come on board.
   It is true, of course, that no can predict the course of the Trump administration’s posture on the health care reform front. Even if the Trumpies wipe out the federally financed Exchanges, however, the Vermont movement toward integration of the system can continue. There could be a problem with the Obamacare anti-trust waivers, but if there is anything in Obamacare that is critical to save it is the anti-trust waiver, because payment reform is the only way to get costs under control. Plus, it doesn’t cost any money at all. Eliminating it would be extraordinarily stupid, even for the Trumpies.
   Credit for the current situation, with Vermont leading the country on getting a delivery system integrated and functioning on a financially sound basis, belongs to Pete Shumlin. He ran his winning campaigns on the issue; he put in place an unusually capable team to get it moving; he got the best single state statute on health care reform ever written in the United States adopted by a huge majority; and he basically kept it afloat for six years. Granted he failed to accomplish the financing side of the project, but the fact is that if the costs can get wrestled into sustainable shape, there would be nothing to prevent returning to the financing issue sometime in the future.
   Of course he didn’t do it alone; he had critical support in many quarters along the way. Moreover, there is no gainsaying the significant botches in bureaucratic management as well. But that is how the governor biz works. The guy at the top gets the credit and the blame. And the critical point to me is this:
   Without Pete Shumlin we wouldn’t have serious health care reform.
    We wouldn’t have Anya Rader Wallack’s ground breaking architecture in Act 48; we wouldn’t have Steve Kimbell coming back from his sheep farm to remake the regulatory bureaucracy; we wouldn’t have the Green Mountain Care Board, which has imposed the only effective cost restraint on the hospital system that we have achieved in more than 30 years of trying; we wouldn’t have Al Gobeille, the Board chair,  persuading the federal government that the Vermont plan could be a template for health care restructuring across the country.
   In practical terms, possibly most importantly, we wouldn’t have a new Republican governor who is willing to let the process go forward, in the face of hostility of much of his party.   
   If one accepts this reading, then how does it stack up against the performance of Vermont governors in the modern era? Quite well, it seems to me. I talked this issue over with Steve Terry, who has a long and distinguished career as a journalist and then corporate executive in Vermont. Steve isn’t responsible for my judgments, but he is the main source of the historical record.
   We agreed the onset of Vermont’s modern political trajectory began with the election of the Democrat Phil Hoff in 1962. Vermont in the first half of the 20th century was one of the most Republican states in the country.
   Hoff changed the whole environment for state government, Steve said, establishing the proposition that government could be a player in improving people’s lives. His signature policy initiative was the movement to union schools, which brought secondary education into the modern era. Hinesburg High School couldn’t begin to deliver the level of education offered today by Champlain Valley Union High School. The same is true for union schools across the state.
   How about the late Governor Dean Davis? Davis (no relation) was a conservative Republican, who ran for office in 1968 on the promise that he would be a prudent manager of the state’s finances. He is noted for two policy issues. One was the establishment of the state’s first sales tax. The second, however, was a landmark environmental program know as Act 250, which saved Vermont from the ravages of uncontrolled development. That law, passed in 1970, prevented the despoliation of the state’s landscape and placed Vermont at the forefront of the environmental movement in the United States.
   The achievements of Hoff and Davis, it seems to me, puts them at the top of the Vermont pantheon. How about some others? Richard Snelling, a Republican, was a highly competent manager, who had a good eye for bringing talented newcomers into state government. Madeleine Kunin, a Democrat, took her own crack at health care reform and put in place Doctor Dynasaur, a program to get medical care to children and pregnant women in the first trimester. Dynasaur filled a serious gap in medical services for a vulnerable population more than two decades, and is still part of the policy mix in the reform era.
   I know it is too early, but for me Shumlin belongs right up there at the top of the pantheon with Davis and Hoff. For sheer nerve and vision, remaking the health care system is as tough a challenge as one gets in government outside of civil war or an economic collapse such as the Great Depression.
   For one thing, it is hideously difficult technically. I have watched and participated in the process for more than 35 years and I have never seen anything quite like it. It has baffled the press and the legislature alike. Union schools and Act 250 were monumental political issues and success in those endeavors delivered huge benefits to the state. But both could be understood intellectually by a mildly promising seventh grader. Not so health care.
   No one can tell yet how health care reform will finally play out in Vermont. Perhaps it will all somehow just fade away. My view, however, is that the Shumlin effort will live on, if not in Vermont then somewhere else. His errors were serious, but not serious enough to derail the project. To me, that makes the Shumlin years memorable and important.
   Perhaps the real historians will give him credit for that.


Ashe Makes a Major Move

by Hamilton E. Davis

   The last few weeks have offered at least some surcease from the gut-wrenching tensions of a toxic political year. Donald Trump still prowls the land, of course, but at least he’s not in office yet, and perhaps Congressional Republicans can summon up enough political courage, modest intelligence and common decency to keep him in check.
   Vermont, meanwhile, has been an island of relative political tranquility. Phil Scott will be our new governor. He is a Republican, but he can fairly be described as the “un-Trump.” He can’t start a war, trade or otherwise, with China. And while he doesn’t have much of a state issue profile beyond budget discipline, he doesn’t have a mean bone in his body. He is even leaving the door open to continued progress on the health care reform project he is inheriting from Peter Shumlin.
   So it seems like a not-bad time to look forward to Vermont’s political environment as we approach the 2017 legislative session. A defining parameter is that Democrats still control both the House and Senate. They also hold the Congressional delegation and all the state-wide offices below governor. As governor, Scott can veto bills, and he controls the bureaucratic machinery of government so there is muscle on both sides, but the issue environment is very fluid.
   Budget issues will be important, as always, but there isn’t much running room there for anybody. Money is just too tight. The elementary and secondary school issue will continue to fester, and there will be some pressure to make progress on environmental issues like cleaning up Lake Champlain.
   By far the most important issue, however, is health care reform. I know that health care is my particular hobby horse, but I refuse to apologize for that. Vermonters spend one dollar in every five they earn on health care; and beyond money, their lives often literally depend on it. Barrels of digital ink have been spilled on it, but there have been some striking developments recently in that sandbox, one of which I want to discuss today.
   The news I have in mind is the decision by Sen. Tim Ashe, the Chittenden County Democrat who will take over that chamber in January as President Pro Tem, to hire Peter Sterling to be his legislative assistant. There is a remarkable paucity of staff in Vermont’s legislative structure, and staff issues almost never make news. In this case, Sterling is very important news indeed.
   The reason is that Sterling is far outside the normal pattern for this kind of job. These posts are normally—I am tempted to say always--filled by young, bright, inexperienced people who like politics and government and are looking for a place to get started. They don’t get paid much, and they pretty much do everything: answer the phone, get coffee, write press releases, offer advice to the boss, and soak up the political and legislative atmosphere.
   After this sort of apprenticeship, they move up at the first opportunity.  The pattern is evident in the Vermont State House today. For example, Rachel Feldman has served for the last few years as assistant to Phil Scott during his tenure as lieutenant governor. When Phil’s transition office opened, one of the first appointments to his gubernatorial staff was Rachel Feldman. Another: Dylan Giambatista spent a couple of sessions as assistant to House Speaker Shap Smith. With Smith retiring, Giambatista ran for Vermont House seat and won; he’ll take office for the first time in January.
   Sterling, by contrast, is not just experienced. He is one of the very best health policy experts in Vermont. When Steve Kimbell, who along with Anya Rader Wallach put the Shumlin health care reform team together in 2011, tried to recruit Sterling, Sterling declined. He opted instead to run his own reform advocacy group to support the Shumlin project. As everyone knows, Shumlin’s path toward reform was rocky indeed; but on several occasions when the Governor needed help persuading the public on some aspect or other, he called on Sterling to speak in its favor.
   A personal note: I have followed the health care reform issues in Vermont since the early 1980s, and if I had to find an SUV load of the most knowledgeable health policy experts in Vermont—say, seven or eight people—Sterling would be there.
   Sticking with the SUV analogy as a way to limn the policy landscape: The Scott administration will have Al Gobeille, the Secretary-to-be of the Agency of Human Services; the Green Mountain Care Board has Ena Backus, Gobeille’s current deputy; The Vermont Medical Society has Paul Harrington; the Vermont hospitals have Mike Del Trecco; and there are a handful of others, like Nolan Langweil at the Joint Fiscal office and Robin Lunge, newly appointed to the GMCB after five years as a key player on Shumlin’s team.
   Sterling can play on the same field as these experts.
   Okay, but what difference is that likely to make?
   Well, it could make a ton of difference because of the way Ashe is moving. To date, the Vermont Legislature has been at best a marginal player in health care reform. A very comprehensive bipartisan majority voted for the main health care reform bill in 2011, but its contributions have been minimal since then.
   Most legislators, even the ones with direct responsibility for health care, really don’t have a serious grip on the issue. That certainly applies to Ashe. I have written about that issue before, and I’ll do it again in more detail in the future. The essence of that judgment is Ashe’s expressed view that the secret to health care reform is to establish a system of independent physicians, as opposed to an integrated system where hospitals and physicians have to take financial risk.
   No serious player believes that, and I doubt that Sterling would risk his sterling reputation by propounding it.
   Why is Ashe’s view so important?
   The reason is that Ashe is clearly moving to take command of the whole Democratic policy apparatus. The Sterling appointment is the best evidence for that, especially in health care. Beyond that is the fact that the field ahead of him is wide open to an unusual degree.
   Consider: There will be a new Speaker of the House. Mitzi Johnson is a widely respected chairman of House Appropriations, but she has no policy chops on other issues, and certainly none on health care. Her early remarks to the press after her successful Speakership campaign have been mostly about process. I interviewed her about health care last year and she, very straightforwardly acknowledged that she didn’t know much about it. “The policy people have to worry about that,” she said when my questions began to get into detail.
    People who know her say Johnson is very smart, but she will have a tough time coping with Ashe in the normal House-Senate mud wrestling over issues. Ashe would have had a much harder time with the highly skilled Shap Smith as Speaker; and don’t even ask about former speaker Ralph Wright, who would have wiped the floor with Ashe.
   Meanwhile, Rep. Bill Lippert, the chair of the House health care committee, who made his bones in the House as chairman of Judiciary, has struggled for two years to get a clear view of the health reform hairball, without much success. There are some potentially strong players on the House committee—Shap Smith called Rep. Tim Briglin his “rookie of the year” when he named him to Lippert’s committee—but that committee won’t have Sterling sitting next door.
   There’s more: Ashe has a very strong base in the Senate. He could continue to serve as chairman of Senate Finance, which would leave him astride not just health care, but any issue that needs money.  And he has some critical personal support from Democratic Senators Jane Kitchell, chair of Senate Appropriations, and Dick Mazza, who functions as a sort of benign godfather in the upper chamber.
   A final note: While the political heat has barely cooled from the 2016 election, the fact is that politics never sleeps. So, it’s worth noting that if Ashe plays his cards well in the Senate he could become a dominating force in the Democratic Party statewide.
   Sue Minter got soundly beaten by Scott in the November election, and she has no obvious platform going forward. Dave Zuckerman will be a Democratic Lieutenant Governor, but it’s hard for a lite gov to maintain an issue profile when all you do is preside over the Senate.  The Attorney General-elect, T.J. Donovan, will almost certainly have a bright political future, but he won’t have anywhere near the policy and legislative exposure that Ashe will. ..
   It seems obvious from all of this that Ashe is making a determined move, but it’s fruitless at this point to speculate on its impact on either health care or statewide politics. His fortunes in the political arena are a complete wild card: no one has any idea of how well Scott will perform; nor is it possible to say much about other Democratic players. And it won’t be possible for quite some time.
   We won’t have to wait long, however, to assess his effect on health policy. If he stays on his independent physician track, that fact will soon be obvious and so will the inference that he is an opponent of serious health care reform. If he shifts course then he has a chance to become a very important player on the wide range of difficult decisions that lie ahead on the reshaping of the health care delivery system. 


Robinson Flew Too Close To The Sun

by Hamilton E. Davis

   About a month ago, Greg Robinson, the executive director of the Community Health Centers of Burlington, was fired by his Board, the latest manifestation of the turmoil in Vermont’s primary care community as it prepares to enter the new world of health care reform.
  A week ago, Robinson took his story to The Burlington Free Press. He said he had been “blindsided” by the Board’s action, which took place just five months after he took the top job; he added he had no idea why he had been dismissed. As evidence for that, he produced a series of e-mails from the Board chair, the substance of which was that the Board approved of his work and where he was taking the organization.
   As it happened, I had interviewed Robinson at some length before he got fired, and while I was surprised when it happened, there was no difficulty at all figuring out what had gone wrong. Robinson had a very ambitious plan to partner with HealthFirst, a group of independent physicians, and to build the combination of his group and HealthFirst into a very strong force in the health reform environment.
   His first problem was that there really wasn’t a path to that outcome. A second was that HealthFirst apparently realized that--even though Robinson didn’t--and was moving toward an accommodation with the main body of healthcare providers in the region. The third was that while Robinson had sold his plan to the Board, he hadn’t sold it to his doctors. So when the Community Health doctors sent a letter to the Board saying they had lost confidence in the leadership of the front office, Robinson was toast.
   The Robinson experience was just the latest indication of the huge stresses that have tied the primary care community in knots over the last year and a half. Indeed, it was uncanny the way events at the Community Health Centers mirrored those at Porter Medical Center in Middlebury a year or so earlier.
   The Porter Board spent a full year doing a national search for a new president for their hospital. They came up with a very-well-credentialed young executive named Lynn Boggs and they told Boggs that her job was to turn around a dangerous financial situation that threatened the hospital’s survival. Porter was losing several million dollars a year because they were paying some of their doctors more than the hospital could afford.
   When Boggs took office, she went right to work on the problem, informing the doctors that their pay would be cut, and she didn’t sugar coat the pill at all. The result: the doctors at Porter revolted and told the Board they would have choose between Boggs and the doctors. Result: Boggs was gone in six months or so.
   The reality is that if you have a company or any organization whose business is to deliver health care by doctors, and your doctors quit on you, then your business is gone. Medical care organizations all have boards and the boards are important, but the real power lies with the doctors. Boggs found that out in Middlebury, and now Robinson has discovered it in Burlington.

                                                   The Primary Care Conundrum

   The Burlington and Middlebury examples are just highlights of the way that health care reform is upending the long-standing relationship between primary care on the one hand the hospital and specialist elements of the overall system on the other. Primary care providers have always been the poor relations in the health care family.
   Obamacare itself, as well as the Vermont reform project, has conferred enormous new political power onto primary care providers. I have laid out this structure out in the last few blog posts on this web site. A summary thread goes like this: the key to health care reform is getting costs under control; the only way to get costs under control is to shift reimbursement from fee-for-service to block financing, or capitation; and the only way to do that is to integrate the disparate delivery units into a new type of organization called an Accountable Care Organization. (ACO).
   The linchpin in this mechanism is the Obamacare provision that the only way to move patients into an ACO is to have them referred there by a primary care physician. So, primary care doctors are in the process of becoming the gatekeepers of reform. You can’t even get started down the road to cost containment without “attributed lives” from primary care providers. There is a huge political difference between a poor relation and a gatekeeper and that fact has not escaped the notice of the primary care doctors themselves.
   So, for a year and a half or so, the primary care doctors have been trying to position themselves in the most advantageous way. It’s worth noting that there are about 700 primary care doctors in Vermont. (They are not the only such providers; nurse practioners and some others deliver primary care also, but the doctors are the centerpiece of the system.)
   Of the 700, roughly 300 are employed by hospitals and their fortunes are tied to their employers: if their hospital is part of an ACO, then the patients of the primary care doctors in that hospital are “attributed” to the ACO. (Some community hospitals are in the ACO, but will not get fully involved in reform in Vermont until 2018 or even 2019, but that is a wrinkle I’ll get to later).
   The second largest group are members of Federally Qualified Health Centers (FQHCs) that get some federal funding to ensure the availability of primary care in rural and lower income areas. Eight of the FQHCs, with a total of 44 sites across the state, have formed an organization called Community Health Accountable Care (CHAC) that is engaging in the reform project as a unit. CHAC has some 275 or more primary care docs. The Burlington health centers are an FQHC, but not part of CHAC.
   The third largest cluster of primary care docs are the 60 or so independents gathered together in a group called HealthFirst, which I mentioned earlier in the connection with the Robinson firing. There are some others that simply stand alone.
   The question for all the primary care docs is whether to join the state’s biggest ACO, which contains north of 90 percent of the medical assets. That ACO is called the Vermont Care Organization; it is fully integrated, which means that it can deliver primary care, secondary care in community hospitals and tertiary care in big academic medical centers like UVM’s medical center in Burlington or Dartmouth-Hitchcock in Hanover, N.H.
   Most, if not all, of the 300 hospital-employed doctors are already there; all but four of the state’s 14 hospitals joined the big ACO when it was founded a few years ago.  The 275 plus docs in CHAC maneuvered for more than a year in order to get the strongest possible role in the big ACO, but finally signed up last July. Once the integrated ACO, the Vermont Care Organization, finally merged with the FQHCs, the infrastructure necessary for reform was essentially in place.
   HealthFirst is the smallest of the doctor agglomerations: the membership varies, but over the last year it included about 60 primary care docs along with a handful of stand-alone specialists. What sets HealthFirst apart from other groups is the principle that its members are independent: HealthFirst, in other words, can’t commit them as a body to any course of action.
   Despite its small size and the fact that its essence stands in opposition to the proposition that integration of the delivery system is necessary to cost containment, HealthFirst has proven itself to be remarkably agile politically; it has punched well over its weight. I’ll look at that in more detail in a future post, but for today the important point is that important elements within HealthFirst have already signed up with the big ACO to deliver care to Medicaid patients in the state.
   The upshot of all that movement is that virtually all the medical assets in the state are at least nominally gathered into an ACO structure. (None of that, by the way, should be construed to mean reform is assured in Vermont. The election of Donald Trump to the presidency is an obvious wildcard. And even within the ACO structure, only some of the units are prepared to go directly to capitated contracts when the ACO goes live on Jan. 1, 2017.)
   The issue that apparently tripped up Greg Robinson at the Community Health Centers was in his effort to navigate through these treacherous waters. The Burlington-based organization is itself a Federally Qualified Health Center, but it remains one of the few, if only, such units not to join the other FQHCs, which have been acting as a unit.
   When Robinson took the job as CEO, his plan was to remain independent—that is, not to join any ACO--and further, to link up with HealthFirst to form a stand-alone block in dealing with reform. He proposed calling the cooperating units the Population Health Alliance.
   In addition to delivery primary acute care, Robinson aimed to be more than normally aggressive in dealing with population health by sending out staff members to schools, workplaces, and other gathering sites to persuade people to adopt healthier lifestyles as a way to get at health care costs. This vision attracted the allegiance of a small, but important primary care clinic called Good Health in South Burlington. The head of that group is Dr. Peter Gunther, who has already joined the Burlington centers, and who is scheduled to become the Centers chief medical officer.
   The problem with this vision was that it didn’t seem to mesh with the trajectory of health care reform, in Vermont to some extent, but mainly in the U.S. Federal Medicare and Medicaid officials, with bipartisan support in Congress (very rare), are moving to squeeze primary care doctors into ACOs by getting more money to primary care docs, but only those in integrated systems that can shift their basis of reimbursement away from fee-for-service.
   The Green Mountain Care Board, which has eschewed putting pressure on anyone to join an ACO, has also made it clear that the federal pressure to join such an organization will be the ultimate driver of the system. Al Gobeille, the GMCB chair, said in a dozen different forums and a dozen different ways in the last several months:
   There is no way the State of Vermont or the Green Mountain Care Board can protect providers from the federal effort to move delivery systems across the country toward integration.
    By mid-fall, these developments appeared to cohere in a way that would leave the Burlington Centers isolated in a world trending toward integration. That would be so even if Robinson could have pulled off the tie to HealthFirst; without HealthFirst, the Robinson plan would be dead on the launching pad…
   In the wake of the firing, Kim Anderson, the spokesperson for the Burlington Centers, said that the potential alliance with HealthFirst was “on hold.” She also declined to discuss the issue on the grounds that her organization does not comment on personnel matters.
   After Robinson went to the press, Anderson reiterated that the Burlington Centers would not discuss personnel matters. As for the issue of how the Centers might position themselves in the health reform landscape, however, Anderson said that her organization has established a committee to work on that question, but that it has not yet arrived at a recommendation.


Health Reform: More Why and a Start on How

by Hamilton E. Davis

   Okay, let’s go out on a limb here and assume that whoever reads this stuff accepts the proposition that we can’t get the cost of health care under control without shifting the way we pay for it. My sense is that the people who do accept it are in a minority, but it is also clear to me that they are the only ones that understand the problem. There is an ocean of carping about the reform enterprise, but there simply is no credible alternative path to sustainability.
   In a recent gathering of state health care officials in Washington, Mike Leavitt, a conservative Republican former governor of Utah, argued that fee for service reimbursement for health care is the “greatest single threat to the economic vitality of the United States.”
  There is a very powerful consensus among both Democrats and Republicans, Leavitt said, that moving health care financing to capitation is the only viable path to a sustainable future. A corollary principle is that coordinated care is better than uncoordinated care.
  He added that evidence for the bipartisan consensus on this issue was the 2015 passage of a federal law known as “MACRA” with full support of both parties in Congress. MACRA aims at forcing a shift away from fee-for-service to block financing and that kind of bipartisan agreement is almost unheard of in the toxic Washington environment.
   It is worth noting that the points made by Leavitt are foundation stones of Vermont’s reform effort as set forth in Act 48, the reform bill passed in 2011.   
   So, how might we go about it?
   The first step is to understand that the enterprise of modern medicine is radically different from that which prevailed 30, 40, 50 years ago. American medicine grew up as a cottage industry. A doctor gets training, hangs out a shingle and begins treating patients. Another doctor does the same thing, but there is no necessary connection between them. Hospitals are just boxes occupied by aggregations of doctors. There is no real connection between the boxes and even between the doctors within the boxes.
   Consider a patient at the Medical Center Hospital of Vermont, circa 1990—not that long ago. The patient has cancer of the spine, and he is undergoing surgery to save his life. As he lies there, he is attended by a neurosurgeon, an orthopaedic surgeon, a cancer specialist, an anesthesiologist, a radiologist (imaging), a pathologist, hospital employees such as nurses and technicians, and possibly others. Whatever it takes.
   Here’s the beauty part. Each one of those professional services was delivered by a separate company, with its own financial structures and fee schedules—five, six, seven separate companies. If we built cars like that, every car would cost half a million dollars, and a huge number of them would be falling apart before they got off the dealer’s lot.
   Modern medicine is orders of magnitude more complex than medicine was 30 or 40 years ago. It is also now hideously expensive. So, it is critical to understand that the delivery of medical care has to be integrated: doctors have to work together in coherent systems. Patients have to move smoothly and efficiently up and down the complexity ladder. They have to start with primary care, then move to community hospital and specialist care, then to tertiary centers for the most complex medical problems.
   An example for the need for this can be found in a piece I wrote for VTDigger.org awhile back on Vermont Senator Dick McCormack’s arm.
   There has been some important integration.  The University of Vermont units merged in 1995; the Medical Center Hospital of Vermont joined with 11 physician practice groups to form Fletcher Allen Health Care. But taking the state as a whole, there is still nowhere near enough integration yet to make the system viable for cost performance or quality performance.


   The first problem is how to organize the system so that cooperation among elements of the delivery system is possible. The template for that is contained in the federal Affordable Care Act (ACA) Obamacare. The key element of Obamacare as it applies to the Vermont reform effort is the provision for something called an Accountable Care Organization (ACO).
   (I understand that President-elect Trump has pledged to repeal Obamacare, but that is an issue for the future.)
   Commercial companies in a genuine market succeed or fail depending on how well they deliver products or services that people need and want at a price they can afford. They are like any biological organisms that must adapt to their environments. Health care companies that operate independently of one another have proven, over the last 50 years, that they can’t do that.
   The most significant barrier to getting to a single price for the product—medical care for blocks of patients at the primary, community hospital and tertiary level—is the federal prohibitions against price fixing by competitors. If a person who lives in Rutland needs health care, he can get it from his primary care provider, or from Rutland Hospital, or from the UVM system or from Dartmouth-Hitchcock. What is the most cost and quality efficient way to do that?
   Obamacare permits the primary care doctor in Rutland, Rutland Hospital and UVM or Dartmouth to coordinate this process totally. It bypasses federal anti-trust law. If the primary care doctor and Rutland Hospital and UVM join an ACO, they can get this job done just as efficiently, or almost as efficiently, as Toyota can deal with a problem with the machining of its camshafts.
   That’s what an ACO can do. We now have a fully operative ACO in Vermont. The ACO is called the Vermont Care Organization (VCO). Sorry, but there is no surcease from an alphabet soup world. The VCO subsumes more than 90 percent of all the medical delivery resources in the state.  
   And it has all the resources and legal authority it needs to succeed. Which doesn’t guarantee that it will succeed. The people that run the Medicare and Medicaid programs in the United States believe that the Vermont program is the single best vehicle to get modern health care on a sustainable cost and quality track. But it has to get done in Vermont and that will be a very difficult thing.
   I will look at the All Payer Model, the next big problem, in the next episode.

Volume is the Key to Cost Control

By Hamilton E. Davis

   The central reason for the national consensus in support of health care reform is the explosive growth in medical delivery system costs since the mid-1960s, when the federal government instituted Medicare and Medicaid to pay for health care for the elderly and the poor.
   A few statistics: In 1966, Americans spent 6.6 percent of their annual output (the Gross National Product) on health care; now the figure is just short of 20 percent. In Vermont, hospitals doubled their spending from 2000 to 2009, with no appreciable increase in state population or improvement of health status.
    When Al Gobeille, the chair of the Green Mountain Care Board, talks about health care reform he often cites the following data:
   A typical bill for health insurance for a Vermont family of four with an income of $60,000 in 2015 would be $23,957, 38 percent of their gross income. If costs continue to grow at an historical rate their income would grow to $73,140 in 2025, whereas their health insurance bill would grow to $41,253 per year, 56 percent of their income.
   The above figures have been picked out of an ocean of data on the inflation of health care costs over the last half-century. The result is that no serious person thinks Vermonters or Americans generally can allow costs to continue to grow on their historical trend.
   The question is what to do about it.
   The first response to the cost explosion was conventional regulation, which was tried at both the state and national levels. If a doctor-hospital combination has been getting paid, say, $4,000 to take out an appendix, just tell them they can only increase that amount by so much a year. We now have roughly 40 years of experience to tell us that price regulation has been a total failure. A dreary parade of alphabet soup agencies, boards, government gizmos of all kinds — all failed to keep costs remotely within a reasonable range.
   By the 1980s, the health policy community figured out why. Most of the public, including most of the press, legislators and government boohoos of all kinds, are inclined to think of health care as a conventional market. A patient (consumer) goes to her doctor and purchases care in the same way she buys a television set, a car, or a bag of carrots at the farmers’ market.
   She decides what she wants and if the seller can deliver it at a price the consumer thinks is reasonable, they have a deal. If not the consumer walks away, and if too many consumers walk away, the supplier goes out of business.
   That is a conventional market and in such a market competition acts as a rein on costs.
   Health care is simply not a conventional market. One of the first to articulate that thesis was a Stanford University researcher who argued in the 1980s that the cost driver in health care was what he called supplier-induced demand. In a conventional market, the buyer creates the demand the producer supplies it, or meets the demand. In health care the doctor does both — he or she tells patients what they need and then they supply it. The effect is to shift the driver of system cost from unit price — how much is charged for an appendectomy, or heart surgery or to sew up a cut finger — to the volume of care. In a given population, the volume of care can and does vary dramatically.
    Example: A person who has a headache can go to the doctor and be treated on a sort of continuum. The doctor can prescribe two aspirin; or she can order an MRI to rule out the possibility of a brain cancer. Let’s say the charge in one place for an MRI is $900, and the charge in another is $1,200. The first is cheaper, right?
   Not necessarily. The doctors in the first place may order twice as many MRIs as the doctors in the $1,200 facility. In that case, the cost over a cohort of, say, 10,000 people in a hospital service area would be $72,000 for a utilization rate of 60 MRIs per capita, and $108,000 for a similar cohort in the supposedly cheaper location.
   Could such a disparity actually exist? It not only could, but does, all over Vermont and all over the United States. Doubters could check out resources such as the Dartmouth Health Atlas, which documents the variability in utilization rates in the U.S. The ability to understand the problem of cost inflation in health care, and further, to understand the reform movement in Vermont and in the country, rests absolutely on acceptance of this fundamental reality:
   The cost of health care isn’t determined by the unit cost, it is equal to the unit cost times the volume.
   If you can’t control costs without considering volume, then you really have no choice but to change the way you reimburse doctors, hospitals and other providers for the care they deliver. Which is precisely what the Vermont reform effort aims to do. It is also the course fixed on by the Centers for Medicare and Medicaid Services (CMS) for the country at large. Moreover, the elegance of the Vermont design is why CMS has selected Vermont to lead the way toward new framework for delivering health care.
   The buzzword to describe the Vermont project is the All-Payer Model, the infrastructure for which is now in place in the state. I’ll sketch out what that means in the next episode…

Health Care Reform Enters the Action Phase

by Hamilton E. Davis

   In the spring of 2011, the Vermont Legislatures set the state on a path to the most far-reaching health care reform project ever attempted here or in any other state. Last week, the state completed work on the final piece of architecture needed to make the plan a reality.
   It took five and a half years of grinding effort to reach last week’s milestone. Now comes implementation of the plan, and that effort promises to be even more difficult. Changing the way the state’s doctors, hospitals and other providers deliver more than $3.5 to $4.0 billion in health care to the Vermont population will require a fundamental change in the way that money flows to the providers, and that in turn will require a fundamental reorganization of the system itself.
   In other words, we are on the brink of a huge upheaval in the cultural and financial environment of our health care system.
   This upheaval will take place in an atmosphere fraught with a lack of understanding on the part of the public, the press and the legislature, and in fact, in much of the medical community itself. There is also an important block of more or less explicit opposition to health care reform in all of those elements in the state.
   A personal note: I have been following the reform effort since its inception in 2011, and it is the most complex issue of public policy I have seen in more than 50 years working in that particular vineyard. There will be a little hiatus in the frenzy now that the All Payer Model has been signed. In 10 days we will know who the new governor will be, not to mention who will be the new president.
   The biennial shift in government will be particularly far reaching in Vermont. We will get not just a new governor, but a new lieutenant governor. In the Legislature we will get a new House speaker, and a new Senate President Pro Tem, accompanied by at least some committee changes. The state bureaucracy will get a whole new leadership structure.   
   After that, we will have two months before the new Vermont Legislature takes office. And in that interregnum we will begin to see the way that health care reform will affect the organization and functioning of the health care delivery system itself.
   In the past, I have dealt with the myriad issues involved by writing very long articles that often covered multiple facets of the reform project. I am going to try something different now. I’m just going to start at the beginning and go forward to the current situation in smaller bites that I will publish as quickly as I can write them.
   I’ll start with the need for reform, and sketch the failures of the past. I’ll lay out the architecture of the Vermont plan and then deal with each aspect separately. I can only hope that these efforts will cohere sufficiently to give my readers a clear-enough picture of the project to make judgments about it.
  Hey, it worked for Dickens.
  First up: Why we need reform and how the Vermont plan was built to meet that need.

GMCB Gets Somewhat Tougher on Hospital Budgets

By Hamilton E. Davis

   The Green Mountain Care Board on Thursday ground some more money out of the proposed spending by Vermont hospitals, trimming here and there on the budgets for four of the hospitals that breached the Board’s cap of 3.4 percent inflation for the fiscal year that begins Oct. 1. Their methodology precluded an immediate determination of just how much money is involved; the Board’s finance chief, Mike Davis, will get the final figures by early next week.
   I set out the parameters for the four in a post yesterday entitled A Crummy Deal -- a proposal by the four hospitals to reduce their roughly $15 million total overage by 20 percent. Total spending for Fiscal Year 2017 in the 14-hospital system, will run to $2.4 billion.
   The offerings for cuts were worth a little over $3 million. The Board’s decisions, all reached by unanimous voice vote of the five-member panel, were as follows:

Southwestern Vermont Medical Center in Bennington:

   The Board with little discussion let the 20 percent offer stand for Southwestern. The members judged that the Bennington facility showed clear evidence of budget discipline over the last few years, and has to deal now with significant problems in that region.

Northwestern Vermont Medical Center in St. Albans:

   The Board was more critical of the budget performance by this hospital. The 20 percent offer for Northwestern amounted to a cut of $168,000 in the overage total of $836,000. The Board increased that by figure linked to the hospitals requested rate increase charged to insurance carrier(s). My guess is that the final order will amount to an increase in the cut by another couple of hundred thousand dollars. (I will look much more closely at Northwestern soon.)

The University of Vermont plus Central Vermont Medical Center:

   The decision for those two hospitals, which are now partners, but whose systems are not yet sufficiently integrated to permit consideration of a single budget, had their reductions increased from the offer of 20 percent to 30 percent. Neither Mike Davis nor the Board members could come up with a quick dollar estimate for the effect of that decision.

N.B. The Board formally approved the submitted budget of Copley Hospital in Morrisville, with the understanding that Copley, now under new management and with its budget pretty much of a total mess, will have to submit a revised budget within the next three months.

A Crummy Deal for the GMCB

By Hamilton E. Davis

   A few weeks ago, I wrote a piece about the Green Mountain Care Board’s summer of discontent. In the fifth year of their cost containment odyssey, the members got a bad rap from the press on their performance to date; and they confronted $2.42 billion in hospital budgets for the coming fiscal year, an increase of 5.0 percent over the current year, well above their target of 3.4 percent.
   On Thursday, the Board’s summer comes to its effective conclusion when it makes the final decisions on four hospitals whose budget proposals breached the target level. Over the last 10 days or so the landscape looks considerably different than it did in mid-summer: the “overage” in the system-wide proposals, for example, looks markedly less alarming than it did, running to roughly 3.7 percent, still over, but in the ballpark.
   At the same time, there continue to be significant challenges in budget management. The most serious involves the budgets of four of the hospitals that exceeded the target—The University of Vermont Medical Center; its partner, Central Vermont Medical Center in Berlin; Southwestern Vermont Medical Center in Bennington; and Northwestern Vermont Medical Center in St. Albans.
   Dealing with these budgets will require that the Board mature as a regulator. It has done pretty well on cost containment so far, but it needs to bring its game up considerably. For its job will become far more difficult beginning in 2017, when the first statewide integrated system goes live: managing 14 individual hospitals is hard enough; keeping a lid on the market power of a single unit that subsumes most of them will be incomparably harder

The Backstory

   The $2.42 billion total for the original 14 hospital submissions amounted to $114 million in new money compared the current year’s budgeted spending. The proposals are for the Fiscal Year 2017, which begins Oct. 1. That compares with $78 million in new money in the budgets for the current fiscal year.
   The budget target over the last three years has been 3.4 percent, and the hospitals have been mostly breaking through that level. In the FY 2015 nine hospitals were over; in the current submissions 10 of the 14 were over. So the results have been messy, and are uneasy making, although they are far better than the rest of the country.
   Moreover, the most recent analysis of this year’s budgets makes them look a lot better. The reason is that the Board’s policy is to exempt two types of spending from the cap target. The first is the acquisition by hospitals of independent practices in their area. Most of these are small primary care clinics or individuals, although some are independent specialists.
   The independent doctors are not now regulated, but the costs they generate are part of the cost of the overall system. On paper, therefore, bringing them inside of the regulated system does not actually cost Vermonters more than they are already paying. A total of $18.7 million is budgeted for doctor transfers.
   A second category set outside the cap by the Board is investments that advance the cause of health care reform. A total of $7.3 million is allocated to that category. If you subtract those two categories from the $114 million in new money, you get roughly $88 million. That drops the percent increase in the straight-face range, in the high threes.
   None of that means that hospital costs, let alone the costs of the non-hospital sector of the health care delivery system, are sustainable. They are not; they are not even that close. The theoretical ability of Vermonters to pay for annual inflation in the system runs to no more than three percent; and even that is pretty painful at a time when inflation is less than two percent.  
   The operative theory in the health policy biz is that sustainable costs can only be obtained by shifting from fee-for-service reimbursement to block financing that places doctors and hospitals at financial risk for the operating of the system. Even with so-called capitation reimbursement, however, we will still need very strong and determined regulation, given that Vermont is too small to accommodate competing health care systems.
   That brings us to Thursday’s action.

Is This a Good Deal?

   The crux of the regulation issue now involves four of the 14 hospitals that are over the budget cap. After allowable discounts, they look like this:

   UVM Medical Center: Budget $1.2 billion (1,175,237,274); overage  $2.2 million.

   Central Vermont Medical Center: Budget$193.2 million; overage $10.6 million.  

   Northwestern Vermont Medical Center: Budget $102.9 million; overage $835,592.

   Southwestern Vermont Medical Center: Budget $152.8; overage $2.1 million.                               

    In response to suggestions by the Board that the four hospitals consider this jointly, the financial officers of the four hospitals worked out a proposal to deal with the resolution of the overage problem as a group.
   Last Thursday, the group presented its proposal. Its spokesman was Todd Keating, the finance chief at UVM. Keating said that the group had resolved on the following deal: each hospital would deduct from its budget 20 percent of its overage figure. The total overage for the four facilities came to $15.8 million. The total reductions or “givebacks” amount to $3.2 million.
   Keating acknowledged that the group had picked the number so as to avoid any real pain for any of the hospitals.
   What should the Board think about this? Here is the way I look at it.
   If it’s thought of as a deal, the deal is terrible. Twenty cents on the dollar amounts to salvaging what you can from a financial train wreck. Moreover, there is a real problem with considering the hospitals as a unit in the current circumstances. The Board is trying mightily to foster the development of an integrated system, where hospitals take financial risk jointly for their economic performance.
   But they are not there yet—UVM is approaching a full merger with Central Vermont, but the hospitals in St. Albans and Bennington are fully outside that effort. Beyond that, circumstances at each of the four hospitals vary dramatically. Finally, there is a critical question for the Board itself: It has two roles to play here.
   One is to oversee the development of the integrated system; the second is to regulate the hospital budgets so as to protect Vermonters, who are paying the bills for them.
   Thus far, the Board has leaned in the direction of reorganization. Their regulatory performance thus far has been good, but not outstanding. And it’s time now, it seems to me, for it to establish its bona fides as a regulator. If it doesn’t do so now, it would auger badly for its ability to do so when matched against the market power of a fully integrated system.
   What might such a strategy look like?
   Here is a suggestion, taking each hospital separately. A qualitative question, but an important one in my view, is to consider both the particular circumstances of each hospital and the attitude of its management and board toward cost containment. So, by hospital:
   UVM is the center of the system; it delivers half the care offered across the state. Despite a drumbeat of political criticism about how it plays its role, it seems obvious to me that UVM is fully committed to reform, and is doing its best to shift its own trajectory and hence the trajectory of the whole system.
   The Burlington-based facility has argued to the Board that in the last couple of years, it has experienced a significant increase the volume of patients coming through its doors, and it seems obvious that is true. Part of that derives from the increased demand emanating from Obamacare’s Vermont Exchange.
   An important second factor is a wholly unexpected change in the performance of Dartmouth-Hitchcock Medical Center, the academic medical center in Hanover, just across the Connecticut River in New Hampshire. Forty percent of Dartmouth’s traffic is coming out of Vermont, including a large proportion of the most sophisticated and expensive care delivered east of the spine of the Green Mountains.
   Over the last year or so, there have been rumblings about problems in Hanover, and the situation burst into the open in the last couple weeks when Dartmouth  announced that it has been losing money and will lay off a big chunk of its employees.
   In support of its proposed budget,  UVM argues that, owing to the two reasons above, it needs a rebasing of the size of the patient population.
   I totally agree with that. On the other hand, the amount of money UVM is over, a measly $2 million in a budget of more than a billion dollars, is pocket change. It amounts to less than two tenths of one percent. For the flagship of the Vermont system to be over the Board’s target by an amount like that is ridiculous. The Board ought to act like a regulator here. UVM’s reduction ought to be 100 percent, and it shouldn’t even be a close decision.
  Central Vermont is a tougher nut to figure out. Its volumes have increased dramatically also, partly because of the developments at Dartmouth, but also because its partner UVM is keeping more moderately ill patients in Central Vermont rather than sending them to Burlington. That’s a very good thing and it augers well for the integrated system that is coming in 2017.
   On the other hand, the increase proposed by Central Vermont is absolutely huge—an 11.0 percent leap. When I first wrote about this I listed CVMC as 1.1 percent because it never occurred to me that anyone would produce something like an 11 percent jump in the current era.
   So, what to do? The Board needs to be at least a straight-faced regulator here. CVMC probably needs everything it plans to spend. But the real pain in this system is the pain suffered by the people of Vermont, and they deserve far more consideration than they have ever gotten before. CVMC can slow down and eat its increase in smaller bites. Its giveback should be at least 50 percent rather than 20; 75 percent would be better.  
   One thing the Board might keep in mind if it gets the squeebles about being tough is that there is no evidence in the budgets generally that managements are factoring in the prospect of significant improvements in efficiency that are the supposed rewards of going to an integrated system.
   Fiscal 2017 begins in a little over two weeks, but three of its four quarters will begin in January, when Vermont’s integrated system goes live. If the hospital chiefs scream about this pain—which is a long way from being acute—the Board could simply tell them: start rationalizing your system sooner rather than later, faster rather than slower.
   Northwestern Medical Center in St. Albans. This hospital in my view is different from the other three. Its management has been blithely ignoring the Board’s guidance for the last three years. According to the Board’s data system, Northwestern has gone over its budget in 2013, 2014 and 2015. And at the hearing where the four hospitals presented their joint proposal, the Northwestern representative lectured Al Gobeille, the board chair, to the effect that the Board should be encouraging even more spending at the hospital.
   The situation at Northwestern needs to be dealt with in much more detail, and I will do that this fall. But it seems critical to me that the hospital managements and boards need to be at least trying hard to wrestle costs under control. At Northwestern, they seem to be building their facility out as fast as possible. They need to get real in a hurry, and the Board ought to make them do so. Reduce by the total overage—100 percent. Give the whole $866,000 back.
   The opposite situation seems to obtain at Southwestern Vermont Medical Center. Its budget is $1.5 million over the cap, but it has faced difficult circumstances over the last few years. A hospital closing in nearby Massachusetts has dumped a whole new block of patients on the Bennington facility, and Southwestern has to deal with
   This background, it seems to me, justifies giving Southwestern what it thinks it needs. The Board has every right to expect that the hospital’s management will be a strong supporter of increased cost efficiency going forward.
   Although no one has said so explicitly, Todd Keating’s comments about the twenty-cents-on-the-dollar offer being at the real pain threshold, that threshold looks like it arises from the situation at Southwest, more than at the other three. Cutting that hospital by just 20 percent looks to me like the right thing to do.
   A concluding comment: As important as the actual numbers are, the posture of the Board is even more critical. Board members may be tempted to treat Thursday’s decision as a deal to be struck between equals. That would be a huge mistake. The hospitals and the Board are not equals. The Board is a regulator, not a party to some deal between equals. State law empowers the Board to set the budgets for hospitals.
   The Board can’t be unreasonable and it has the equal responsibility to make sure that Vermonters get the health care they need, but their single most important task is to set the parameters for what Vermonters can afford to pay. They need to assert that prerogative more decisively than they have in the past.
   Now is a great time to do it. If not now, when?

The GMCB: The Summer of Their Discontent

by Hamilton E. Davis

      July through early August is usually a quiet time in the policy world. Legislators are concentrating on parades. Lobbyists, advocates, and the few news reporters left have trouble finding people to talk to. It’s time for the beach, the backyard, and the deck. In the health policy biz, however, early to mid-summer is the hinge of the year.
   Some $2.4 billion in hospital budgets arrived at the Green Mountain Care Board on July 1, kicking off a process that will produce a spending pattern for the new fiscal year beginning Oct. 1. July is also the time when the Board grapples with the rates that Vermont Blue Cross and the insurance carrier MVP can charge for health plans on the Exchange.
   The process is more fraught than usual this year because the whole health care system is on the verge of transitioning to a different type of payment system, which is generating huge cultural, political and financial stresses. Primary care and independent doctors have been flexing their new-found political muscle; a block in the Legislature is challenging the reform process; the Shumlin administration is headed for the exits and has lost its ability to manage the process; political candidates are striving for every edge they can get on their opponents and health care is raw material; and scarcely anyone who is not a specialist begins to understand the hairball that is health care reform.
   These pressures are converging on the only still-trusted piece of infrastructure in the whole landscape—the Green Mountain Care Board. And it didn’t help that the Board got a decidedly bad rap coming out of the gate.
   The bad rap was a press report that said that the hospital system had been piling up “profits” well in excess of what was reasonable, and that the Green Mountain Care Board wasn’t dealing with it. The second wasn’t actually a bad rap, but it was painful for the Board nonetheless.
   That came at the Board’s hearing on Vermont Blue Cross’s request for an 8.2 percent increase in the premiums the Blues would charge to Vermonters buying health insurance through the Exchange. The Burlington-based Vermont Workers Center brought in testimony from several individuals and small businesses that the rates were already unaffordable, and that an increase of that magnitude would be simply crushing.
   The hearing was painful for two reasons. One was that the argument for unaffordability was so compelling. The corollary was that there isn’t much the Board can do about it—in the short term. Once a spending stream is in place, state law provides that the Blues have to be paid enough to survive as an insurance company, and the actuaries for both the Blues and the Board testified that the north of eight percent was justified in those terms.
   The only real way to attack the affordability problem is to constrain the overall costs in the system and while that is the Board’s responsibility, it can only get at it going forward--not soon enough to significantly reduce the 8.2 percent. In fact, the Board later cut the 8.2 percent to 7.3, but even a move of that magnitude does not really render the policies on the Exchange affordable.
   The third hit came in early August when the Board received the hospital budget proposals for the Fiscal Year 2017, which begins on Oct. 1. On a system wide basis, the budgets far exceeded the Board’s 3.5 percent cap on total hospital spending. All in all, a tough three week stretch for the board…
   The reason why I’m spending so much time on these events, including what would normally be an ephemeral news article, is the relative fragility of the reform process. Budgets are boring and complex, so they can be used in political struggles around the whole issue of health care reform, including the problems with the Exchange, which aren’t actually within the Board’s purview at all. There are reform opponents on the right, the left and in the middle and they will use any weapon that comes to hand. And press coverage can exacerbate those pressures.

                                                                The Whole “Profits” Chimera

   The development that knocked the Board sideways in late July was the publication of what was called a special report in VTDtdigger. The headline on the article read:

Despite Regulation, Hospital Profits Up

   The obvious intent of the report was to impeach the performance of the Green Mountain Care Board. The measures cited were “profits”, which are actually operating margins in hospital budget land; but call them profits if you will. The other metrics cited were days-cash-on and the value of hospital assets.
   These have all been out of control, the article implied; a second implication was that the extra money was fueling excessive salaries inside the hospital system. And the culpable party was plain to see.

   An analysis by VTDigger shows that, although individual hospitals vary, Vermont’s 14 hospitals have, on average, improved their financial footing since the Green Mountain Care Board started regulating hospital budgets in fiscal year 2013.

   The first puzzling thing about this contention is that the supporting documentation was wrapped in developments that took place long before the Green Mountain Care Board was created. The increase in hospital assets covered the period 2001 to 2015—15 years, not three. The increase in margins was calculated from 2006 to 2015—nine years. When the article wrapped in those two metrics with days-cash-on hand, it did so over 10 years…
   The primary focus, however, was on the issue of profits. What was even more galling to the Board was that the operating margins are one of the few elements in the hospital budgets that are fully under control. The margins have been running around three percent or a little under, which is perfectly reasonable.  
   The main reason for the margins is not so the people in the hospital can have a party, but so that hospitals can maintain their physical plant and to borrow money at the lowest possible interest rates.
   The most striking example of that need is UVM’s financing for its new inpatient wing. When the $180 million project was approved, the Board permitted UVM to increase its margin from roughly two percent to as high as four. (It actually runs a little under that)
   The increase persuaded Standard and Poor, a major credit rating agency, to raise UVM’s bond rating from BBB+ to A-. That shift took place a year ago, and when UVM went to the financial markets a couple of weeks ago to borrow $89 million, it got a very favorable rate, one that will save $11 to $12 million over the life of the loan.
   Having a two to three percent operating margin across the system, in other words, is simply a prudent way to run such a complex industry. It is interesting to recall that from the very early days of health care regulation the issue of operating margins was a point of emphasis.
    For example, the Vermont Hospital Data Council was established by the Legislature in 1983 (not 1992 as the Digger piece says) and its second chairman, the Burlington business man Patrick Robins routinely urged hospital presidents and chief financial officers to build a margin into their budgets.
   Still, the simple word “profits” is enough to push every button on the health care world. So, why should we ignore them?
   Here are some of the reasons:

1.      In the Vermont health care world, if a hospital racks up more than its allowable operating margin (the right words for profit) it has to give them back. For example, that is what happened last year to both the UVM Medical Center and Rutland Regional Medical Center.

2.      The actual numbers are too small to be decisive. Operating margins in the system run from two to three percent, which is simply a responsible level. But let’s stipulate that they need to be cut in half. The cut would amount to one and one half percent.

   The numbers in the health care biz are so big it’s hard to envision them--a few hundred million dollars here, a couple of billion dollars there. So, think of it this way. A husband and wife sit down to discuss how to fill a $1,000 hole in their household budget. The husband says that he, By God, will do his share.
   What would that be?
Well, for the next two weeks I’ll get a Latte instead of a Pedestrian at Maglianero’s. 
A sacrifice like that at Maglianero’s, the ne plus ultra coffee joint on the Burlington waterfront, would save the husband about $15. You can fill in the wife’s response for yourself…The numbers in the profit issue are just too small. 

3.      The answer for people who are serious about solving the policy problem of sustainable health care costs is that health care financing is nothing like private sector financing, or even financing in regulated industries like electricity. In both of those cases demand is determined by the customer: the customer wants or doesn’t want a television set; the customer wants to operate three toasters instead of one.

    In health care, the provider determines the demand. And the customers never stop showing up. What they get is what the doctor or the hospitals say they need. The demand, in other words, is close to limitless and continuous. In that kind of environment, you don’t need profits to ramp up salaries for doctors and hospital executives. You just take the salaries up and they become an expense and they show up, not in profits, but in the basic health care bill—net patient revenues.
   The principle to keep in mind is that in health care the cost to Vermonters isn’t the unit price—so much for an MRI, or a knee replacement. The cost is the unit price times the volume. And 40 years of research has shown that volume is highly variable.
   Primary Care doctors haven’t been able hook onto this financing train, but they amount to less than 10 percent of the cost of the system. But hospital-based doctors and hospital executives have. From 2000 to 2009, for example, virtually every hospital in Vermont doubled its budget. There was no earthquake, or cholera epidemic, and no influx of people into the state. Given that health care is an industry whose labor costs run to around 60 percent, salaries went up a lot.
   So, has the Board just been spinning its wheels for the last three years? Actually, it has done pretty well. The members placed at least a reasonable lid on cost increases. It has persuaded the federal government that Vermont has one of the most promising and innovative cost containment initiatives in the country. And it has overseen the development of a truly-integrated system that can be the vehicle for redesigning the flow of money into the state’s hospitals.
   None of this is to say that hospital costs are under control. Nor is it to say that the Board’s performance has been flawless, it hasn’t. But it isn’t guilty of the sins it has been charged with in the press.
   That doesn’t mean that the days ahead will be easier. In fact, they will be much tougher. In an ironic touch, the Board had no sooner begun to shake off the effects of the Digger piece, when a serious new challenge walked in the door.
   On Aug. 4, the Board’s finance chief, Mike Davis, presented the hospitals’ proposed budgets for the FY 2017, which begins Oct. 1. In a dramatic shift from the last several years, the budgets came in far above the Board’s 3.5 percent cap, so far above it that I believe it presents the Board with an existential challenge to its position, and ultimately to the future of health care reform itself.
   The net patient revenue figure is the key to hospital financing in Vermont. It is the amount of actual dollars Vermonters pay to get hospital-based care each year. There are all sorts of numbers that can be brought forward to provide a look into the system. There is gross revenue, discounts from gross revenue, charges per unit, discounts from charges, unit cost increases or decreases, hospital operating margins (“profits” as we’ve seen above).
   These figures can be and are manipulated every which way from Sunday. What counts, however, is net patient revenue. When I chaired the Vermont Hospital Data Council in the late 1980s, I called it the “Green Dollar Number.” The Green Dollar Number is what shows up at the point where Vermonters collectively take out their wallets and fork over the actual cash to pay for the system.
   That is the reason that Vermont law has given the Green Mountain Care Board the authority to set a cap on net patient revenue for the hospitals. The Board has set a cap of 3.0 percent in the amount that a hospital’s budget can grow from FY 2016 to FY 2017. The Board has also provided that a hospital can go over the cap by about half a percent if the overage is to be spent on something the Board believes will advance the cause of reform of the system.
   The problem is that the proposals now under consideration add up to an increase of 5.0 percent over the current year. In terms of Green Dollars that means that the FY 2016 budget called for new money totaling $78 million over the previous year and the proposals for FY 2017 would require $114 million in new money. That is an increase of 46 percent over that period.
   The proposed budgets haven’t just exceeded the cap, they have made a hash out of it. Ten of the 14 hospitals exceeded the Board’s limit, and most of those weren’t even close. Copley Hospital in Morrisville came in at 7.4 percent; Northwestern in St. Albans at 7.5 percent; Southwest in Bennington, 6.1 percent. The topper was Central Vermont Hospital at 11 percent. The University of Vermont asked for 4.3 percent, the first time it has come in over the cap. Nine of the 14 hospitals exceeded the cap for FY 2016, and 10 of the 14 have proposals that are over for FY 2017.
   The flagship of the system—UVM and its partner, Central Vermont Hospital—had a weighted average of about seven percent, double the cap.
   No one has analyzed these budgets yet. The Green Mountain Care Board will begin that process next Wednesday when it holds a hearing on the UVM and CVH budgets.
   My sense after watching the hospital cost dance for 35 years is that some of the increases are definitely necessary, but that some of them are definitely not necessary. The problem for the Board is that there is really no practical way to figure out which is which in the three to four weeks that the Board has to maneuver.
   One way to get at it would be to look at the quality metrics, but the Board hasn’t really done that so far. And even if they do, telling any hospital they can or can’t do something presents a huge political problem.
   As I noted above, in theory, the advent of an integrated system would shift that problem to OneCare Vermont, or its newly almost-formed bigger successor Vermont Care Organization; they are Affordable Care Organizations set up under the aegis of the federal government. But there is no chance that OneCare, the only structure that actually exists now, can solve the Board’s problem by early to mid-September.
   However this dilemma is resolved, the budget submissions appear to have destroyed the usefulness of the tool that the Board has relied on since its inception in 2012—a cap based on net patient revenue. The only way the cap could be saved would be to apply it across the system, and that would entail the risk that some Vermonters might be denied care they need. But if nearly everyone ignores the cap, it is very hard to see why anybody should take it seriously.
   The countervailing problem is that unless the Board has the credibility to get costs under control, then the whole health care project itself would be at risk. And in that environment, OneCare Vermont and its descendent Vermont Care Organization would begin to look more like an enormous risk rather than the savior for the system.
   The huge question would be:
   If the Green Mountain Care Board can’t exert a credible lid on any single one of the state’s 14 hospitals, how could it do so when it faced a single organization with all the medical resources in it? The market power of a fully integrated system would be too much for a feeble regulator.
   The conundrum laid out above is why I have called the current situation an existential challenge to the Board. This challenge isn’t simply irritating, like the press article, or frustrating, like setting the rate increases for insurance companies. This is the toughest challenge the GMCB. If this is truly a summer of discontent for the Board, the hospital budget issue is a very good reason for it.


GMCB Gets Heavy Budgets

    Vermont’s 14 hospitals have submitted budget proposals to the Green Mountain Care Board for the coming fiscal year that total $2.422 billion, an increase of $114 million over last year’s tab. The percentage increase was 5.0 percent, well over the Board’s 3.5 percent target.
   Mike Davis, the Board’s finance chief, presented the figures to the members yesterday. He said the numbers were still a bit rough; they haven’t been fully vetted yet. But he said they’ll be ready by mid-August, when the Board opens hearings with the individual hospitals.
   Once the hearings are completed, the board will arrive at a decision on each hospital by mid-September, and the budgets will go into effect on Oct. 1, the beginning of FY2017. If a hospital disagrees with the Board decision on its budget the hospital can appeal the decision to the Vermont Supreme Court.
   The key number in each budget is the increase in the hospital’s Net Patient Revenue. The increase in each hospital’s NPR number is shown in the graph below.  It shows that 10 of the 14 have exceeded the Board’s target of 3.5 percent. There can be a host of reasons why that should be so, some of them good, others not so much. Those are the decisions the Board will have to make in the next six weeks.

Reading the Tea Leaves on Bernie

by Hamilton E. Davis

   The whole State of Vermont has gone bonkers over the presidential candidacy of Sen. Bernie Sanders, as has a sizeable chunk of the country. Bernie’s win in the Michigan primary took Vermonters into hyperventilation territory and they are likely to stay there until next Tuesday when Illinois, Florida, North Carolina and Ohio hold their primaries. So, what is going on? Can the grumpy old guy with the bad hair from the north end of Burlington actually get into the finals?
   The hard-nosed guys who never hyperventilate don’t think so, and I think they are right. There are two essential sources, in my view, that can get you to see past the emotional responses to political questions like this. The first is Nate Silver, who runs a web site called 538 and who has made himself the nation’s leading prognosticator by virtue of his skill as a statistician. The second is Nate Cohn, who writes under the Upshot heading in The New York Times. Read these guys and you still might get something wrong—they both got Michigan wrong—but you will be as grounded as it's possible to get.
   No one knows whether Michigan was a fluke, or not. I think Bernie himself was shocked. During the run-up to the Michigan primary itself, Tad Devine, Bernie’s campaign manager and the architect of his stunning run so far, gave an interview to the Politico site in which he suggested that Hillary Clinton might choose Bernie as her running mate in the general election.
   Maybe they’re going to put him on the ticket then, Devine said. He isn’t kidding as far as I can tell, the interviewer wrote.
   That looks to me like a message that you might send if you thought your campaign had peaked. Keep in mind that the guy saying it wasn’t some indiscreet volunteer playing hooky from college; it was the top campaign guy.
   In any event, the fact is that Bernie did win Michigan and if it didn’t shock Bernie, it shocked everybody else, on both sides of the equation. It certainly knocked Nate Silver sideways: he had estimated Clinton’s chance to win Michigan at greater than 99 percent and Bernie’s chances to win at less than one percent. The question now is whether Michigan portends a Bernie surge that can actually get him the nomination.
   Here is what Cohn has to say in the Upshot:
   Imagine…a brutal stretch for Mrs. Clinton, one where she underperforms the demographic projections by as much as she did in Michigan for the rest of the year. She would lose in Ohio and Missouri on Tuesday. States where Mrs. Clinton was thought to have an advantage, like Arizona, New Mexico, Pennsylvania, Illinois, Indiana, California and Connecticut, would become tossups. Mrs. Clinton would win New York, but by just eight percentage points.
   She would be swept in the West, including 40-point losses in places like Alaska, Idaho, North Dakota, Utah and Montana and 30 point losses in Washington and Oregon. She would lose by 20 points in Wisconsin and Rhode Island, by 30 in West Virginia and Kentucky.
   She would still win comfortably.
    The reason, Cohn writes, is that she has too big a lead to be overtaken in any realistic scenario. Keep in mind that these aren’t simply finger-in-the-wind guesses. They also have nothing to do with super delegates. They are what you get when you apply the Michigan results to all those states. So, is a Bernie nomination it possible? Sure, but it is very remote. My guess is that the only Vermonter who fully understands that is Bernie himself.
   As I noted above, Nate Silver has a firmer grip on the hard statistics than anyone else. He made his bones in national elections beginning in 2008 and he had a striking performance in the 2012 election, when President Obama defeated Mitt Romney. Silver saw it coming all the way, and his work badly embarrassed some of the old political guard. He made Peggy Noonan, the intelligent person’s Republican who writes in the Wall Street Journal, look like a fatuous ninny when she predicted a Romney landslide after talking to a cab driver, or some damn thing. Another victim was Karl Rove, the very smart but nasty brains behind former President Bush; Rove got run over on national television when he refused to believe the results in Ohio after they had come in.
   Silver doesn’t seem to have fully come to grip on Michigan. He described it right after the votes came in as the worst screw-up in polling history, since his political readings are based primarily on polls by others, to which he applies various correction factors. It certainly was the greatest screw-up in Nate’s history. Saying that Clinton has a higher than 99 percent chance of winning and Bernie less than one percent really isn’t statistics at all—it just says, forget about it. If he had said that Clinton had a 98 percent chance to win Michigan and Bernie had a two percent chance, he would have been fine. Two percent is not no percent in statistics land.
   It is interesting, however, that Silver hasn’t backed off an inch in the approach to next Tuesday’s tests. He gives Bernie no chance (less than one percent) in Illinois, Florida and North Carolina and just two percent in Ohio.
   So, Tuesday will be big. If Silver is right, the Clinton lead in delegates will grow significantly and the path for Bernie will be pretty much closed off. If he exceeds expectations, even by a lot, then the path will look like it’s there, but Bernie, and his Vermont chorus will then have to face the Nate Cohn thesis—that the path is already gone.

N.B. While I agree with Silver and Cohn, I also think that Bernie’s campaign has been unique in American political history, and has had a marvelously salutary effect on the country’s political life. I’ll make that case next.

Vermont's Slowly-gelling ACO Landscape


By Hamilton E. Davis

    The ACO concept is in its infancy is Vermont, and to a considerable degree in the U.S. The pace is going to pick up drastically, however, as the need for cost containment is so pressing. By January of 2016 every major health care system in the country is going to be participating in the next phase of ACO movement, or looking closely at operating in a way that will cost them money if they manage badly.
    Vermont will be one of the bellwethers in this campaign. Vermont’s largest ACO, OneCare, has been selected by the federal government to be one of a couple dozen ACOs that will participate in the next phase of the reform effort. The ACO phase of reform is more than simply federal, however. The Vermont Legislature assigned to the Green Mountain Care Board the responsibility for refashioning the state’s system and the use of an ACO structure was part of the state plan from the outset. 
    OneCare was formed in 2012 by the two tertiary hospitals that serve Vermonters.
    They are the University of Vermont’s system, which dominates the western part of the state, and Dartmouth-Hitchcock Medical Center, located just over the New Hampshire border, but 40 percent of whose patients come from Vermont. Through 2014, OneCare’s membership also included the state’s 12 smaller community hospitals.
    Two smaller ACOs have been operating in Vermont during the first phase of the reform effort.  One is called Community Health Accountable Care (CHAC); it is made up of groups of primary care doctors that get some federal financial support. The groups are called Federally Qualified Health Centers. In 2015, CHAC accepted into membership four small hospitals from eastern Vermont—Northeastern, in St. Johnsbury; Gifford in Randolph; Springfield; and Grace Cottage in Townshend. The third ACO, called Healthfirst, is a group of 68 independent primary care physicians.
    The first stage of ACO activity in Vermont is now drawing to a close. Over the last three years all three ACOs participated in some so-called “shared savings programs” with Medicare as well as Medicaid and commercial insurers. The basic idea was for doctors and hospitals to begin to get a grip on costs by assembling blocks of patients, calculating the cost of caring for them in the past, and then trying to constrain the increase in costs for those patients going forward.
    If the providers kept the costs under the previous inflation trend, they saved money for Medicare and the other payers, and if they saved enough, they could keep some of that money for themselves. In the argot of the field this is called upside, or one sided, risk. It isn’t really risk: heads I win, tails you lose doesn’t meet the dictionary definition. But it was a start; the providers got a feel for the basic idea. Al Gobeille, the chair of the Green Mountain Care Board, calls this period the “training wheels” phase of the ACO movement.
    The results of the effort across the three ACOs and the three payer components—Medicare, Medicaid, and Commercial—were mixed, and not particularly impressive.  They saved some money for the payers, but didn’t get to keep much. The most important outcome was that most of the players in the acute segment of the state’s delivery system got their feet wet. Anyone who wants to dig into the details of the early ACO experience can do so by reading the reporting of Morgan True and Erin Mansfield on vtdigger.org.
    The most important point in my view is that neither OneCare, nor CHAC, nor Healthfirst was actually operating as an ACO, if we assume that an ACO is supposed to be an integrated system. They might have been building infrastructure, and they may have been doing very good work in improving primary care by extending doctors’ ties to their local communities. But the system pretty much operated as it has in the past, and the savings racked up were more the result of luck than new lines of coordination between units. This observation is not intended as a criticism of any of the ACOs. The preliminary work they have been doing they need to do. It is just that the level of integration—the seamless management of patients from primary care up the ladder of complexity—is a shift in the medical culture of today where patients move randomly from doctor to doctor without any tight management or coordination.
    The movement to date, therefore, hasn’t really moved the system closer to market discipline. You only do that by taking real risk. With real risk, you make money if you control cost and quality and you lose money if you don’t. There is still some time left for the training wheels phase. The Medicare shared-saving agreements can continue through calendar 2016, but after that the focus will be on real risk, where providers can lose money by performing poorly.
    Vermont is preparing now to enter the era of real risk. The first stage. In other words, the training wheels are about to come off. And so far, it isn’t clear at all that Vermont is ready. The immediate question the system faces today is whether the two small ACOs will give up their efforts to operate ACOs on their own; and an equally important corollary—what kind of governance of a single ACO would be acceptable to them. In other words, how big a role would they have in an ACO dominated by the two big tertiary centers?
    Working that issue out has been going on under the aegis of the Green Mountain Care Board for the last nine months or so. The midwife for the process has been Richard Slusky, a veteran hospital administrator, (a long-time CEO of Mt. Ascutney Hospital in Windsor) who joined the Board when it was formed in 2011. The Board has been concerned from the outset of the reform effort to keep all of the major players on board; Al Gobeille, the Board chair, likes to describe it as a “coalition of the willing.”
    To that end, the Board has provided grants to all three ACOs to help them get going and to participate in the shared savings programs. The process has been grindingly slow, however; for the ACO effort is stripping off the veneer of civility that it usually obtains in these matters. One of the issues that has been working just beneath the surface is the bitterness and resentment that the “smaller” elements in the system—small hospitals and many primary care doctors—feel toward the University of Vermont Medical Center.
    To get a sense for this you might read the 2013 article by Dr. Katharine Hikel of Hinesburg, a physician who writes about health care, in Vermont Woman magazine. Her basic claim is that the Burlington-based facility is too big, too expensive, too rich and too overbearing. The components of the UVM system, she wrote, “pay executive-class wages for dozens of vice presidents, revenue managers and marketing specialists whose work has little relation to patient care…A complex tertiary medical center costs more to run than a small community hospital,” she wrote. “The question is whether our tertiary-care hospitals have grown overlarge.”
    You hear the same theme from many of the small community hospitals in the state. The idea gained some public credibility when Seven Days, the alternative newspaper in Burlington, ran a front-page story to the effect that the UVM system was swallowing up as much of the state-wide system as it could. A variation on the theme is the claim by some of the small hospitals that they are inexpensive and stand in marked contrast to what they call the over-priced UVM system.
    This sort of generalized resentment is exacerbated by a genuine fear on the part of the primary care community of providers that they are in a system of strongly enhanced cost containment, and that they will get even less money than they do now. I will argue in the future that the claims that UVM, and by extension Dartmouth-Hitchcock, are too expensive are in fact not valid. The fears about primary care, however, are valid. Primary care in Vermont, and in the U.S. generally, is badly under-funded and is in a chronic crisis situation. In fact, both the Green Mountain Care Board and OneCare are committed to remedying these problems with the primary care system as soon as possible.
    So, where do the Vermont ACOs go from here?
    Starting with the smallest. Healthfirst, the grouping of 68 independent doctors, has been operating an ACO, in partnership with a national firm, that has been participating in the Medicare shared savings program. Amy Cooper, the director of Healthfirst, told the Legislature recently that the partnership will drop its joint effort with Medicare. The reason is that in the three-year phase of the Medicare shared savings program it was too hard to make any money. A big problem across the board is that Vermont costs are very low compared with other states so that it's very difficult to get under the trend line, and thereby get some “shared savings.”
    Cooper says now that for Healthfirst the question of whether to operate an ACO in Vermont is still open. It would still be possible to participate in shared savings efforts with Vermont Medicaid or with the private insurance carriers in the state. “We just can’t tell yet what all this might look like,” she said. Cooper said whether or not Healthfirst operates an ACO the group will stay together to work for the benefit of its members.
    CHAC, meanwhile, has been the center of the resistance to moving their primary care doctors into OneCare. CHAC’s central concern is to ensure that the primary care segment of the delivery system gets the resources it needs to serve its patients well, and to continue to build links into their communities that contribute fostering wellness for whole populations. CHAC’s leverage in this situation derives from the federal law that stipulates that a Vermont resident cannot be considered part of an ACO unless he or she is sent there by a primary care doctor. And CHAC has a lot of primary care doctors.
    Joyce Gallimore, who manages the CHAC effort, is non-committal at this point about whether her organization will abandon its stand-alone ACO and lead its members into a single state-wide ACO.
    “It’s hard to say one way or another,” she said. “Governance of the ACO is one issue. Another is the terms of the agreement with the federal government—how will the money be distributed. What will be the cost of the infrastructure and how will those costs be distributed and how will those costs be distributed to individual providers…there are so many details it’s hard to skinny down,” she concluded.
   My guess is that both small ACOs will end up joining a single state-wide organization. The reality overarching the whole issue is that you can’t have a credible ACO unless you offer a full range of medical services, and all of the higher end services available in Vermont are part of OneCare. Since neither Healthfirst nor CHAC encompass a full range of services neither can take financial risk for big blocks of patients. And if you can’t do that there is no point in operating an ACO in the health care world of the future.
    Beyond the simple logic, an important reason to be sanguine about eventual cooperation between the state’s providers is that Todd Moore, the president of OneCare, has been assiduous about cooperating with the smaller ACOs. He has eschewed any use of the huge muscle that OneCare has available in the state now. Primary care, for example, accounts for only three to five percent of the total health care spending in the state. And even when you subtract the spending by the four small hospitals now in CHAC, OneCare still accounts for more than 90 percent of the hospital spending for Vermonters.
    Even if both small ACOs join the single state-wide unit the governance of OneCare remains problematical. Full integration of the delivery system is inherently difficult and would be even if all the players were great pals, which they are not. The culture of American medicine at least since the end of World War II has inclined strongly toward dominance by specialists over primary care physicians. Anyone who doubts that is invited to consider the money paid to each. Specialists get paid more than primary care docs: actually not more, but rather far, far more.
    Health policy theorists have speculated for at least 30 years that medicine needs to reverse that pecking order and to make primary care doctors into “gate keepers,” who can manage all the care given to their patients. I think it’s a great idea, but anybody who looks inside the system should be forgiven for putting it in the “don’t hold your breath” category. If we consider only Vermont, you can safely put it in the fantasy category.
    If we look out, oh, at least five years, or more likely eight to 10, market-type discipline could force an evolution along those lines. But anyone who thinks that in Vermont in the near future a five-percent tail is going to wag a 95-percent dog is dreaming.
    So, the Monday morning meetings will continue, no one can say when we’ll see a resolution of the ACO governance issue. Todd Moore and his team have accepted the invitation to operate a second generation, with the caveat that they cannot begin functioning in the new wave until January of 2017.
    The issue of bringing the providers now in the two small ACOs into OneCare is that OneCare will need a full year to get a good start on a truly integrated system, which could be used as the basis for risk contracts with payers. For even if Healthfirst and  CHAC’s members decide to join OneCare based on acceptable governance, the units won’t be really integrated. That is, they don’t now function now in a coordinated fashion, certainly not to the degree that their efficiency would begin to resemble a seriously competent private-sector organization.
   We’ve gone a long way in Vermont, farther, I would argue, than anyone else in North America, but we have only just stepped into the swamp that lies between current reality and the sustainable system that we can see on the horizon. The hardest work, in other words, has just begun.

The ACO is Key to Health Care Reform: Part One

by Hamilton E. Davis

    In my last column I wrote about the two-front health reform campaign, focusing on the cost containment issue. The second front went away last December when Governor Peter Shumlin decided he would not pursue the funding of health care in Vermont. Cost containment, however, is not just alive, but thriving.
    Rendering the cost of the health care system in Vermont financially sustainable also has two fronts. The first is the purview of the Green Mountain Care Board, the five-member body tasked by the Legislature with regulating and reorganizing the doctor-hospital system in the state; many health care watchers are quite familiar with the Board because it has been regulating hospital budgets in the state for the last four years.
    The second major element in cost containment is called an ACO, which is—what? In many ways, an ACO is the mystery meat of health care reform. It’s fair to say that hardly anyone really understands the ACO idea, a situation that is exacerbated by the fact that many of the players like it that way because the ACO issue subsumes some of the most difficult political and financial tensions inherent in the reform project.
    It may seem weird, but I think that the best way to get at the essence of the ACO conundrum is to head to the nearest lumberyard. Let’s say that you want to build a new one-car garage and you have worked out on the back of an envelope the number of two-by-fours you’ll need. Say, 60 eight-foot two-bys. So, what will it cost you?
    Off to the first lumber yard, the price per two-by is $2.50. Try another one, $4.00. A short drive away, $5.00. One more, $6.00. Back to the back of the envelope. Yard one total is $150. Yard two is $240. Yard Three is $300. Yard Four is $360. Given that all the pieces are cheap softwood, this is a pretty easy decision. Yard one is the best buy, so you order the wood there.
    Now comes the delivery truck and it drops off 200 two-bys. And the driver hands you a bill for $500, which you are obligated to pay.
    Oh, come on. That would never happen. The lumber yard would be out of business in a week.
    Okay, okay. It wouldn’t happen with a lumberyard. And it wouldn’t happen buying a television set, or carrots at the farmer’s market. But it happens every day in the health care delivery system. And until the delivery system is reorganized, health care costs in Vermont, and in the United States, will never be sustainable year over year.
    Is health care financing really that strange and irrational? And if so, why? The first thing to understand is that the evidence for the dynamic I’ve laid out here is overwhelming. There is little to no opposition in the policy community that the financing system has to be changed because it sets up very powerful incentives to do more than patients need. Which is why the ACO machinery was built into Obamacare: it is considered to be the only way to get costs fully under control.
    To look at the “how” of it, we’ll go back to the lumberyard analogy. In a market economy, buying two-by-fours, or t.v. sets, or carrots, you decide what you want; that’s the Demand.
    The lumberyard or the tv manufacturer or the farmer produces stuff you want.  That’s the Supply. The interaction between the seller and the buyer balances the supply and demand, which is the definition of a market. And a real market is awesomely efficient.
    In health care, by contrast, doctors tell you what you need and then they supply it. Your only role is to pay for it. And the more they supply the more you have to pay.
    In the health policy biz, they call this “supplier-induced demand.” The payment mechanism that underpins it is called fee-for-service. If a health care provider does something, he gets paid for it. If he doesn’t, he doesn’t get paid. A particularly insidious characteristic of the dynamic described here is that competition in such a system increases costs, not decreases them. That “unmarket” is the engine that has driven health care costs in the United States from roughly six percent of our total national output in the mid-1960s to nearly 20 percent today. In Vermont it is 20 percent.

The theory of ACOs

    While there has been a consensus on the financing dynamic for decades, finding a way to fix it has been fiendishly difficult. Beginning as far back as the early 1970s, the primary impulse has been regulation—just have government order providers to slow down the rate of inflation. Governments, both state and federal, have done their best by simply refusing to pay the full amount of the bills the providers presented for Medicare and Medicaid services. That hasn’t worked: the providers just shifted the shortages to private sector insurance premiums.
     A second impulse was to set rates for specific services; and states tried that in all sorts of ways. Rate setting failed because of the dynamic illustrated by the lumberyard. Fix the unit cost for, say, an MRI, and the number of MRIs goes way up.
    The poster child for this syndrome is Maryland, where state government moved many years ago to pay all hospitals the same amount for the same services. They never controlled volume, though, and the result is that Maryland has one of the highest cost delivery systems in the country.
    It is important to note that this is not some kind of heinous conspiracy. It is simply the way that the American health care system developed in the modern era. Doctors always took responsibility for their patients, but they almost never took responsibility for what other doctors did, and they wanted nothing to do with trying to manage costs. In the 1970s and 1980s, it was common to hear doctors say that it was unethical, even immoral, to even consider costs. The only thing to be considered, the argument ran, was that whatever the patient needed he should get.
    A potential solution to the problem was designed into the Affordable Care Act, Obamacare, in what the designers called an Accountable Care Organization, an ACO in the current argot. It seems to me that the ACO idea is enveloped in a fog of misunderstanding, fear, political maneuvering and general angst.
    In essence, however, it seems like a plausible and even compelling way forward. At the least, there is nothing on the policy horizon that looks anywhere near as good. The idea works like this:
    An ACO in concept is a grouping of doctors and hospitals that can deliver the full continuum of acute care to a cohort of patients for a fixed, per capita price. Some caveats: We are only talking about acute care here. Long term care, home health and other essentially social services, while critical overall, are not essential in the ACO universe. The continuum starts with primary care delivered by doctors and nurse practitioners and ranges up from there to stand-alone specialists and small and medium sized hospitals and finally to the very sophisticated care that gets delivered in tertiary medical centers.
    The care within such a structure needs to be truly integrated. All of the elements within it are focused on a single task—to treat every patient in the most effective way, both in terms of medical quality and its attendant costs. The concept is similar to that of a complex technical manufacturer, like a car or a computer company, where there are thousands of individuals with a wide variety of occupational skills whose output is expressed in a single product that satisfies the customer, and is affordable.
    Those can exist in medicine now, but they require that all the assets be owned by a single entity. The ACO law makes it possible to form an integrated system without full ownership by exempting the ACO from such federal statutes as anti-trust prohibitions. Readers who have got this far may begin to raise objections to the integration idea, and I’ll deal with those later; for now, it is important to see how the concept works in theory.
    Once you have a fully integrated ACO, you can participate in risk contracts, the kind of arrangement that permeates our economy. If you want to get a contractor to build your new garage, you get bids for the work and you sign a contract for the work at a fixed price. If the contractor gets the work done for the price, he makes his profit. If he gets it done for less, he makes more profit. If the work costs him more than he estimated the difference comes out of his own hide. You can also get the work done for a so-called “time and materials” price—the contractor takes no risk at all, in which case you would probably get a pretty expensive garage. In health care, the thing we know with the most painful kind of certainty is that we’re getting ferociously expensive health care in our current time-and-materials system.
    Here is what a fully functional ACO would look like:
    Its membership would have to be able to deliver the full complement of acute medical care to the patients covered by the contract. The whole process starts with primary care. That’s not only true in the medical sense—everybody’s first contact should be with a primary care provider, either a physician or a nurse practitioner. It is also a key element in the way that the Affordable Care Act was written.
    The only way the patients in the contract grouping can be included in an ACO is if they enter through the primary care portal. They thereby become an “attributed life.” A patient can’t be considered a member of the ACO if he or she goes directly to a hospital or a specialist physician. So, the foundation of any ACO has to be primary care doctors.
    Once an ACO has its primary care doctor base, it needs to build in the necessary services all the way up the acute care severity ladder, from free-standing specialists to small hospitals to major medical centers. The ACO doesn’t have to have the fullest possible range of services, but enough to make risk contract workable. For example, if a Vermonter needs a heart transplant, he can’t get it here. He’ll have to go to a national center, say, Pittsburgh. But there are only a few such cases.
    Especially in Vermont, it is critical to understand that you can’t have a fully elaborated ACO, one that can take financial risk, without having the ability to deliver the full range of services. That is critical in Vermont because there are only two sources of tertiary care—UVM and Dartmouth—and they are both in OneCare. In an urban area like Boston, for example, you could have several. There are four medical schools, Harvard, Boston University, Tufts, and UMass-Worcester along with four of the best tertiary centers in the world—Mass General, Brigham and Women’s, Beth Israel and UMass-Worcester, along with a ridiculous volume of lesser facilities. Also primary care doctors on every block along with a large population.
    Vermont is nothing like that. There is only one source of tertiary care, and that belongs to OneCare.
    In any event, that is a look at the ACO component of the ideal world I set out in last column. Tomorrow I’ll look at what is actually happening on the ACO front in Vermont now.


Slogging Toward Health Care Utopia

by Hamilton E. Davis

    After four and a half years, the most critical issue in health care reform — how to contain costs in the delivery system — is now coming to a head.
    The action is taking place on three fronts: the Green Mountain Care Board in Vermont; OneCare Vermont, a group of doctors and hospitals in Vermont and nearby New Hampshire; and Washington, D.C., where the federal government is hoping that Vermont can help find a way to a sustainable system. And the deal, as they say, is going down now.
    It's important to recall first that while cost containment is critical to reform, it is only half of Gov. Peter Shumlin's original single payer plan that was passed by the Legislature in 2011. The vision that animated Shumlin's single payer reform plan had two main parts. The first was to contain costs in the delivery system; the second was to break the link between employment and health insurance by shifting the total financing of the system to the state and federal tax base. The second target died last December when the governor decided the financing was not feasible.
    The focus has shifted entirely to controlling costs in the doctor-hospital system, which is essential to making the health care system sustainable, or affordable to the public, year in and year out. That goal has eluded state and federal policy makers for 40 years.
    Before heading into the policy swamp, it might be helpful to envision what lies on the other side. In other words, what would a fully sustainable system look like?
    Ideally, it would come as close as possible to the supply and demand discipline that makes all real markets work. The Green Mountain Care Board, which has been assigned the problem by the Legislature, would decide how much Vermonters can afford to pay for health care. At the same time, representatives of the state’s doctors and hospitals would determine what resources they need to deliver high quality to the people of the state. The board and the system representatives would then negotiate an agreement acceptable to both, at which point the medical system would be responsible for the quality and cost performance of their system. That’s the ideal.
    What lies between the situation that exists today and the ideal is a swamp of gnarly details and tensions among the players — in short, the demons that plague the effort to recast a fifth of the state’s economy that deals with the health, and, in fact, the lives and deaths of Vermonters. The action is difficult to follow so I have developed a series of maps, or sketches that I hope will make it easier. The first lays out the ideal.

    As I have said, that is the ideal and we are nowhere near that yet. What we do have is four years of regulatory action by the Green Mountain Care Board. Over that time the board has controlled hospital budgets as well as private insurance premiums; and the board has had considerable success, cutting annual inflation rates for health care spending to about half the historical rates.
   But regulation will only go so far: rendering costs sustainable year in and year out will require that the delivery system itself be recast so as to shift the payment from fee-for-service, which encourages overuse, to some sort of block financing for groups of Vermonters. It will also require the elements of the system, individual hospitals and doctors, to cooperate rather than compete with one another. Only a system along these lines will permit doctors and hospitals to take responsibility for the cost and quality of the Vermont system.

    Vermont pays for its health care system with money from the state and federal governments on the one hand and by private insurance and self-insured and out-of-pocket payments by individuals on the other. The responsibility for controlling payment rates has been assigned by the Legislature to the Green Mountain Care Board. In essence that means deciding what the people of Vermont can afford to pay for health care.
    That money would then go to doctors and hospitals. In ideal terms, the distribution of funds would be decided by the facilities and people in the delivery system itself. The entity that would perform that function is called an accountable care organization (ACO). I will get into the ACO issue in depth below, but for now just think of it as a piece of machinery that represents doctors and hospitals and is empowered to negotiate with the board for what it thinks the providers need and distribute the money in the most efficient way possible.
    The Green Mountain Care Board would demand that the care delivered be of high quality and is adequate to serve all Vermonters. But the board would not micromanage the system. While the board has tremendous regulatory powers, and more human and financial resources than any such body in health care in Vermont's history, it nevertheless has to deal with this implacable reality: No government structure can actually manage a health care delivery system.
    Here is where the money that funds the current system comes from.

    The figures come from the Green Mountain Care Board's expenditure analysis for fiscal year 2013, the latest available. The numbers apply to all Vermonters; that takes into account some anomalies, such as that a piece of UVM Medical Center's revenues come from New York state, and the fact that about 40 percent of Dartmouth-Hitchcock's revenue comes from treating Vermonters, although the New Hampshire facility isn't subject to Vermont's regulatory process.

    The diagram above captures the essence of the board's current regulatory dilemma: the state has the power to manage the flow of money from three of the four sources — Medicaid, whose rates are set by the state; and private insurance and self-insured employers and out-of-pocket payments by individuals, which the Green Mountain Care Board can manage by establishing hospital budgets and private insurance rates.
    What Vermont has no control over is Medicare. The state is seeking a waiver from the federal government to manage the flow of dollars from Medicare. That's because the current way the money flows to Vermont hospitals and doctors is absurdly complex. Medicare pays one set of rates, Medicaid another. The private insurance industry pays providers differently for the same services and those payments are kept secret.
    Making sense of this mare's nest is critical to reform. You can't have a sustainable system if nobody knows who pays how much to whom and for what.
    If the board gets a Medicare waiver, which it expects in the near future, then it would have what it calls an "all-payer model," which means that it could begin to channel all the sources of funds into one stream. There are two reasons for that.
    One is to be able regulate the costs in the entire system effectively, on its own. The second is to encourage the ACO, aka the doctors and hospitals, to make contracts with payers in which the providers take risk. A risk contract is one in which the ACO agrees to take care of a block of patients for a certain price. If the ACO gets the job done for less, it can keep all or a portion of the savings. If it exceeds the price, the ACO members must make up all or some of the overage themselves.
    There is a strong consensus in the health policy community that providers must take a financial risk if costs are to be sustainable over time. That proposition lies at the heart of the Vermont reform design that is established by Act 48, the health care reform legislation passed in 2011.
    The Medicare waiver sought by the Green Mountain Care Board would package a blanket exception to all of the relevant statutes, especially those on price-fixing and antitrust, that now stand in the way of risk contracts in the state's delivery system. The board, on its own, could not get into risk contracts, and its hope is that a single ACO will be able to integrate enough doctors and hospitals in the system to do that.
    The board has rate setting authority under Act 48, but it has not used it. If the development of an effective ACO stalls, the board could build a rate setting capability. If the board gets its waiver, it can blend the Medicare funds with the rest of the fund sources, then apply its rate setting capability to what would remain a fee-for-service payment system. And such a thrust could be effective, given that the way the funds are distributed now is so irrational.
    Intensive discussions and negotiations between the Green Mountain Care Board, supported by the governor's office and federal Medicare officials, have been going on for months around the Medicare waiver. Al Gobeille, the chair of the Green Mountain Care Board, has been increasingly optimistic that the waiver will come through, and soon, probably some time in October.
    The all-payer waiver would place Vermont at the forefront of health care reform in the United States. The only similar structure, one that has been developing over some decades, is in place in Maryland. And the Vermont system promises to be more far-reaching than Maryland's. The Maryland system, for example, only has a waiver for hospital services, as opposed to the Vermont design, which calls for including both hospitals and doctors.

The second front: Cooperation, not competition

    The second front in cost containment, the development of an ACO that could take financial risk, is already well advanced in Vermont. Just a few days ago, the state's largest ACO was invited by the federal government to be an early adopter to an advanced form of ACO.
    The idea of an ACO is widely misunderstood, or not understood at all, so it is worth going back to the basic concept. Recall that the goal at the far side of the swamp is to move away from fee-for-service reimbursement, which encourages overuse and fragmentation, and thus low quality care.
    If a patient, call her Sally, wakes up feeling poorly, she might call her primary care doctor. If her doctor can solve Sally's problem, she will. And the cost will be minimal. If not, then Sally enters the world of specialty doctors, and hospitals, moving up the complexity ladder and in the process incurring exponentially higher costs.
    In order for this process to be as efficient as possible, these treatment sites have to be coordinated, sharing information and decision making, rather than competing with one another. If at every step, a doctor or hospital can make more money by doing something rather than not doing something, the odds are that will happen.
    The concept of the ACO was developed in the federal Affordable Care Act (Obamacare) to meet this need. One of the most important problems the ACO concept solves is to waive federal antitrust laws that prohibit price fixing by competing elements in a business field. Cooperation, not competition, is the touchstone of an integrated delivery system.

    Irrespective of how the ACO situation works out over the next several months, the regulatory structure could not possibly take the ideal form set out above. There will have to be joint management of the system by an ACO and the Green Mountain Care Board. The ACO will be able to sign risk contracts to care for big blocks of patients for a negotiated price.
    The Green Mountain Care Board will manage that process to ensure both that costs are contained and that the care is adequate in volume and high in quality. At the same time, however, the board will have to regulate the costs that are incurred on a fee-for-service basis for those units of the delivery system that are not part of the ACO risk contracts.
    There are now three ACOs operating in Vermont, but only one of them has the size and integration necessary to get to the underlying rationale for the structure, which is to enable doctors and hospitals to take financial responsibility for the whole continuum of care. That is OneCare Vermont, a consortium that includes the University of Vermont's health care network, the Dartmouth-Hitchcock system in New Hampshire and most of the smaller community hospitals in Vermont.
    There are two other ACOs. One is called Community Health Accountable Care (CHAC), which includes most of the federally qualified health centers (FQHCs) in the state. An FQHC is a group of primary care doctors who get some financial help from the federal government so as to ensure the availability of care in underserved areas.
    The second is called Health First, a group of some small doctor groups as well as individuals. Some of the Health First members are primary care doctors, others are specialists.
    Neither of the two small ACOs is anywhere near big enough to function as an important cog in the development of risk contracts, so they are not relevant in that sense. The small ACOs would not be involved in risk contracts, but their members could be. That is the reason why all three ACOs have signed a memorandum of understanding that Vermont can only have one ACO going forward. 
    That is not to say, however, that the small ACOs are not important in the delivery system itself; they are. Moreover, they are very important as the whole issue of health reform goes forward. Part of that is structural — the ACO program gives a central role to primary care; beyond that, independent physicians play a very important role in the politics of the delivery system.
    The whole question of the ACO, in other words, is vital to the ability of Vermont to get to a sustainable position. What we know now is that OneCare Vermont is on the cutting edge by virtue of its selection to participate in the federal government's next iteration of the ACO strategy.
    We also know, however, that the way the new system is structured over the next few months will be critical to Vermont's effort to get to the goals on the horizon. It is a very gnarly problem, however, and we won't be able to get through the swamp unless we can solve it.
    Finding a path through the swamp will be the subject of the next column.