Heading Deeper into the Health Reform Jungle

by Hamilton E. Davis

   When Governor Peter Shumlin launched his single payer health care reform just over four years ago—it now seems like a lifetime—no one could have predicted the wild ride it would be for Vermonters and their health care system. By the end of the 2011 legislative session, the Shumlin team had produced a superb plan for reform and had gotten near-unanimous support for it from the legislature. The governor followed that up with a strong performance dealing with the aftermath of Hurricane Irene. Sunshine prevailed in the Green Mountain State.
   The reform project was comprised of two main thrusts: the first and most important was getting costs in the health care system under control; the second was shifting the financing of health care away from insurance premiums and on to a tax basis. A little less than half of the system cost was already there, in the form of Medicare for the elderly and Medicaid for low-income people. Achieving these reforms would require shifting the ethos of the delivery system from competition between providers to cooperation.
   The financing side of the project began to go off the rails in 2013, when the administration failed to get the federally financed health insurance Exchange off the ground. And when Governor Shumlin abandoned the financing aspect altogether last December, many Vermonters assumed that reform itself was dead.
    It isn’t. The cost containment elements of the plan are continuing apace, and in fact, are about to move to a new and potentially more decisive stage. Cost containment is the central responsibility of the Green Mountain Care Board, which took on the cost task in 2012, under the terms of the health care reform bill passed by the Legislature in 2011. The primary tool available to the Board is the power to regulate hospital budgets. The Board is now considering the budgets submissions for Fiscal Year 2016, which begins on Oct. 1 of this year.  
  The budgets submitted for FY 2016 total $2.3 billion, an increase of 3.6 percent over the current year’s spending. That amounts to an increase of about $80 million, dead on the Board’s target, which was gratifying to Al Gobeille, the Board chair. Gobeille particularly welcomed the fact that the increase passed along to non-government financed consumers would come to 4.3 percent, the lowest level in at least 15 years. The increase to consumers is higher than the overall budget totals because state and federal governments pay less than their full share of the costs; in the health care biz this is called “the cost shift.”

                                                        Are Costs Sustainable Yet?

   While the FY16 hospital budgets remain under reasonable control, it is not yet possible to say that costs in the system are sustainable. Sustainable basically means that the annual inflation rate will not exceed the growth in Vermont’s economy; in other words Vermonters could afford to pay the increased cost.
   The GMCB target is about 3.5 percent, but the actual cost increase per year is roughly a full percentage point above that, somewhere between four and five percent. Much of that is the cost shift; the rest could lie in areas that the Board doesn’t regulate, such as independent physicians. And that is just the money. The Board also has to confront the legislative mandates to ensure both that the care delivered is of high quality and that Vermonters have reliable access to it.
   So, the Board is moving toward the final phase of the Shumlin cost containment plan. The plan calls for a series of critical, but difficult shifts in both the culture and the operations of the delivery system as it now functions in Vermont. A central provision on the cost containment side is to shift the payment of doctors and hospitals from fee-for-service, which is a powerful incentive for overuse, to some sort of per capita system, where doctors and hospitals deliver the services needed for groups of patients. The point of that shift is to enable doctors and hospitals to take risk for their financial performance.
   If a group of providers agrees to provide necessary health services to a group of residents for a specific price and they overspend the target, they would have to make up at least some of the overage themselves. If they came in under the target, they could keep at least some of the difference. This type of risk is not contemplated for the budgets now under consideration, but it could be in Fiscal Year 2017. 
   In order to manage the enhanced level of regulation of the Vermont system, the Board is now preparing to seek an “all payer waiver” from the federal government. All payer is a bit misleading: what the Board needs is to have the federal government make Medicare payments to Vermont providers using criteria set by the board that would be applied to other payers in the state; specifically payments for Medicaid recipients, which is already controlled by the state, and payments by private insurance carriers.
   The waiver would fill in the most important gap in the Board’s powers to manage the costs in the system. The Board now has the power to set hospital budgets, which encompasses the majority of doctors; and it has the power to set the rates charged by private insurance carriers such as Vermont Blue Cross and MVP, a New York- based carrier.  The Board also has the power under state law to set reimbursement rates for doctors and hospitals, but it has not yet used it. The legislature voted in its most recent session, however, to authorize the Board to hire three new employees to work on rate setting.
   Rate setting would be a much heavier level of regulation than the setting of hospital budgets. Take a community hospital, say, Porter in Middlebury. The current regulatory regime calls for the Board to authorize an overall amount of money for a year. That budget would pay for all the services provided by the hospital. But the hospital provides a wide variety of services, some of which the Board could decide shouldn’t be done at all, or should be cheaper than what the hospital charges payers. Rate setting would allow the board to go inside the operations of the hospital by telling the hospital what it could charge for each service.
   For example, in an earlier post of mine, most small hospitals in Vermont perform surgical replacement of hips and knees—known as DRG 470. The small community hospitals get paid more than $30,000 for that service, compared to less than half that paid to big hospitals, like the UVM system or Dartmouth-Hitchcock. The GMC Board could use its rating-setting powers to remove that imbalance.
   The Board is now developing the model it would use if it receives the all-payer waiver from the federal government. That work should be completed within the next couple of weeks; a decision by the feds should be forthcoming by early September.
   If all of this seems impossibly abstract and bureaucratic, there is still more coming.
   The Green Mountain Care Board represents the power of the state; it functions as the voice of the people about what they need from the health care system and what the Vermonters can afford to pay for it. But once the care is delivered and the money is available, there remains the question about how the money is distributed among providers. The Board could take on that task itself. But there is an alternative.
   The federal law called Obamacare contemplates that the management of units within the delivery system could be carried out by Accountable Care Organizations (ACOs) which are groupings of providers that transcend the current boundaries between hospital service areas as well as doctors offices For example, the University of Vermont Medical System, the Dartmouth Hitchcock system and most of the community hospitals in Vermont have formed an ACO called “OneCare.” There are smaller ACOs that encompass some independent physicians as well as Federally Qualified Health Centers (FAHCs).
   So, a huge question is: Should the money be directed by the Board to individual hospitals and doctors, or should the money go to one or more ACOs, so that they could decide how distribute the money.
   The ACOs comprise the first and most important step in the attempt to shift from competition among providers to cooperation. In my entry to the understatement-of-the-year contest, I would offer: It ain’t easy.
   On the surface, it would appear that the ACO idea should be very popular with providers. Each is a private entity controlled entirely by providers. Wouldn’t it be better for them if providers decide how to utilize the financial and medical assets in the system, instead of those decisions being made by an arm of state government?                
   Well, in theory, perhaps. But the ACO movement has revealed the tensions that the reform era has galvanized within the delivery system. There are strains between primary care doctors and specialists; there are strains between big hospitals and small ones; there are strains between providers and insurance carriers; and there are strains between all of these and regulators as well as the state and federal governments.
   Those strains are becoming increasingly visible. OneCare is by far the largest ACO in the state. Until recently it included all the hospitals in the state along with Dartmouth Hitchcock. In the last few weeks, however, three community hospitals have dropped out—Springfield Hospital, Gifford Hospital in Randolph, and Northeastern Vermont Medical Center in St. Johnsbury. Beyond that, in order to be able to offer a fully elaborated network for all necessary services, OneCare needs a full complement of primary care providers. And so far, they are coming up short.
   The main reason is that a critical block of primary care doctors are working in FQHCs, and they seem so far to want to stay there, rather than joining OneCare. The reason for that is not far to seek: Whereas primary care clinics were dying for years for lack of adequate financing, those clinics now are flourishing because of enhanced funding from the federal government.
   That is important, because OneCare applied in May to get a federal designation as a “Next Generation” ACO, and its ability to do so will suffer from its relative paucity of primary care physicians. The federal government expects to name just 20 or so ACOs to the advanced status and increased benefits that flow from it. A key element for the feds is that the establishment of cohorts of patients, as over against separate individuals, is based on “attributed lives” and in ACO land they are attributed based on their choice of primary care providers.
   Establishing systems of care for large groups of patients is a key precursor for moving away from fee-for-service medicine to so called capitated reimbursement; that step is considered by the health policy community to be essential to getting health care costs on a sustainable track. But the shift in the role of primary care in the system represents a cultural upheaval in American medicine, which has been dominated since World War II by big hospitals and specialist physicians. Hence the stress…
   Which doesn’t mean that OneCare won’t get selected. Perhaps it will. But it is something of a long shot, given the primary care problem, along with the loss of unanimous involvement by the state’s hospitals.
   Even if they don’t, however, OneCare will continue to operate. For one thing, it will have under its purview, at least technically, a huge percentage of the roughly $2.4 billion hospital budget. There are dozens of nasty little questions woven into these issues.
   If you are exceptionally committed to grasping this issue, you need to understand the overarching conundrum: What will be the relationship between OneCare, with or without a Next Gen designation, and the Green Mountain Care Board, with or without an All payer waiver.  
    As of mid-August, no one in either Vermont or the federal government can draw a map of that landscape. Yet, they have to figure it out somehow in the next couple of months. So, enjoy the rest of summer.
   The planners and deep thinkers in the Green Mountain Care Board, OneCare, the federal government health care bureaucracy, and all the stakeholders in the health care community won’t be enjoying it that much. They will be too busy trying to design the delivery system of the future.