Cost Containment: The Rubber is Hitting the Road

 by Hamilton E. Davis

   The four-and-one-half-year saga called single payer health care reform in Vermont has galvanized dozens of individual issues, large and small. There was the early failure in the launch of the federally-financed health insurance Exchange, still not fully overcome. That was balanced by the success of the Green Mountain Care Board in reducing the rate of cost increases in the hospital system. But then came the devastating collapse last December of Governor Peter Shumlin’s effort to shift the private insurance piece of health care financing to a state tax.
   For many Vermonters, health care reform died with the Governor’s capitulation to what he saw as insurmountable financial reality: there was no way to shift the roughly two and a half billion dollars of private financing onto the state tax rolls in one jump. There’s no question that Shumlin’s decision dealt a powerful blow to health care reform. There is no more “single payer” reform in Vermont. But there is reform, and very important reform. And it is now cresting in a way that is putting Vermont at the forefront of the effort to remake American medicine.
   Before going into that, it is important to understand that there were always two main aspects to reform. One was the shift in the financing of care. Now, roughly half the cost of care is paid by federal and state governments in the form of Medicare and Medicaid.  The other half is paid for by insurance premiums and out-of pocket contributions by individuals. The original Shumlin plan was to shift the second half to the state tax base. There were good reasons to try for that. The current system is rife with unfairness and inefficiency; and in theory it was certainly possible. While that move was deemed impossible for both political and financial reasons, there is still support for it on the left. “Medicare for all" still resonates in some quarters.
   Irrespective of such sentiment, however, it was always true that the more important aspect of reform has been cost containment in the delivery system. In 1966, when the federal government stepped into financing for the old and the poor, Americans spent 6.6 percent of what they earned on health care. That figure is now approaching 20 percent; in Vermont it is 20 percent. Failure to rein in that inflation rate in would destroy any reform effort, single payer or anything else.
   The bedrock question, therefore, is how to contain costs, and not just damp them down for a year or two or three, but set them on a permanent track at a level no higher than the ability of society to pay the bill. That means cutting the inflation rate of the last 40 years by more than half. The goal amounts to around 3.5 percent.
   A strong consensus in the health policy community, and the plan envisioned by the Shumlin planners, called for getting to sustainability by shifting from fee-for-service reimbursement to some sort of block payments to a group of providers to take care of a group of patients. The buzzword for that is capitation. The ability to do that depends, in turn, on shifting the culture of the delivery system from competition to cooperation. The buzzword for that is integration; some call it consolidation.
   Figuring out how to do that is where we are right now in Vermont. By right now, I mean in the next few weeks. The specifics of the decisions to be made were sketched recently by Morgan True of The following is my attempt to provide some context for them and to assess some of the problems involved.
   There are two players on the field. The first is the Green Mountain Care Board; the second is called OneCare, a coalition of hospitals gathered together in a new kind of entity called an Accountable Care Organization whose structure is laid out in the federal law known as Obamacare. The ACO issue is complex and we’ll go into that more later, but it may help to look at the drawing below to get the lay of the land.

   The top of the sketch shows the sources of the money available to pay for health care in Vermont. The left bucket is Medicare, the one to the right is Medicaid, the next is private insurance, paid for by employers or individuals, and the fourth is payments from individuals. There is sort of wild-card bucket representing the Exchange, which involves both money from government and individuals. In essence, however, the Exchange is basically an expansion of Medicaid and can therefore put aside for the time being.
   The money from all the buckets goes to pay doctors and hospitals for delivering health care to everyone in Vermont. The sketch shows that as a sort of funnel.  Sitting in control of the funnel is the Green Mountain Care Board, whose core responsibility is to decide how much Vermonters can afford to pay for health care. The Board was formed by the Legislature in Act 48 to perform that role.
   The state reform law also sets forth the two levers it expects the Board to use in getting job done. The first lever is regulation. The Board now sets hospital budgets; it also regulates the rates that private insurers can charge individuals and employers. It also has the power to set the rates that insurance companies can pay for individual episodes of care, although it has not exercised that power so far.
    No government entity in the United States has more power than the Green Mountain Care Board to manage the problem of health care costs. Which doesn’t mean that getting there will be easy, far from it.
    The first problem the board faces is that decades of experience in many states has shown that regulation alone has never been adequate to control costs. Hence the second lever provided by the Legislature: a mandate to restructure the delivery system moving away from fee-for-service, and forcing the medical community to take responsibility for both the cost and quality of care across the whole state.
   That mandate, however, generates a very difficult conundrum for the Board. A system of 14 hospitals and thousands of doctors spending somewhere north of three billion dollars every year is hideously complex. How can the Board manage such a thing?
  Despite what anybody might say, the reality is that the Board can’t possibly do that. It would need to build out a rate setting system that would take years. And even then they have to face the fact that rate setting hasn’t worked well in this country. Most important, there are so many complex issues to be managed every day that no board can really do it.
    Which is the rationale for an ACO, made up of providers and run by providers. If you want to know how many MRI machines you need for Rutland County, you better ask the people at Rutland Hospital. If you want to know how many mohs surgeons we need in Vermont, you better not count on a civilian board to tell you. They couldn’t do it, even assuming they know what a mohs surgeon is, which many of them won’t.
   The ACO theory, in short, is an integral part of the original Shumlin plan, but getting there is highly problematic. The theory is clear enough, but stresses inside the medical community—between big hospitals and small, and between primary care doctors and specialists—might make it impossible to form a working ACO, at least in the short term.  In that case, the Green Mountain Care Board would have to use its regulatory powers to do the best it could.
   If, however, the disparate elements of the system are able to form themselves into a fully functioning ACO then the Board could direct the necessary money to the ACO, and that organization could distribute the money in a way it considered rational. Most important of all, the ACO could take “risk”. That means that it could contract with, say, a big employer to take care of its employees for a single price. If the ACO could get the job done for less than the contracted amount, it would keep the difference; if not, it would have to absorb the overage itself.
   So, what is happening now?
   There are three ACOs in the state, but only one is fully functional—OneCare. OneCare was formed by the University of Vermont medical system and Dartmouth-Hitchcock Medical Center and originally included all 13 smaller hospitals in the state, as well as some primary care doctors working together in several Federally Qualified Health Centers.
  A second ACO is comprised of the FQHCs and a third includes some stand- alone, independent physicians in the state, most of whom are primary care doctors. I believe the two smaller ACOs are basically place-holders built to protect the interests of the members. One indicator of that is that all three have signed a “Memorandum of Understanding” to the effect that Vermont needs only one ACO.
   The MOU is more memorandum than understanding in that it doesn’t actually commit anyone to anything.
   For the last several months, the various players have been talking about what the governance of a single ACO would look like. The central issue is the fear of the small hospitals and some of the primary care doctors that UVM and Dartmouth would dominate the coalition and force them to make changes they don’t want to make.
   In any event, the federal government has provided a powerful incentive for the various parties to come together in a fully elaborated ACO. The incentive came in the form of an invitation to enter a new type of ACO aimed at moving the state more rapidly to integration. Only about 25 of these so called “Next Generation” invitations have been offered and Vermont must decide in the next several days whether to accept.
   It is virtually certain OneCare will accept the offer, the only question being whether they will try to get ready to do so by Jan. 1 of 2016, or wait a year, which they would be allowed to do. So, the negotiations will continue. We’ll follow the developments on this front over the next several weeks.
   Meanwhile, the Green Mountain Care Board is engaged in its own dance with the federal government.  Recalling the first diagram in this post, the only gap in its ability to regulate the money going into the system is the Medicare bucket, the first one on the left. So the board has asked the federal government for a waiver allowing Vermont to blend the flow of Medicare money into overall flow, so that it would be possible to integrate the system and allow an ACO to enter into risk contracts. The Board calls this an “All Payer Model.”
   The Board is now waiting to hear whether Vermont will get the Medicare waiver. There is a very strong likelihood that it will, because the same agency that opted to invite Vermont into the Next Generation ACO program is the one that has to decide on the Medicare waiver. Al Gobeille, the chair of the Green Mountain Care Board, told Morgan True that he expects the issue to be resolved by the end of September.   
   In short, the structural pieces necessary to build a sustainable cost containment system are now in place, or very nearly so.
   The question then is whether Vermont, given all the tools it needs, can actually build the health care system of the future.


 N.B. A mohs surgeon specializes in removing skin cancers, layer-by-layer. Vermont has one.