Reform Moves Ahead Against Strong Headwinds

by Hamilton E. Davis


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

The Scotties:

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

The Green Mountain Care Board:

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

The Scale Problem:

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

The Vermont Legislature:

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