by Hamilton E. Davis

The University of Vermont Medical Center sent a very strongly worded letter to the Green Mountain Care Board Wednesday, urging the Board to reverse its decision to cut UVM’s proposed increase in the rates it charges Vermont Blue Cross for care delivered to Blue Cross patients.
This letter is very significant: it illuminates a catastrophically botched budget process by the Green Mountain Care Board and if that process is not repaired the failure will endanger Vermont’s health care reform, which has already saved Vermonters more than half a billion dollars and has placed the state in the forefront of the country’s effort to get health care costs under control.
The decision at issue was made on Sept. 12, when the Board ordered UVM to drop the increase to commercial carriers from 4.0 percent to 2.5; the move trimmed $6.75 million from UVM’s proposed budget of $1.2 billion budget for Fiscal Year 2019, which begins Monday, Oct. 1.
The core mistake by the Board was the effort to solve the problem of the Blue Cross rates not by addressing the obvious problems with Blue Cross, but by treating UVM as a piggy bank to solve those problems. Taking money away from one player in the system to solve problems of another player is to risk the whole reform enterprise. That dynamic was laid out in detail in the letter from John Brumsted, the CEO of the UVM health network, to Kevin Mullin, the chair of the Green Mountain Care Board.

The UVM case

Following is an outline of the case made by UVM. I have published the full text of the letter in another post on A Vermont Journal. For those among my tiny corps of brilliant readers who are really concerned about health care reform, the full text will be a revelation. So, herewith the precis:
The framework for this discussion is the so-called All Payer Model, which nobody talks about in simple terms and which most people, including important ones like members of the press and the Vermont legislature, have no serious understanding of regardless how simple the terms. The essence is this: For the last, oh, hundred years or so Americans have paid for health care by paying for each episode of care. That Fee-For-Service reimbursement scheme has led to exploding health care costs because the volume of care is highly variable and is decided not by the consumer, but by the doctors. That turns conventional economics on its head: competition tends to drive total costs up, not down.
The All Payer Model is simply a federal waiver to permit a state like Vermont to switch its reimbursement from fee-for-service, which is breaking health care budgets everywhere, to capitation, which means that a group of medical providers can contract with doctors and hospitals to provide a full range of care to big groups of patients at a fixed price. That dynamic shifts the risk for the financial performance of the delivery systems from patients and payers to the providers themselves.
That kind of shift, in turn, means recasting the health care system from competition mode, to cooperation and integration. Vermont has been doing just that the last eight years, and it is now proving to be amazingly effective. The inflation rate for the last year with full figures showed that the Vermont hospital inflation rate from 2016 to 2017 was 2.7 percent, about half the rate in the rest of the country. If you compare that performance with the results from the hospital system in the decade of the ‘oughts you get a savings to Vermonters of more than half a billion dollars. Here are the bones of the UVM case.

Governor Scott, Kevin Mullin, the chair of the Board, and Al Gobeille, Sectretary of the Agency of Human Services, signed a binding agreement with federal Medicare and Medicaid officials on Oct. 27, 2016 to use the All Payer Model structure as the framework for delivery system management reform in Vermont. That agreement, Brumsted wrote, committed the Board regulate the system so as to permit hospitals to assume “the enormous new financial risk associated with the fixed payment system that is the key to wringing value out of our health care system.”
The UVM Health Network hospitals “have been all-in” on the (All Payer Model), redesigning our entire system of care in order to deliver on the APM’s promise.” That claim is actually understated. Everyone wants to take credit for the Vermont performance, especially the Green Mountain Care Board itself, but the reality is that the entire result has been driven by the performance of Brumsted and his senior financial and management team. I don’t expect my brilliant readers to accept that judgment without evidence, but stick around, you’ll see it before Halloween…
Here is the essence of the UVM case: “Unfortunately, the Board’s decision to reduce the UVM Medical Center’s budgeted commercial rate does not…honor the commitment the GMCB made to the federal government or the All Payer Model participants. It does the opposite…
“By weakening the UVM Medical Center’s financial health, the Board’s decision makes it far less likely that the Medical Center can responsibly assume risk under the APM, either now or in future years. By setting the UVM Medical Center’s commercial rate at an artificial level, rather than allowing the Medical Center to (manage) that rate within (the Board’s total spending cap), as the Board had previously agreed, the (Board) may actually make continuing to pay ‘fee-for-service’ and attractive option for insurers, employers and patients.”
While the UVM letter did not mention it, another anomaly embedded in the Board’s decision was the fact that while the hospital was ordered to cut north of $6 million out of its revenue figure, it was allowed to keep its budget total the same. The implication of that is the Board was encouraging UVM to ramp up its volume, just to make up the shortfall from Blue Cross. Given that excess volume is the cancer at the heart of the hospital cost problems, such a proposition is not just unwise, but disgraceful. That is true even if UVM is highly unlikely to lean toward bogus utilization.
What angers the UVM group, and in fact most of the hospitals, is their belief that the Board isn’t complying with its own rules. According to the GMCB rules, Brumsted wrote, “the Board may adjust a hospital’s proposed budget if it does not meet the ‘benchmarks established by the Board…This year, the Board’s budget guidance limited hospital (growth) to 3.2 percent…The Board’s guidance did not set a benchmark related to commercial rate increases, hospital operating or total margins, or any other financial metric…
“The UVM Medical Center followed all the rules laid down by the Board,” Brumsted wrote. “It submitted a budget with a low 1.1 percent (total spending figure), approximately one-third of the growth rate allowed by the Board…It is worth noting that the Board’s guidance allowed the Medical Center to propose an additional $19 million in patient revenue, and twice the increase in commercial rates the hospital ended up proposing.
“Yet, the Medical Center did not propose a budget designed to take advantage of that financial headroom. Instead it held the line on both revenue and rates…” Brumsted wrote.
The last item in the UVM letter criticized the way the Board reached its decisions on how to cut commercial rates. The decisions didn’t seem connected to any real issues on the ground for each hospital. That last was seriously understated. The discussion in the Board was an absolute shambles, a toxic mix of hubris and whimsy. The members just wandered around for what seemed like hours, speculating on how they might change the “ask” for each hospital. There was no apparent connection to anything specific.

It is unreasonable to ask even my exquisitely capable readers to wander around in the transcripts of three days of Board hearings to assess the arguments put forward by UVM. I will do that myself, however, and publish the results as soon as possible.
Meanwhile, the issuance of the UVM letter has triggered a cascade of important questions about the future of reform, and I am going to lay those out as best I can over the next several weeks. Stay tuned. By the time the leaf peepers have come and gone, my brilliant readers will have a better grip on this saga than anybody else.
Count on it.