by Hamilton E. Davis
On Feb. 1, the Green Mountain Care Board submitted its report on hospital sustainability to the Legislature and accompanied it with a letter requesting an immediate infusion of another $2-$5 million to begin the process of shifting Vermont’s health care reform to an entirely new track. The buzzword for the new track is Global Budgets, a system that exists in only two states and whose complexities baffle even many health policy wonks.
The central idea is clear enough: Instead of paying doctors and hospitals a fee for each unit of care they deliver, the various payers would deliver to the providers a single block of money for the all the care in advance; if the hospital delivered more care than the amount agreed on they wouldn’t get paid more for it. That should contain costs because doctors couldn’t make more money by doing unnecessary care. A heavy fog settles in as soon as you’ve absorbed that.
At present, just two states, Maryland and Pennsylvania, operate under global budgets. Those systems, however, are completely different from one another. At least, that is what I am told by the tiny number of health policy adepts in Vermont. How do they actually function and what is the difference between the two, no one seems to know in detail. What does seem likely is that the preferred model is Maryland, given that the GMCB built its proposal on a study performed for the Legislature by Donna Kinzer, who worked with the Maryland system. At the same time there have been reports that Pennsylvania is preferred.
We’ll learn more about this in the next several weeks, but in a certain sense the more significant implications of the letter to the legislature are what it says about where the Board’s collective head is as we enter the 11th year of the Vermont project.
What are we to Make of This Move?
There are two very important inferences we can draw, one in the long term, another in the short. The long-term significance is contained in the headline for this post:
It seems clear to me that the Green Mountain Care Board is bailing out on the single most important piece of the responsibility conferred on it in Act 48, the basic health care reform bill passed in 2011: reorganizing or right-sizing of the Vermont system. Pick your own metaphor, a captain abandoning his sinking ship, a collapsing military unit looking for a bug-out route.
Vermont has been pointing at the reorganization question for a decade; and over the last six months a platoon of consultants and policy experts has provided a solid evidentiary basis for moving forward on it. To swerve to an entirely new, very complex strategy now simply pushes the hard issues out years into the future. There is a lot more to this issue, and I will explore that territory in future posts. For now, I want to look at the immediate challenge facing the Legislature—how much more are the members going to have to come up with this year to accommodate the Global Budget fantasy.
Show Me the Money
The letter from the Board to Legislature asked for an immediate appropriation of $2 million to $5 million to pay for the Global Budget. The initial response from a joint House-Senate hearing last week on the issue on the issue was a clear preference for the two million level, rather than the five.
What never surfaced at all was the real financial issue, which is that the two to five million is just the ante to a game that is going to call for the Legislature to come up with hundreds of millions of dollars that it can’t possibly produce. The conservative prospective tab is $200 million to north of a billion dollars to build out a fully elaborated Global Budget system.
To grasp the import of this whole exercise, one has to read, line by line, the two concluding paragraphs of the Green Mountain Care Board letter to the Legislature. They are short, but cataclysmic. The first reads, in brief:
Design and implement a Global Budget reimbursement program for Vermont’s hospitals.
Support a redesign of the system “by experts” to eliminate inefficiencies in the actual delivery of care so as to lower costs and improve quality.
Provide the resources required to put all the necessary new machinery in place.
The second sums it all up:
The success of these efforts will also require appropriate investments in primary care, mental health and Medicaid payments that are sufficient to cover the cost of delivering essential services. In this vein, the Board also recommends supporting DVHA’s (Vermont Medicaid) efforts to align Medicaid reimbursement rates with established rate methodologies that include adjustments for medical inflation. It is also essential that the Board receive timely estimates of Medicaid payments so that it may consider its impact on hospital finances in its review of hospital budgets.
Wow, that whole screed is a fantasy. Let’s count the ways.
The biggest single problem is the money. The only actual figures in the Board’s letter is the request for $2 to $5 million to hire a consultant. The recommendations listed above, even if adopted only partially, would blow the doors off the state budget. Start with the idea that the state should roughly double its Medicaid budget. The Board’s presentation doesn’t quite put it that way, but the implication is clear. Medicaid pays in the neighborhood of half the actual cost of acute care, and paying the full cost seems reasonable. Except that it simply isn’t possible. Here’s why:
Medicaid and Medicare went into effect in 1996; and the intent was to pay for health care for the poor and the elderly. Those programs generated a very rapid growth in demand, and the overuse incentives in fee-for-service medicine put a blowtorch under the tea kettle.
By the early 1970s, the rise in health care costs was soaring out of control, and both the federal and state governments began to fall back. The government shortfalls spawned the cost shift to the private sector. By the mid-1970s, the federal government of the United States, the governments all 50 states, not to mention the Canadian national government, the governments of all 10 provinces, and the British national system were generating a cost shift of some kind. Advocates often describe that process as “unsustainable” but it has existed now for almost 50 years, and the chances that the Vermont Legislature will just pick up that tab are close to or at nil. A rough estimate of the price to buy out the Medicaid cost shift will run somewhere around $100 million, and probably more.
Shift now to the Board’s recommendation for state money to pay for “redesign of our health care system to reduce inefficiencies, lower costs and improve health outcomes…” Great idea, that redesign is the keystone to a shift in hospital financing from fee-for-service to block fixed price contracts between payers and providers. What would it cost? In the Board’s appearance before a joint Senate-House health care committee, there wasn’t a whisper of that question.
You can get a hint, however, by looking at the UVM networks across Lake Champlain in far-northeastern New York State. A few years ago, the hospital in Ticonderoga, a small one with around 40 beds, asked the University of Vermont’s health network to take it over and redesign it. Which UVM did. Network officials closed the hospital and replaced it with a “medical village” that included very strong primary and a fully equipped emergency department. The cost of $15 million was picked up by the New York State Health Department.
So, use that as rough guide. At least eight and as many as 10 Vermont hospitals will have to be downsized to make financial and medical sense. Applied to Vermont, the tab to right-size our system would run to at least $100 million and probably twice that or more. Think the Legislature would have any problem with that?
And if you want to see some people actually losing their grip on reality, read the concluding sentence in the italics above again. The Board wants the Legislature to manage its budget process so as to get the relevant information in a “timely manner” to the Board for its hospital reviews.
Anyone who has been as much as a half mile from the state house knows that the formulation of a state budget makes a sausage machine look like something run by Plato and Aristotle. The central reality is that there is never enough money; even on those rare occasions when tax revenues are pouring in over the gunwales, there still isn’t enough money. And the final tough decisions in May come down to the late night, early morning scrambles just preceding adjournment, in a swirling ballet of advocates, legislators, lobbyists…
In the light of this reality, telling the Legislature how to handle their business is a fool’s game. In fact, Kevin Mullin, chairman of the Board, found that out a couple of years ago when he wrote a similar letter about Medicaid reimbursement and got blistered from one end of State Street to the other. He may have forgotten…
The letter, clearly building on the troubling information that has flowed into the Board from half a dozen consultants over the last six months, concludes with this warning:
“Without intervention, Vermont hospital financial health will likely resume deteriorating, exacerbating the health care affordability crisis and increasing the probability that hospitals will shed essential services and/or potentially close. While COVID relief funds have been instrumental in keeping hospitals afloat during the pandemic, once these one-time subsidies cease, underlying inefficiencies in the system will continue to challenge hospitals’ abilities to deliver the right care, in the right setting, for an affordable price.”
What Should Vermonters Make of All This?
Well, the recommendations sound reasonable on the surface, but as soon as you look under the hood they incline toward a conclusion that the Board, at least as it is currently configured, simply can’t do the job it was set up to do. Too extreme?
With regard to the first recommendation—global budgets. In essence, a Global Budget calls for the payer or buyer of health care services to pay the hospital prospectively, in advance, upfront for all the care it expects to deliver in a year. It eliminates fee-for-service reimbursement entirely. If the hospital delivers more care than anticipated, it has to eat the shortfall. In other words, it is still obligated to deliver the care, but there isn’t any more money.
Global budgets are an old idea, but there aren’t many in operation. Maryland and Pennsylvania have tried it; and Maryland at least believes it has saved some money.
The problem with Global Budgets in Vermont is that they would lock in a very large block of questionable care, especially in the smaller hospitals. In fact, we don’t really know whether the Maryland system did that. There is no question that the Board members understand that. The consultants they have been hearing from have told it to them from several perspectives. For example, as much as a third of the care in the community network could have been avoidable. Another key metric: the state has some 134 beds more than it needs; several hospitals have relatively poor quality rankings. Vermont has 14 full service hospitals when it only needs four.
The Board members appear to be petrified at the idea that they might have to deal with this problem themselves, which they could do. After all, they administer the most comprehensive, not to say draconian regulatory statute in the country. At a recent Board meeting, Mike Barber, the Board’s lawyer, read to the members a list of the things that state law authorizes them to do. The reading, in a steady drone, took 32 minutes and 16 seconds.
The real problem is that right-sizing the small and even some medium-sized hospitals would mean pulling big chunks of money out of small communities that are already suffering; many, are losing population and watching their local schools shrink and sometimes close. In those circumstances, the local hospital serves as a vital community focal point, and the presence in town of a $400 to $600,000 hospital president and a few $700,000 to $1,000,000 a year orthopedic surgeons is very comforting.
Nevertheless, that is the problem to be solved, and it is uncertain what lies ahead for reform if the Green Mountain Care Board is afraid to confront it head on.
N.B. In recent months, I have been posting at quite long intervals. To keep up, I’ll take that pace up considerably. Coming next: an assessment of the report on wait times in Vermont hospitals, and then a closer look at how the Green Mountain Care Board has put the whole Vermont system at risk by
draining too much money from UVM’s Medical Center, and from the rest of the system as well.