by Hamilton E. Davis
The University of Vermont’s Health Network faces an existentially important decision over the next few months: Will it be the leader of Vermont’s healthcare delivery system, or a doormat for a failing state government and regulatory system? The Green Mountain Care Board has steadily drained money out of the Network since 2018 to the point where it isn’t close to meeting the demand for its services; its physician researchers often can’t meet their grant requirements, or even clean their labs; and some of its best doctors are beginning to vote with their feet. Attracting highly skilled new doctors into the Network, difficult in the best of times, will become increasingly rare.
Can this catastrophic trajectory be reversed? If so, what would it take? What would that process look like; is there a model? Where are we today? I have described these questions as existential because the answers, or lack of answers, will determine whether Vermonters will get high-quality, affordable cost health care, or not. Moreover, the issue is existential for the state as a whole because the Vermont economy depends on the availability of national-class health care and the UVM Health Network is the only way to get it. Lose that, and serious businesses will have no reason to come here, or even stay. Our gross state product already ranks 50 out of 50 in the United States. Lose the international airport as well as health care, and the question will be, who turns out the lights?
The above reality sits atop the policy and political agenda for the next six months. The hospitals submitted their budgets for Fiscal Year 2025 to the Green Mountain Care Board on July 1. The staff is analyzing the spending plans and will begin holding hearings in mid-August. The Board will make its decisions by Sept. 15, which will take effect Oct. 1. The hospital budgets are the keystone to the whole health policy edifice, but there will be important follow-on matters to be decided through the rest of the fall.
The Green Mountain Care Board will have to rule on the Calendar Year 2025 budget for OneCare Vermont, the state’s Accountable Care Organization, a piece of bureaucratic machinery invented in the federal Obamacare legislation to link federal and state reform efforts. That whole sector of reform has been the dog’s breakfast—an unremitting mess. It will have to be untangled by the end of the year or written off as a total loss. Finally, the Legislature will have to actually figure out health care in its 2025 session, or write itself off as just one more loser among the key players.
The Real World
It’s important, before you even start to confront the giant hairball called health care reform, to understand what’s actually going on in that space. The key to the puzzle is the reimbursement system, the way we pay doctors, hospitals and the various medical providers. In most of the American system, the prevailing system is called fee-for-service: doctors and hospitals get paid if they do something, and don’t get paid if they don’t. Real-world example: older individuals can experience narrowing of the arteries that serve the kidneys. That can lead to back pain, high blood pressure and damage to the kidneys; in serious cases, it can require kidney dialysis or even the need for a kidney transplant.
Conservative treatment is fairly common in cases of renal stenosis—changes in diet, exercise, medication for high blood pressure. But if these fail, then a vascular surgeon can operate to install a stent, or even fashion a bypass graft if the artery is blocked. Surgical intervention, however, is godawful expensive; total costs can run $100,000 to $300,000. The go-no go decision is going to be made by the doctor, and her share of that is going to run to about $12,000. Those numbers are rough, but close enough to illuminate the problem.
So, in a fee-for-service system, the choice for the doctor is not just go-no go, it’s $150 versus $12,000. Anyone who can’t see that fee-for-service is a huge monetary incentive for overuse is living in a cave. Fee-for-service is the reason why health care in the United States is one-third more expensive than in the rest of the developed world.
There is, however, one sector of the delivery system that lies outside the borders of fee-for-service land. That sector is the American academic medical center. There are something like 150 medical colleges in the U.S., and while some of them may be infected to some extent by fee-for-service, their multiple roles argue against it. Faculty docs in medical schools treat patients, but they also have to teach medical students and residents, and they also are expected to do research. That’s why so many med school docs work on salaries, not piecework rates. Real-world example:
In 2018, Vermont’s Medicaid agency signed a contract with OneCare Vermont to deliver all necessary care to 31,000 Medicaid recipients in northwestern Vermont. The total cost was estimated to be about $90 million. Half of the care would be delivered in Vermont; the other half would be delivered to providers outside the state who delivered care to Medicaid recipients who were traveling. The out-of-state dollars could not be fixed, but the in-state money could be. It would work like this:
The individual Medicaid recipients are known to the State Department of Vermont Health Access (DVHA), the Medicaid agency, because they couldn’t get the benefits if they weren’t. The actual care would be delivered first by primary care doctors, then by smallish hospitals as the patients’ needs increased, and finally by UVM’s Medical Center Hospital in Burlington, the only provider of tertiary care in Vermont. (If a patient needs something really rare, like a new heart, he or she has to go out of state).
DVHA and each provider also have records showing how much care Medicaid recipients have received in previous years. So, both the payer, DVHA, and the doctors and hospitals can estimate what a Medicaid patient might cost going forward. The transmission machinery for the actual process, which was enacted as part of the national Obamacare program, is OneCare Vermont, the state’s Accountable Care Organization. The stage is now set for serious reform.
The doctors and hospitals calculate how much money they will need to treat the Medicaid patients their actuaries tell them are likely to come through their doors in the coming year. At the beginning of each month, the payer (in this case Medicaid) sends the agreed-upon amount of money to OneCare Vermont, which distributes the money to the various providers. The doctors and hospitals have the money they need at the beginning of the month, prospectively, as they say in the biz. And now the iron: There is no more money. If more patients than expected arrive or need more care than normal, the doctors and hospitals have to eat the loss. They are now at risk for the system that they run. Every extra test they run, or unnecessary therapy or surgery they perform comes out of their own hide.
The term for this piece of machinery is “Capitation.” Many in the health policy space dislike the label. The public doesn’t understand it for one thing, and for another docs and hospitals hate it because it effectively closes off their way to milk the system for whatever they think they need. The United States now spends about $4.3 trillion a year on its healthcare system. The country could save a third of that, about $1.4 trillion, by shifting to capitation. Vermont could save about $1.4 billion. That’s a lot of money in a state of just over 600,000. I would personally be willing to call it an ice cream sundae if it would help, which it wouldn’t. For now, capitation.
UVM Network's Business Model is Completely Different from Small Hospitals
The difference between fee-for-service and block financing or capitation is what divides the 14 Vermont hospitals into two diametrically opposed systems—the three hospitals of the UVM Health Network that deliver 60 percent of the care in the state, and the 11 much smaller independents that deliver the other 40.
The UVM Network hospitals have eliminated the financial incentive for overuse by paying their doctors salaries, so the docs can’t take in extra money by knocking out a few, or even a lot of questionable tests, surgical procedures, or medical therapies. The smaller units pay fee-for-service, and the Dartmouth Health Atlas shows that the smalls are increasing the state’s healthcare cost by a third per year.
Treating the two business models as one lies at the root of the failure of the Scott Administration and its Green Mountain Care Board to competently manage the medical care system in the state.
It is fair to ask at this point whether the Governor and the Board are simply just ignorant or obtuse. There is no shortage of ignorance in the reform space, of course, but it is the view of A Vermont Journal that the problem is simply fear of the political blowback that would ensue if the small Vermont hospitals were forced to meet the quality of care and cost performance of the Network’s three units. There is no doubt that those differences exist. Some 400 pages of analyses for the Green Mountain Care Board by a half dozen national consultants attest to that.
Owen Foster, the chair of the GMCB, has said his Board doesn’t fear the blowback, but talk is cheap. Every vote and every decision taken by the Board in the Scott era (he took office 2017; FY18 was its first budget) has drained at least $100 million out of the Network, the high-quality and low-cost performer; while the small independents, with dodgy quality and very high per capita costs, have been getting a pass to overspend by $300 to $500 million per year.
What would happen if the UVM Health Network leadership just said, “Enough is Enough?” Could they refuse to let a missing-in-action Governor and his clueless Green Mountain Care Board undermine the foundation of Vermont’s health care system? Actually, they could. And it wouldn’t even be technically complicated. It would be politically tenuous, but it gets done every day. Here is how:
The leadership would set up a team to manage the project. The key people would be the current CEO, Sunil Eappen, and his Senior Vice President for External Relations, Jason Williams. They would both have to be skillful and determined, about which, more below. The other major players from the C-Suite would be the Chief Financial Officer, the Chief Counsel, the Chief Medical Officer, and necessary staff.
The team would determine the total Net Patient Revenue the Network will need in FY2025 to pay the full cost of its operations, plus a four percent margin, an excess of revenue over expenses. In addition, the Team would determine the 2025 increment of the amount it would take for the Network to recover over a three-to-five-year period the north of $100 million the Board has drained out of the UVM Medical Center in Burlington since 2018. Finally, the Board would approve UVMMC spending adequate to hire enough new doctors and support staff to eliminate the excessive wait times for patients needing care. The latter increment could be spread over three to five years.
If the assurances from Governor Scott and the GMCB were not forthcoming, the Network would begin taking the following steps:
Network planners will assemble a list of services UVM provides to the state that do not contribute to the bottom line—regular money losers, in other words. They will include The Level One Trauma Center, the only one serving half the state’s population; the Vermont Children’s Hospital, which provides the state’s only specialty pediatric services; all kidney transplant and dialysis in Vermont; and the state’s only inpatient psychiatric services, high risk pregnancy management, and pediatric outpatient services. The Network will begin by dropping those money losers until it achieves its four percent margin by 2028. No law says that a medical provider has to deliver a specific service line of care. Of course, the effect of even taking the first step down that road would be terribly damaging, but Scott and his GMCB are guilty of magical thinking if they act as though Vermonters can have those services without paying for them.
In addition to putting the UVM Network at financial risk, Scott and his Green Mountain Care Board have completely botched their management of OneCare Vermont, the single statewide Accountable Organization. OneCare is the only player in the reform space that has performed flawlessly on its core mission: to enable the state to shift its healthcare system away from fee-for-service to capitation. Vermont Medicaid used capitation under OneCare to keep its costs under control. Moreover, OneCare has been the vehicle for directing $18 to $20 million per year in hospital revenues to support primary care in the state. Take that away and primary care, already badly stressed, collapses.
However, neither Blue Cross nor the Scott Administration nor the Green Mountain Care Board nor the Feds would permit that to happen in the Medicare system or the private sector insurance business. So, if necessary, the Network will close OneCare, or bring it entirely inside its own structure, and put the tens of millions of dollars in savings toward the four percent margin.Assuming that the Board and the Governor persist in failing to meet their responsibilities, the UVM Net War Room would mount a broad-based project to inform the Vermont public and the American healthcare system about their failures. Instruments would include press conferences, newspaper and television advertising, appearances by doctors and researchers at community meetings around the state, and submissions by UVMMC doctors and researchers to various professional health care and health policy journals. (I personally know doctors who are itching to contribute to such a campaign.)
All of that would cost money, of course, and the UVM Network would pay it. The Green Mountain Care Board could issue orders prohibiting one or another or all of the above steps, but the Network will not accept any of them. It will challenge every GMCB overreach in the Vermont Supreme Court, along the lines already set forth in the Sept. 23, 2023 letter from the Network board chairs to the GMCB, which asserts that the Board has routinely overreached its legal powers.
The Network will sue in the Vermont Supreme Court to recover the more than $100 million that the GMCB’s overreaching of their legal powers has already drained from the Network. The grounds would be the claim that the Board’s budget decisions denial of a regulated non-profit entity’s right to get a reasonable return on its investment constitutes a “taking,” which contravenes Vermont law, federal law, and the U.S. Constitution.
A significant factor in the reform space since Governor Scott took office in 2018 has been the posture of the Vermont hospital industry itself. Operating under the heading Vermont Association of Hospitals and Health Systems, the hospitals have focused all their effort on fending off any effort to rationalize the small hospital structure in the state. No competent health policy analyst would assert the VAHHS position that Vermont’s just over 600,000 people need 14 full-service hospitals. Some 400 pages from a half dozen national firms attest to that. Governor Scott is right that Vermont has nowhere near enough money to confront its many challenges so that recovering a piece of the hundreds of millions of dollars wasted annually on our overbuilt system is essential. Unless VAHHS stops blocking reform by fronting for wasted spending and poor quality, the three UVM hospitals will withdraw their financial support from VAHHS. That would cripple or finish off the hospital group because they would lose 60 percent of their revenue overnight.
The mere discussion of such a plan would freak out the dominant reform players in the state, not to mention the public at large, but in fact, it has been done before. In the early 1990s, the rise of Health Maintenance Organizations (HMOs), a new kind of insurance company, put a sudden clamp on healthcare spending, which had been rising much faster than inflation in the broader economy. Between 1994 and 1997, the rate of inflation dropped in half; we called it a “fixed revenue environment.”
The new model insurance companies got greedy, however, and they began to arbitrage between the payers, who would buy their insurance, and the doctors and hospitals that would deliver the care. The HMO would lean on the payers to pay more for the insurance and on the hospitals and docs to take less. The difference would enrich the HMO.
It was the doctors and other providers who blew up the whole scam. Doctors began to tell their patients that the HMO wouldn’t allow them to give the patients the care they needed. It wasn’t doctors or hospital leaders, or their lawyers and administrators, or the government that revolted—it was the doctors themselves. And their patients supported them. It got so bad that if a character in a movie mentioned the word HMO, the whole theater would erupt in boos. The result: Bye, bye Mr. HMO. Now HMOs have reverted to just plain old insurance companies. And the hospitals reverted to the inflation rate that had been obtained since the early 1970s.
A second example occurred in the late teens when the UVM system got a spike in one year’s normal traffic and made about $20 million over what had been approved by the Board. The Network and the Board agreed that UVM could use the money to build (some) mental health inpatient beds at its Berlin unit, the Central Vermont Medical Center. As the planning for the psych beds proceeded, however, the Board cut the Networks’ annual budgets so heavily that it could not afford to continue the project. So, the desperately needed new capacity went glimmering. The Board itself acknowledged that the numbers wouldn’t work.
These two examples show at least provisionally that an aggressive offense could reverse the UVM slide toward mediocracy or selling itself to a big national like UnitedHealth Group, with $273 billion in assets and $23 billion in income in 2023. That process is happening now all over the country.
Of course, serious offense as opposed to the UVM Network’s current posture of supine defense would be difficult and possibly protracted over some years. There would be huge hyperventilating over cutting some or any of the current loss-leaders. One charge would be that the company, the provider of 60 percent of all the care in the state, was playing the bully with the state and the rest of the system.
A reply to that would be pretty obvious. The UVM Network has been falsely charged with being a bully for the last nine years. Nine years, count ‘em. From June 24, 2015, when a reporter for the Seven Days newspaper in Burlington, on the strength of driving past the looming bulk of the Medical Center and thinking, Wow, That’s a big sucker, wrote a cover story about UVMMC “gobbling up” all the small and independent docs and hospitals in the region. The term ‘gobbling up” by the UVM facility became the meme for the reform years. It still is.
A major question facing the UVM Network, however, is whether Sunny Eappen’s senior management team is prepared to mount a real offense. Eappen, who spent his early career at big Boston hospitals, took the helm at the Network on Dec. 1, 2022. As of today--mid-July, 2024—Eappen and his senior management are obviously having trouble navigating the roiling political seas they’ve been pitched into. Press management and the politics of regulation have been particular challenges.
The result of nearly a decade of bungling and mismanagement of the healthcare delivery system in Vermont:
We have 14 full-service hospitals when we need at most four.
The dominant narrative is that our small (25 beds or fewer) hospitals are doing just fine, whereas most are losing money and except for Middlebury and Morrisville, have very shaky quality.
The consensus of an array of national experts is that we have somewhere between 154 and 180 too many hospital beds in the small and medium hospitals, and at least 60 and probably 100 too few beds in UVM’s Medical Center Hospital in Burlington.
UVMMC is the crown jewel of our tiny system and since 2018 it has been below investment grade by the national rating agencies. It has been saved from formal downgrade by Covid.
The UVM Network is routinely described as one of the most expensive systems in the U.S. whereas it is the least expensive, as well as delivering some of the highest quality. In Vermont, UVMMC’s quality of care far exceeds any of the non-UVM facilities.
Following is a list of the official players now on the field, and a brief comment on how well they have played so far:
Governor Philip Scott. He is clueless about the health policies involved. His direct involvement so far has been to appoint members to the Green Mountain Care Board. Nearly every appointee has been a failure.
Jason Gibbs, functioning as something of an alter ego to Scott, is a hard-core conservative, and as far as I can tell he doesn’t pay any attention to reform.
Jenny Samuelson, the Secretary of the Agency of Human Services, is clueless about reform and has botched her only major assignment, which was to assemble a small group of experts to advise on reform. She blew the group out to include every possible suspect and it didn’t produce any useable advice.
Owen Foster, Chair of the Green Mountain Care Board. He took office on Oct. 1 of 2022 and virtually every word he has uttered in that position constitutes evidence that he has no understanding of how the healthcare system operates or how it might be reformed.
The four part-time members of the Green Mountain Care Board—Jessica Holmes, Robin Lunge, Thom Walsh and David Murman—play varying roles in the Board’s regulatory processes, but they are united in refusing to even acknowledge, let alone confront the large cache of consulting reports in the Board’s archives.
The above illuminates a strikingly bleak environment for reform. What are the prospects for a reversal? Well, obviously not good, but perhaps not impossible. They rest, ironically I think, with Foster himself. He’s gotten virtually everything wrong so far, but he seems determined to set the hospital on a sustainable path, which means taking the 11 non-networks per capita costs down by a third, repairing their questionable quality, and simply facing up to the fact that the only 21st-century medicine available now is coming from UVM’s Medical Center Hospital in Burlington.
That hasn’t happened yet, but the game isn’t over. Foster has until mid-August to figure it out, with a hard deadline of Sept. 15. I have no idea whether Foster will actually get it. I believe he is intellectually capable of doing so, and he strikes me as one of the few players who wouldn’t be intimidated by the inevitable political blowback. I hope those two assets will render the odds at least even.
Failure would wreck the delivery system, with huge downstream damage to Vermont’s economy. Those threats are not on the horizon. They are directly overhead and will be explicit in the Fiscal Year 2025 gets that will lock in on Oct. 1 of this year.
Sunny Eappen appears to be trying to get a grip on the issues. He is meeting regularly with his staff to develop workarounds to move patients through his system more rapidly. He apparently is also moving to look outside his staff to gain insight into his challenges from the non-medical, political world. That at least has been bruited around Montpelier for the last year or so. The dimensions and effects of that effort are not known now.
As it happens, all the issues listed above were on display on May 20 and May 22 of this year when the GMCB held two very lengthy hearings on first, the UVMMC’s request for permission to build new outpatient surgery beds at its Tilley Drive location, and then a similarly lengthy examination by the Board of the new federal government plan to get a grip on Medicare spending by imposing a Global Budget mechanism on hospital spending. As for the Green Mountain Care Board and its staff, there was a clear aura of magical thinking about the future of reform. And as for OneCare, stumbling around and being flummoxed by obvious lines of questioning seemed to be the order of the day.
A Vermont Journal will lay out those two meetings in future posts.