Vermont House Has Nervous Breakdown

Can’t anybody here play this game
Casey Stengel, manager of the new New York Mets (c.1962)

by Hamilton E. Davis

   The Vermont House of Representatives, which has been struggling mightily for weeks to cope with Gov. Phil Scott’s veto of their budget and tax bills for the fiscal year beginning July 1, blew up totally in a marathon session last Friday, leaving the issues of school financing, spending for the new year, and the potential shutdown of state government in such a shambles that it was nearly impossible to tell exactly what happened, let alone where the whole mess is headed in the next five days.
   Some things, however, were clear. There is no solution yet to the contest between the governor and lawmakers on using windfall money to eliminate property tax increases for residential property and second homes plus businesses in the state. Scott wants to use one-time money to buy out the increases, a pledge he made in his 2016 campaign. The House and the Senate rejected that idea in their original budget.
   The person primarily responsible for the mess was Mitzi Johnson, the Grand Isle Democrat in her first season as Speaker of the House. Johnson lost control of her chamber so completely that it is hard to see how she can recover her credibility. The Vermont House looked like a particularly unruly eighth grade class that had obtained some inappropriate refreshments.
   The grown-ups in the building over the veto session has been the Senate, although there is considerable irritation at their leader, Tim Ashe the Pro Tem, who can seem petulant when crossed. Petulant or not, however, Ashe has done a superb job of steering his chamber through all the political white water.
   On issue after issue, Ashe has delivered unanimous or nearly unanimous decisions and has pressed them skillfully. And it’s not because the Senate is full of lightweights that can be led around by the nose. Ashe has had to meld the hard left—Sens. Chris Pearson and Michael Sirotkin, moderates like Ginny Lyons and Jane Kitchell, and veteran wheelhorses like the Republicans Joe Benning and Randy Brock, and centrists like Democrats Dick Sears and Dick Mazza—into an effective political unit.
   There is no way to describe the House as an effective political unit. Consider:
   When Governor Scott held back his education tax plan back until five days before the scheduled adjournment, and indicated that he would veto anything that didn’t meet his demands it became clear that his aim was to force the Legislature to eat a very unpopular policy; and further, that he could harry them into submission by threatening to shut down government and blame the Democrats for it.
   The issue in the veto session therefore was not really about the financing issue itself, the question was could the Legislature escape with its self-respect. In the early days of the veto session, Mitzi Johnson and Tim Ashe realized that they had to stick together to survive the political weight of a very popular governor. So they agreed not to negotiate with Scott separately. The held joint press conferences and published a letter to that effect. Their basic job was to coordinate any movement from their position so as to splitting and being picked off one by one. Within days, though, the House discipline began to slip.
   Rep. Janet Ancel, chair of House Ways and Means, announced one day that the Legislature should concede the Governor’s position on the residential portion of property taxes. The cost in one-time money to buy the normal tax increase there is about $10 million. I don’t know whether Johnson knew she was going to do that, but It was clear that Ashe never saw it coming. Scott, of course, instantly said that was not nearly adequate. He also never made a counter offer.
   It was right there that the situation in the House began to go south. Ancel is one of the most experienced and credentialed player in the whole legislature, and in the normal course of the session, her foray would be perfectly normal. But in a veto session, free-lancing like that is a thoroughly bad idea.
   The reason is that you can’t have a budget unless both House and Senate approve it. Ancel had no clue whether the Senate would agree to her proposal, but it was clear that the new starting point for negotiation involved only non-residential property. Ancel had made a big concession on her own. Moreover, the fact that Scott accepted it and demanded more, with no counter offer, raised the very damaging possibility that the House would start negotiating against itself, giving up more and more while getting nothing in return.
   One of the striking thing about this mess is that, in my view, it never would have happened with truly competent political leadership. A speaker like Ralph Wright, for example, would have blown players like Phil Scott and Jason Gibbs out of the water. And you could be sure nobody would be freelancing. If Ancel made her move in a way that embarrassed Wright, she could look forward to moving from the rarefied atmosphere of Ways and Means to the Shrub Committee, the one that meets outdoors. In the current case, it’s hard to blame Ancel because there obviously no leadership coming from the Speaker.
   It only got worse from there. On Friday, well over a month after the end of the regular session, the House was entertaining new amendments like those from Cynthia Browning, a right wing Democrat, Scott Beck, a Republican. Whatever their merits, if those propositions couldn’t get any traction in the regular session, why were they wasting time on the floor at a time like this? And it wasn’t just extraneous amendments.
   The Speaker put together a 10-member ad hoc seminar with five Democrats and five House members to talk over what the House should do. That was simply bizarre: the Republicans, outnumbered two to one, were just a speed bump. The most important fact about the littler gathering was that it had nothing to do with Senate. The Speaker, meanwhile, was negotiating with the Governor on her own—without Ashe. And she thought she had herself a deal; so did Scott. Everybody was happy, happy. But they didn’t have the Senate and once that reality rained on their parade the whole thing fell apart. Following which, Kurt Wright, the Burlington Republican, blasted the Speaker on the House floor, accusing her of all sorts of treachery.
   At that point, full blown panic set in. A late sortie by Kitty Toll, the chair of House Appropriations, failed when Toll herself voted against her own amendment…
   Late in the evening, the Speaker pivoted back to the Senate bill, and got it passed on a voice vote.
   A voice vote? On the budget, the Big Bill, on a voice vote, no roll call? Yup.
   That’s where it stands today. The Vermont House, in full nervous breakdown mode, will try again to find its way out of the wilderness. The key question is whether they will grasp the essential reality that no budget can pass that has not been endorsed by both chambers.
   And they have to get it done today, if Scott is to have five full days to react to it. If passed today, Scott will be able to let it become law without his signature. That ought to focus the minds of the House Republicans, who would have to vote in favor of quick action. Will they? Who knows? Their leadership has been as much of a joke as that of the majority.
   The circus tent opens at 10 a.m. Get your seats early!

N.B. Given that the above screed is a bit scrambled, I’ll post my own takeaways from Friday’s performance in a few hours.

Big Choice for the Vermont Legislature: Real Part of Government or Doormat

by Hamilton E. Davis

   The whole Vermont school finance-government shutdown ceased to be about substance on May 1, when Gov. Phil Scott dropped his real plan in the lap of the Legislature, and told them to adopt all of it or he would shut the government down--and blame them for it. At that point it became clear that Scott intended to achieve his policy goals not by any normal governmental process, but by turning the Legislature into a rubber stamp.
   Scott said then and has said many times both before and since that he wants to “work with” the Legislature, and that the whole matter is very easy to solve if lawmakers would just do what they obviously should do, instead of being “political.” On Tuesday of this week, Scott’s top aides reiterated the whole argument, and noted in addition that they have done nothing to prepare for a shutdown. No need to, they said in effect, since it would be so simple for the Legislature to give them what they want.
   The fertilizer content of that whole proposition approaches 100 percent. Consider: on January 18, Suzanne Young, Scott’s Secretary of Administration, sent a memo to the Legislative leadership laying out 18 suggestions that lawmakers might consider and pledging to cooperate in that process. The memo was not accompanied by any draft legislation, a normal component of government process, and none was forthcoming over the following three and a half months while the Legislature was crafting the General Fund budget and the tax machinery to pay for it. During that time, a steady stream of grumbling emanated from the key legislative committees, particularly House Ways and Means, led by Rep. Janet Ancel; and House Appropriations, led by Rep. Kitty Toll. Both committees complained that they had trouble getting necessary data from the administration; they also fretted over the fact that they were not seeing a proposed “plan” or legislative language from Scott’s minions.
   Then, on May 1, with one week left to go before the scheduled adjournment date and work on the major bills virtually complete, Scott sent the Legislature his demands on the school tax issue and let it be known that he would veto a budget that didn’t include his plan. One week.
   That’s it, right there, the reason for the above conclusions. Nothing like that has ever happened in Vermont before. All Vermont governors maneuver as best they can to achieve their goals, but none has ever threatened to shut down the government to get their way. Moreover, it was the second time he was using that kind of caper. He got his way last year the same way. And while the public is unlikely to understand it, if Scott succeeds again he will turn the Legislature into a governmental joke.
   It is certainly possible that the Scott strategy could be employed in the service of truly superior public policy, but that is not what is happening here.
   The content of the school financing issue is important and has been vetted at length in the press, and in this space. The Scott plan and the budget passed at adjournment are both plausible, but the Legislature’s effort to avoid using one-time money is clearly superior to Scott’s.
   The evidence for that conclusion can be seen in years of Republican advocacy, which explains why the Republicans voted for it in large numbers. An exceptionally clear statement of that position can be seen in the recent commentary in VtDigger by John McClaughry, an industrial strength Republican policy analyst.
   The conclusion I draw from this is that Scott’s strategy to reach his policy goals is far more important than the content of the goals themselves. The Legislature has already agreed, in effect, to give Scott half of what he has demanded—flat taxes for Vermont homeowners. The value of the second half of the loaf—flat taxes for second home owners and businesses—runs to a few million dollars in a General Fund budget of roughly $1.5 billion. So the money is not a big issue, at least nowhere near important enough to shut down the government. 
   What is a big issue is the fact that Scott is using damaging methods to force compliance with a clearly unpopular policy. That kind of scorched earth, partisan tactic has been a cardinal feature of the collapse of American politics into a toxic miasma that hangs over the whole country. Scott is bringing it here.

The Question Now: Will the Legislature Hold or Fold?

   Impossible to tell. The Legislature will meet tomorrow to attempt an override for the latest iteration of the budget. An override is unlikely, but not impossible. Republicans have rallied behind Scott in the post season, but some could begin to remember that they voted for the regular session budget, and that, as members of the Legislature, they also have a stake in avoiding emasculation.
   A personal observation: a friend with long experience went to southern New England a couple of weeks ago and found his Vermont ex-pat pals atwitter about the possibility of a government shut down. “Won’t happen,” he assured them. He came back three days later, and changed his mind. “I don’t see how they avoid shutdown,” he said.
   One reason I think his insights are so compelling is that they match mine. I’ve gone back and forth three or four times between 40/60 shutdown and 60/40 no shutdown. The market value of this kind of speculation runs perilously close to zero.
   There are some certainties, however. One is that the whole Legislature, and particularly the House and Senate leadership, understand exactly what is happening. If you push their interview buttons, they can lay out an hour of reasons, basically all valid, about how they are being mistreated by Scott. In recent days, Tim Ashe, the Chittenden Democrat/Progressive who runs the Senate as Pro Tem, did just that in interviews on Channel Five T.V.  I talked with the Speaker, Mitzi Johnson, a few days ago. “Scott is treating us like his staff,” she said, before launching into a recitation of the Scott behavior over the last five months.
   Understanding what is happening to you, however, is far from doing something about it. And there the whole issue starts getting squishy. The fact is that the squishy syndrome is hard at work in the current environment. In both chambers, there are legislators who just can’t imagine a shutdown. Will the state parks be open on the Fourth of July? How will people get paid? “It’s our responsibility.”
   It is easy for outsiders, including your correspondent, to say that it’s just as much Scott’s responsibility, which is true, but that doesn’t make it easier. On the basis of what he says, Scott is willing to be irresponsible; but some will see a firm stand as matching irresponsibility to irresponsibility.

   A couple of final thoughts:

   Some of the very knowledgeable and experienced people I have talked to don’t think that Scott would shut down the government. That, in other words, he would accept the best deal he can get. I suspect that is true, but we will only find out if the Legislature holds…
   A second supposition is that the political consequences of this decisions are more complex than normal. I’ll comment more on this issue if it is still relevant after tomorrow. For now, I would just point out how asymmetrical the political landscape is. Scott is lined up against the Democrats as a body, but he doesn’t have a serious Democratic opponent in November. At the same time, while he may be able politically to hang a “Kick Me” sign on legislative Democrats, they only run locally. Who, I wonder, are the lucky Republicans who get to run against Tim Ashe in Chittenden, Kitty Toll in Danville, Janet Ancel in Plainfield…to ask the question is to answer it.
   So, uncertainty prevails. Twelve days left to the dawn of Fiscal Year 2019. Those 12 days are critical for Vermont, for the immediate future, and for the long-term future, to an extent we have never dealt with before.

Forget a Compromise, One Side Will Cave

by Hamilton E. Davis

   Over the last couple weeks, the administration of Republican Governor Phil Scott and the Democrat-dominated Vermont Legislature have moved even closer to the brink of a catastrophic shut down of state government, a move that would damage Vermont’s credit rating and dig a political and financial hole that could take years to crawl out of.
   The issue that led state government into this mess is the financing of elementary and secondary education. Wading through the morass of legislative and executive back and forth is onerous at best, but broadly speaking there are both substantive and purely political issues in play. I took a crack at them in my post on May 30, and concluded that the real responsibility for the mess belongs to Gov. Phil Scott and his chief of staff, Jason Gibbs.
   On the question of whether the administration position or that of the legislature represents the sounder public policy, I have decided to publish in its entirety a commentary by John McClaughry, a long time public policy and political analyst from Kirby, VT. The piece was originally published by VTDigger and is reprinted with John’s permission.
  Why McClaughry? Well, I am known to my tiny, rigorously selected corps of brilliant readers as being of the Democratic persuasion, and McClaughry is the polar opposite. We disagree all over the place, and I consider his political philosophy to be frozen somewhere in the second Jefferson administration.
   But McClaughry is smarter than any half dozen Republican bigfeet you can think of, he is absolutely lethal when it comes to the intricacies of public policy and he is cussed enough to wield a bipartisan shillelagh. I suspect him of enjoying bashing Democrats more than Republicans, so when he unloads on the Scotties, I take it seriously. Give it a look.  If you’re still unsure about McClaughry, you might consider that President Ronald Reagan considered him valuable enough to bring him into the upper policy realms of the most conservative national administrations in the modern era.
   Enough of the substance. The issue now is a brutal political struggle that Scott has elevated to a possible government shutdown, and an existential struggle with the Legislature about how government will work in Vermont. So far, Scott has been winning pretty easily, but I am beginning to think that the wind is shifting. We’ll know for sure by July 1.
   Here is the way the playing field looks to me now:

Overview:

   Virtually all the action in the override session has taken place in the House. Part of the reason for that is budget and tax legislation, in Vermont and everywhere else, starts there, by tradition if not by constitutional fiat. The Senate has been quiet, but that can be deceiving. Sen. Tim Ashe, the Chittenden D/P serving as President Pro Tem, has his chamber under firm control; whereas Speaker Mitzi Johnson has struggled to manage the House. Keep in mind the underlying assumption here: that the contest now is mainly political, not substantive.

House:

 The action so far has been a series of strategic retreats before the Scott shutdown threat. The budget/tax bill that passed before the Legislature adjourned essentially left in place the property tax increases driven by the school budgets passed earlier in the year by local communities and school districts. The increases were of two types; one rate covers residences; the second covers second homes (non residential) and businesses.

Scott demanded that the Legislature use windfall, one-time money to eliminate tax increases in both categories, Res, and non-Res in the shorthand. So, herewith the play-by-play, following the veto of the first budget:

1.      The House offers to separate the school financing aspects of the budget from the remaining costs of running state government, so that government would not shut down. Scott says, No Way.

2.      Rep. Janet Ancel, the chair of Ways and Means, recommends a major move toward Scott by proposing to use one-time money to eliminate the residential increase, while leaving the non-residential increase in place. Scott says, No Way.

3.      Cynthia Browning, a Democrat from Arlington in Bennington County, proposes to use the one-time money General Fund money to buy out the entire property tax increase. She would rewire the financing mechanism somewhat, and insist on eliminating state control over such administrative functions as class size. On the money issues, however, the Browning thrust amounts to a total capitulation on the part of the Legislature to Scott. And just to make it a little worse, she supports the Scott contention that it is the Legislature that is responsible if state government shuts down. Browning’s proposal gets some interest from and vetting by Ways and Means, but does not get into a bill, at least not yet.

4.      Throughout this process, Scott has not moved a millimeter, and his apparatus, his staff and particularly his press secretary deliver a steady stream of harsh comments about the way the Legislature is doing its job.

5.      On Friday of last week, the House and Senate sent Scott another budget, one that incorporates the Ancel initiative—residential homes would not see a tax increase, but  the second home and business tax hikes remain in place. That bill has been passed by both chambers. Scott is virtually certain to veto that measure today.

   That’s where we stand now, with the players and particularly the press waiting to see what the ‘”compromise” will be.
   My own view is that there won’t be a compromise at all. Scott has talked himself into a corner by refusing to move at all from his all-or-nothing demands. If he accepts the half-loaf on the table—Just letting the property tax increases go through on non-residential property and businesses—he’ll look silly, particularly to that portion of his base that already dislike his stand on issues like guns and marijuana.
   Scott’s intransigence, meanwhile, has forced the Legislature into a very serious box. Their original budget was a perfectly sound piece of work, whose overall numbers came in below Scott’s targets and had overwhelming bi-partisan support; in the Senate, every Republican voted for it.
   Scott’s magisterial refusal to move at all has put the Legislature in a position where the real issue they face is whether they can escape with their political self-respect in place, given their own belief that the public will blame them for a government shutdown.
   By this reasoning, the only real path forward is for the Governor or the Legislature to hold or cave in to the other. That would not be a compromise—it would be a very serious blow to the side that caves.
   There is no way at this point to guess which way the contest will go. But there are some interesting straws in the wind.
   I’ll look at those in my next post.

The School Property Tax Deadlock

Editor's note: John McClaughry is a conservative policy analyst at the Ethan Allen Institute.  This article is reprinted from VTDigger by permission of John McClaughry, the author.

   Gov. Phil Scott and the Democratic-controlled Legislature are well into crunch time over the FY 2019 state general fund budget and the related education finance bill.
   The governor obviously takes very seriously his 2016 campaign pledge to hold state general fund spending to a growth of 2.36 percent a year, and to oppose – and veto – any increase in tax rates. However, the actual homestead school property tax rates are not set each year by the Legislature and the governor. They are determined district by district based on each district’s spending per equalized pupil. The total tax dollars thus raised, when added to other specified revenue sources, must add up to the sum of all the voter-approved school budgets.
   Last year the governor (enthusiastically) and Legislature (unhappily) agreed to grab more than $40 million from various accounts and reserves, and put that into the education fund to produce a slight reduction in homestead school property tax rates. That was effectively an internal loan that has to be repaid this year.
   On May 1, two weeks before adjournment, the governor unveiled a sweeping new plan for curbing education spending and keeping homestead property tax rates flat.
   His plan promises to deal with a financing gap of $236 million over the next five years. It proposes to appropriate between $44 million and $58 million in one-time funds to replenish the now-depleted reserve funds and keep the homestead property tax rates flat for the coming year. The governor has apparently forgotten (again), that in his 2016 campaign he promised “We need to stop using one-time money to plug reoccurring budget holes.”
   The administration’s plan promises “nearly $300 million in savings” over the five year period. Reviewing the governor’s projections, the respected, nonpartisan Joint Fiscal Office fairly concluded that “the administration’s 5-year outlook is a mathematical exercise only: their analysis does not indicate specifically how this ‘gap’ will be closed.”
   The big ticket in the administration’s proposal to save the $262 million is “increasing student to staff ratios” in Vermont schools, ultimately (and supposedly by attrition). This is mathematically attractive but not credibly achievable unless the state seizes control of the schools.
   When the administration floated the idea of imposing fines on school districts that didn’t meet its 5.75 to 1 ratio test, it vanished within about two days. In truth, nobody can accurately predict just how districts would react to the mandate and associated penalties, and thus how much spending would be saved.
   A special education law enacted earlier this year could – possibly – produce some savings, but no one knows how much, because no one knows how the school districts will choose to make use of new flexibility, and how often service reductions will be challenged by plaintiff lawsuits.
   Establishing a statewide teachers’ health insurance program could, depending on its terms, produce savings, but no one knows what the terms of such a program would be. The governor also plans to spend some of those savings, if any, on preschool, state colleges, and technical education.
   What this comes down to is whether to put $34 million (or $58 million) from available one-time revenues into the education fund to keep homestead school property tax rates flat, and rely mainly on mandated student to staff ratio increases to produce enough “savings” to keep them flat for five years (Scott’s proposal); or letting the homestead property tax rates rise by maybe two cents to reflect increased school budget spending, while using much of the one-time revenues to pay down the enormous long-term liabilities ($2.4 billion) of the teachers retirement and health benefit funds (the Democratic proposal).
   To their credit, the Democrats have worked conscientiously to be fiscally responsible. They rightly believe that the governor’s projection of marvelous “savings” over five years, essential to holding the line on homestead school property taxes, is speculative at best. They also responsibly oppose, as Scott himself did two short years ago, using the one-time funds to hold down tax rates for one more year. Their recommendation for using those funds is to slightly but symbolically reduce the liabilities of the teacher retirement funds.
   The problem the Democrats face is that most homeowners badly want property tax relief, and are not very receptive to appeals for sound fiscal practice. It is after all an election year, and if Scott’s proposal prevails, his strong suit in November will be that “he stopped rising school property taxes.”
   At this writing, the resolution of the school finance issue, and thus the vetoed budget, has not taken shape. What does seem almost certain is that the terms of any resolution this month will produce exactly the same problem next year, when there’s no reason to believe that significant one-time funds will appear to cover another education fund shortfall.

The Scott Paradox: Political Courage and Political Bullying

by Hamilton E. Davis

   These are sad, even poignant days for people who pay attention to and care about state government in Vermont. Sad because Phil Scott, a very popular new governor, is making a total hash of the management of the state’s finances, poignant because that fact contrasts so strikingly with his stand on gun control, one of the most courageous political decisions I have ever seen.
   When it became clear how close Vermonters had come to a mass school shooting earlier this spring, Scott immediately shifted his earlier position in the most candid way possible. When he met the press, he described how he had always assumed that gun problems had no relevance to Vermont; but that he had looked into the abyss when he saw the details of the Fair Haven case and realized that Fair Haven would have been on a scale with the recent school shooting in Parkdale, Florida.
   Many politicians would have said the same, and most of them would have signed onto stuff like more checks for guns sales, and increased security measures. But Scott went right to the very heart of the whole gun issue when he supported limiting high volume magazines, 15 to 30 round devices that seem to appeal particularly to the troubled young males that have been shooting up American schools and other places people gather.
   It was the high-volume magazine issue that touched off the continuing rage of some of the Vermont gun community, but that didn’t deter Scott at all. He signed the gun bill outside the State House with 300 or so gun people howling bloody murder at him on the lawn. Scott just stood up and took it--a historic act of political integrity.
   Which makes it puzzling why Scott is making such a mess of managing the state’s business. The current impasse over the financing of the state’s elementary and secondary schools is just the latest example. The principle underlying the operations of government is that the executive and legislative bodies are co-equal branches of that government.
   Scott talks about it, however, as if he thinks that the executive makes the decisions, and it is the duty and obligation of the legislature to endorse them. That would make Scott a king, not a governor. It’s not like most governors do not try to out maneuver their legislature so as to achieve their policy goals. But in the past, governors of both parties understood that they do not control the other branch, and, moreover, they work very hard to buttress their goals. For example, Vermont governors in the modern era routinely begin working on the following years budget very soon after that year’s legislation winds up. Their staffs are well into it by summer and when the new legislature arrives in January, the administration knows the new budget inside and out.
   That was just the first step, however. Their budget guys especially spent the whole legislative session shepherding their document through the money committees, House Appropriations and Ways and Means; Senate Appropriations and Finance. They would shadow the key legislative players from the first day to the last, constantly working to iron out kinks, and resolve differences. The ultimate failure of such an effort is a gubernatorial veto. And those failures have been very rare.
   The way Scott runs his government is a very significant departure from his predecessors of both parties. He has basically turned the locus of decision making over to his chief of staff, Jason Gibbs, and the Gibbs strategy clearly has been to out-maneuver and bully the legislature, and, in effect, to Invite them to like it or lump it.
   For the second year in a row, Scott has waited until the last few days of the session to drop a major policy demand on the lawmakers, and then made it clear that he would veto any budget that didn’t fall in line with those demands. The issue Is how to deal with the financing of the state’s elementary and secondary schools—the details are complex and have been laid out in the press. From a 30,000-foot perspective, however, the situation looks like this:
   Both the Scott proposal and the budget passed by the Legislature are plausible ways to proceed. There is a strong consensus across both parties, however, that the Legislative plan is superior public policy.
   You can find evidence to support this view in the response of the Republicans to the Scott ploy. The Senate, including all seven Republicans, supported the Legislature’s budget unanimously; and one of the GOP’s more important players, Randy Brock of Franklin County, made it clear in comments to the press that he was surprised at how far the Legislature had moved in the effort to render the document acceptable to Scott. Then last Wednesday, a group of House Republicans floated a compromise bill of their own, an indication they think the Governor is overreaching.
   Yet, the administration and the Legislature are sliding steadily into an impasse that could shut down state government on July 1. So, it is critical for everyone concerned to consider what the implications are in the next few weeks for the way state government is going to function in the Scott era. Right now, it doesn’t look good. And the major reason is that Scott doesn’t seem to really understand how government works. I just don’t believe that the Scott who faced down the gun mob, a good guy with more sheer guts than a busload of standard politicians, would operate this way if he did. Jason Gibbs would, but he has disclosed himself over the last year as a reckless partisan who delights in tormenting a Legislature that he knows is irretrievably stacked against his party.
   So, a major question: will Vermont have a Scott government, or will it just be “Douglas lite.” I say Douglas lite for two reasons. One is that Gibbs made his bones as press secretary for former Governor Jim Douglas during the ‘oughts; and the Douglas playbook included all sorts of maneuvers to disadvantage the Legislature, including sorrowful ruminations on how his opponents in the state house didn’t really represent the “Vermont Way.”
   At the same time, however, Douglas had an amazingly fine-grained understanding of how government works, and he was anything but reckless. Gibbs working for Douglas was one thing. Gibbs actually running the Scott administration is quite another. Hence: Douglas lite.
   It may seem presumptuous to suggest that the Vermont governor doesn’t understand, but that’s the way it looks. Consider: he tells the Legislature that he “wants to work with” them; but that isn’t what his administration does. He drops a ragbag of 18 to 20 ideas on lawmakers early in the session, and then lets them begin working on the issue with almost no input—until the very end of the session. Then he announces what his “non-negotiable” positions are, and he makes it clear that he will veto anything else.
   When the veto session convened last week, the Legislative leadership—the Speaker, Mitzi Johnson and Senate President Pro Tem Tim Ashe—held a press conference ln the Speaker’s office. The main line of questioning ran along the lines of: the Governor’s non-negotiables are such and such—what are your non-negotiable demands?
   To their credit, Ashe and Johnson refused to get sucked into that game. The budget is a negotiation and that makes it different from all the other issues that animate a legislative session. If the players on both sides of a question have non-negotiable positions, not much real negotiating is going to go on. On all the other issues, the Governor has pretty much an impregnable position, assuming he has enough votes in at least one of the two chambers to sustain a veto; Scott has such a potential blocker in the House. So Scott can veto any bill the Legislature passes, and he is acting as though that is true of the budget. The budget, however, is unique because government can’t operate without it.
   Scott appears to believe that the legislature has to send him a budget he is willing to sign. It’s true of course that we can’t have a budget if the Governor won’t sign it. It is equally true, though, that we can’t have a budget that the Legislature won’t pass. So, in power/responsibility terms, the executive and the legislature are exactly equal, 50, a decimal point, and two miles of zeros, They have precisely equal power and responsibilities on that issue.
   What that means is that the resolution necessary to have an operating government on July 1 devolves to a political question. Either one side caves between now and then, or government shuts down, and the public has to decide who is responsible and who should pay the political price for the damage and dislocation that occurs.

Managing that calculus is the nub of the next several days.

I’ll look at that issue in my next post.

State-funded Primary Care is a Bad Idea

by Hamilton E. Davis

   For the last few years, the Vermont legislature has been wrestling with a marvelously attractive, utterly pernicious proposal to solve the state’s primary care doctor problem at a stroke by shifting financing of the system to state government. The idea was that the state would levy a payroll tax on employers, and use the money to pay primary care doctors to care for all Vermonters at no cost to individuals.
   The initiative came from Dr. Deb Richter, a primary care doctor who lives in Montpelier and who has been a strong supporter of health care reform for more than a decade. Richter came up with her proposal in the wake of then-governor Peter Shumlin’s decision in 2014 to drop the financing component of the single payer reform proposal he launched in 2011. The cost containment component of the Shumlin project continued and is well advanced today,
   The Richter proposal bounced around for a couple of years, was studied in some depth late in Shumlin’s tenure, and then resurfaced in the current legislature. No one gave it any chance of actual enactment, however, because of the determination of the new Republican Governor, Phil Scott, to oppose any new taxes. The bill forwarding the Richter proposal is all but technically dead.
   The whole exercise is worth examining, however, because the issue of primary care is vitaI to the reform project and the performance of the Legislature in dealing with it in the recent session indicates that important elements of that body still don’t seem to understand it. Both health policy committees, Senate Health and Welfare and House Health Care, supported the UPC bill, despite the fact that Al Gobeille and Michael Costa of the Agency of Human Services testified that the whole thing was bad for the system. The key member of the Legislature to get it right was the Senate President Pro Tem Tim Ashe. Ashe, a Chittenden County Democrat/Progressive, who has taken considerable heat in this space for his posture on reform, effectively steered the whole state-paid primary care scheme into the weeds. He apparently has more work to do with some elements of both chambers.

So, Why is Universal Primary Care a Bad Idea?

   It is worth noting at the outset that the idea of removing financial barriers to Vermonters receiving primary care is a commendable impulse. The difficulties with the Richter scheme are essentially practical ones that arise in a way it would affect the management both of primary care itself as well as the overall system.     
   The central problem with the initiative is that it would damage and possibly kill the state’s health care reform effort, which is moving forward steadily. The centerpiece of the reform project is shifting payment to doctors and hospitals from fee-for-service to block financing, or capitation. That shift is embodied in contracts between a group of providers, acting through a device called an Accountable Care Organization (ACO), and payers, such as Medicaid, Medicare and private insurers, to provide all the care necessary to blocks of patients for a fixed price.
   The underlying principle for that process is the integration of the health care delivery system from primary care to more complex secondary care, much of it in hospitals, and to tertiary care that is delivered in our region by the University of Vermont and Dartmouth academic medical centers. Modern medical care is so complex, and so expensive, that patients need to move seamlessly up and down the intensity ladder in order to achieve the lowest cost and highest quality.
   Carving primary care doctors out of that system and paying and managing them differently from the rest of the system just doesn’t make any sense. An immediate problem is that the carve out would encourage primary care doctors to refuse to attribute their patients to the ACO, and thereby constrain or even block the application of the reform template to Vermont hospitals, which now spend 95 percent of the acute medical bill in Vermont.
   That is not a theoretical concept; it is a practical problem on the ground today. Rutland Regional Medical Center, the second-largest hospital in the state, and the most expensive one on a per capita basis, lies outside the reform project. The reason is that the FQHC in Rutland refuses to attribute any of its patients to the ACO, so OneCare has no fixed price contract with Rutland Hospital.
  The same dynamic is at work in the hospitals serving the Morrisville, Randolph, and St. Johnsbury areas; and similar FQHC reluctance is holding down the participation numbers in the Burlington and Bennington hospital service areas. That could change, of course, and even if it doesn’t, the Green Mountain Care Board is actively considering changing the attribution rules so that patients could be attributed to ACO by area of residence or by receiving treatment in a specific hospital. The UPC idea would still be highly problematic.
   How to manage the whole thing would be nightmarish. The Deb Richter template was based on a panel of 1,200 patients per primary care doc, with the state paying $500 per patient. Richter reasoned that if a doctor’s patients were unhappy with his or her perfomance, they could just leave—vote with their feet. Still productivity could be a challenge. Anyone who doubts that could consider the case of Porter Hospital, which ran onto the financial rocks, mainly because of low work loads by its primary care docs and had to give itself to the UVM system.
   A second critical problem, in my view, is that splitting the financing of primary care doctors from the rest of the system could be very damaging to primary care doctors themselves. Primary care docs have been disrespected in the system, and underpaid as well, for decades. From that perspective, getting a reasonable payment from the state looks like a pretty good idea.
   The problem is that while the payment might look good in Year One, whenever that might be, the years after that are certain to get worse and worse. The larger system, the hospitals and a majority of the total docs, will be able to demand that they get paid an inflation rate near three percent per year. There is, after all, a reason that they get 95 percent of all the acute health care money now.
   Every new penny going to a state funding mechanism for the remaining five percent would have to come through the Legislature’s appropriation process. And there is no way on God’s Green Earth that the primary care docs, on their own, will have enough political weight to match up with the much larger system. The primaries might get a three percent bump in a year when the state is awash in money; but the state is seldom awash in money, and the demands facing the annual spending are ferocious.
   What would be much smarter in practical terms would be to take advantage of the favorable political forces for primary care in the reform environment, and work to get their fair share of that huge main flow of money. They will be able to do that only by embracing the whole integration principle, rather than isolating themselves from it.
   The primary care docs themselves might figure that out on their own, even though it was apparently a mystery to the House and Senate health policy legislators.

GMCB Loses Top Finance Staffer

by Hamilton E. Davis

   Andy Pallito, the top numbers guy at the Green Mountain Care Board, is leaving the Board after just nine months on the job. Pallito will take a finance position at the Community College of Vermont. He will leave the GMCB in mid-March.
   Pallito will become Dean of Administration for the 12-campus unit of CCV, which operates under the umbrella of the Vermont State Colleges. “It was a fantastic opportunity that I just could not pass up,” Pallito said. “And it will round off 26 years of service in Vermont state government.”
   The loss of Pallito, coming as it does in the formative days of the Fiscal Year 2019 hospital budget season, is a serious blow to the Board. The budget process is particularly complex this year because the Board has to integrate its normal regulation of spending for the State’s 14 hospitals with the first full year of OneCare Vermont’s program to shift the financing of health care from fee-for-service to capitation.
   OneCare Vermont, the state’s only Accountable Care Organization, will function as a consortium of doctors and nine of the 14 hospitals that will offer care to roughly 20 percent of the state’s population under fixed price contracts with the State’s Medicaid agency, federal Medicare officials, and Vermont Blue Cross.
   The most important of those contracts is the one with Centers for Medicare and Medicaid Services, which administers the federal Medicare program. Beginning this year and extending out five years, Vermont’s health care delivery system is committed to hitting cost containment targets that are lower than federal Medicare trends across the country. The key element in that equation is spending by Vermont’s hospitals.
   Pallito’s first year covered just the latter portion of the budget year, which begins now with guidance from the Board to hospitals that are drafting their spending plans. Those plans must be submitted to the Board by July 1; and the Board has to announce its final authorizations by Oct. 1.
   Kevin Mullin, the chair of the Green Mountain Care Board, will have to scramble to find a replacement. And there are some indications that it won’t be easy. The decision by Governor Phil Scott to cut three members of the Board’s 28-member staff, and Mullin’s routine acquiescence in it have generated a serious morale problem at the Board. I wrote about that in my last post. (L-link). Mullin has to hope that Pallito is the last shoe to drop, not the first.

Cutting GMCB Staff is a Very Big Deal

by Hamilton E. Davis

  In my last post, I raised the question whether Gov. Phil Scott’s administration could be maneuvering to somehow get rid of the Green Mountain Care Board, whose job is to recast the Vermont health care delivery system. I think the answer to that is no; the administration knows that it cannot do that without causing a politically dangerous mess. I think what it is doing is cutting the bone and muscle of the Board to the extent that the Board can’t accomplish what it was designed to do. And Scott wants to do that without suffering any political damage.
  Scott’s budget team has told the Green Mountain Care Board that it needs to cut its roughly $8 million budget by about $250,000. Budgets get cut all the time, of course, but it is striking how short sighted this effort is. The first thing to understand is that only 27 percent of the Board’s budget comes from the General Fund, which is about $1.8 billion. That means that the quarter million dollar cut to the Board’s budget will save only about $75,000 for the General Fund. In other words, an 11 percent cut in the Board’s already small staff will generate a savings to the General Fund of just four one thousandths of one percent.
  It gets worse. The way the rules operate, the only way the Board can make the Scott-ordered cuts is to lay off staff members. Moreover, the rules dictate that staff members who are on a sort of temporary employment have to go first. In the current case, the three employees slated to lose their jobs aren’t some minor leaguers operating on the fringe of the staff operations; they are highly skilled people who will absolutely be needed to meet the huge challenges facing the Board as it shepherds the country’s leading health care reform project through uncharted waters.
  For example, when Susan Barrett, the chief of staff, and Kevin Mullin, the chair of the Board, testified in the Legislature about the cuts, Barrett said in answer to a question that two of the members on the chopping block had done the major part of the staff work on the Board’s survey of primary care doctor attitudes in the state about reform. This survey resolved some of the most contentious issues surrounding the role of primary care in the state. In fact, the survey blew up a thoroughly malignant effort in the Vermont Senate to drive the Board in a direction it clearly didn’t want to go. 
  The survey was conceived and designed by Jessica Holmes, a Board member whose day-job is as professor of economics at Middlebury College. Important elements of the work, however, were carried out by the staff, and that kind of thing will become more important as the health care delivery system enters a fully elaborated reform phase. 
  There is yet another dimension to this issue. When asked about the whole cut issue, the chair, Kevin Mullin, replied:

  It’s no big deal. We will be able to do the work we need to do with the staff we have left, and we will have been stewards of the taxpayer’s dollars.

  That response ran pretty high on the obtuse meter. An 11 percent cut in an elite, but very small staff is in fact a very big deal, both in the staff’s ability to perform its particularly difficult mission, and in the morale and esprit de corps that animate such a team.
  The morale problem doesn’t lie so much with the staff members who are gone, but with those who are left. The Green Mountain Care Board badly needs the staff experts that it has recruited and trained to a high level; and if they conclude Mullin won’t have their back under pressure then they could just leave—many of them for multiples of the salaries they get today.
  It isn’t clear yet how all this will play out. There is already a bill in the House that would reverse the cuts ordered by the Scotties to the Green Mountain Care Board, and to some other elements in state government . I have no idea yet whether that bill will have legs; far more bills are written in the House than get a hearing, let alone passed. So perhaps the Legislature will step into this issue.
  What is now perfectly clear is that Scott is prepared to make very damaging cuts to a very small body that is managing not just an industry that spends far more than the state budget itself, but produces 20 percent of the whole state economy. The term “false economy” was coined precisely for situations like this.

Does the Scott Administration Want to Kill the Green Mountain Care Board?

by Hamilton E. Davis

   Vermont is now a little over a month into the first full year of its health care reform’s execution phase, and things are moving along fairly smoothly, at least as smoothly as one might expect for such a fraught public policy enterprise. The Green Mountain Care Board has cut the historic rate of annual hospital budget increases in half, and OneCare Vermont is expanding its 30,000-patient 2017 Medicaid base in northwest Vermont to roughly 122,000 Medicaid, Medicare and Blue Cross patients across much of the rest of the state. So far, so good.
   The Legislative session, meanwhile, is in full swing, accompanied by no more than the normal angst. The House Health Care Committee is continuing its efforts to figure out how the system is supposed to work; the Senate is working on legislation to permit importing cheap Canadian drugs, a good idea; and whether to shift all primary care financing to a state tax, a terrible idea that will attract a ton of feel-good support, but which is certain to run into Governor Phil Scott’s core governing principle—no new taxes. None of this activity is directly related to the way the reform project actually works.
   Underneath this relative tranquility, however, powerful anti-reform currents are at work that pose a real threat to the Vermont project. One such current is the lack of effective political leadership for reform in either the governor’s office, or in the Legislature. The second is the reluctance of a significant minority of primary care doctors in the state to accept the proposition that the delivery system needs to be restructured. (That, in fact, is the source of support for so-called Universal Primary Care, now on the table in the Senate). The tiny corps of adepts that constitute my readership will recognize that I have written about the issue of political leadership before; I return to it now because it has moved closer to the surface, and, moreover, because there is a new target—the Green Mountain Care Board itself. That constitutes real danger: the success of reform in Vermont depends on the intricate dance between OneCare Vermont, and by critical extension, UVM, and the Green Mountain Care       Board. Both of those players need to bring their A games every day or the project could be crippled. The hard question now is how to assess the threat…

The Mike Smith Caper

   A few months ago, Governor Scott nominated Tom Pelham, who served as Tax Commissioner in the Dean and Douglas administrations, to fill the vacancy on the Green Mountain Care Board created by the retirement of Con Hogan. Pelham had spent the Shumlin years in the governmental wilderness and during that time he published some commentary on state financing from a fairly conservative perspective.
   In the light of that background, the advocacy group Rights and Democracy urged the Vermont Senate to refuse to confirm Pelham for the Hogan seat. The advocacy group cited three Pelham commentaries in VTDigger and The Rutland Herald; these touched on health care reform, but their main thrust was a critical riff on the spending proclivities of state government, especially the Legislature. I count myself among those who strongly support the Vermont health care reform project, but I could find nothing in any way unreasonable, factually wrong, or poorly argued in these articles. In any case, Pelham is now sitting on the Board and is certain to be confirmed.
   There is no way yet to tell where Pelham will come down on the substance of the issues before the Board. He could turn out to be bent on undermining reform—or not. My inclination is to take him at his word that he supports the All Payer Model, the litmus test in the reform era. The deeper significance of the Pelham issue in the near term is not so much his appointment as some of the reaction to it.
   I am referring here to a column written for VTDigger by Mike Smith, who also hosts a radio program on policy and political issues. (He recently retired from his commentary gigs)  Smith’s direct political experience was as Secretary of Administration in the Douglas administration; in that capacity he was Tom Pelham’s boss. He was also a close colleague of Jason Gibbs, who served in several key posts under Douglas and who now serves as Chief of Staff to Governor Scott. Smith is not just a talking head, Smith is connected. So, it’s worthwhile looking closely on what he wrote. 
   Smith’s argument runs along these lines: the Green Mountain Care Board was created to “oversee and regulate the state’s planned single-payer health care system” and as a means toward that end was empowered to recruit a fully elaborated technical and policy staff. Smith asserts that the death of the financing aspect of single payer has so changed the reform environment that the mission of the Board needs to be significantly recast, and while Smith doesn’t say this directly, downgraded…some of his commenters on Digger interpret this, accurately I think, to mean the Board should be repealed. In fact, there is now  a bill in the House that would repeal the Board, although no action on that is likely. 
   Irrespective of this last point, the real issue is whether the Board is doing what it should be now; in other words, whether Smith’s assumptions are valid. In my view, his assumptions are totally and demonstrably wrong. He has a right to his opinions, of course; and it’s not as though he doesn’t have company. Spend some time in the Senate and House health care committees and you will see very quickly that there is considerable opposition to the reform track the state is on. And it isn’t just in Vermont: much of the national press gave up on Vermont reform when the financing side went away; so did at least some of national health policy community.
   So, Smith and these other policy players are all wrong? Yes, precisely, totally. Herewith the case:
   The first single payer health care system in North America debuted in Canada in 1984. The going-in system was fee-for-service with multiple payers. In their new system, the Canadian national and provincial governments picked up all the costs, and raised the money through taxation. At the patient level, the care was free. The structure of the hospital system remained the same: doctors and hospitals competed with one another and got paid per episode of care.
   In 1984, the Canadian delivery system had excess capacity, more hospital beds and doctor availability than they needed. Within months the huge demand kicked off by the new financing system blew through the excess capacity and the Canadian system began to impose constraints on access to the point where it had some of the worst access in the western world.
   So, when the Shumlin administration built its single payer in 2011, it didn’t start with access, it started with cost containment. The Shumlin plan had two main pillars—cost containment first, and once that was accomplished, a shift of health insurance premiums and other private financing (about half the total cost) to the Vermont tax base. In his early speeches on the subject, Shumlin said repeatedly: “If we can’t get costs under control, we’ll pick up our marbles and go home.”
   In December of 2014, Shumlin picked up his marbles and in 2016 he went home. Importantly, however, the marbles he picked up were the financing marbles—the Green Mountain Care Board kept right on rolling toward cost containment, and so did OneCare Vermont, the state’s ACO. Today, Vermont is closer to achieving sustainable health care costs than any other state in the country. Federal Medicare officials understand that and they are praying we succeed, because health care costs are killing the federal budgets (Medicare) and state budgets (Medicaid).
   That’s why Smith is wrong. He acknowledges that there has to be regulation of hospital budgets, the engine of health cost inflation. What he doesn’t get, or doesn’t want to get for political reasons, is that we still have to move from fee-for-service reimbursement to block financing to get costs under control. Failure to do that will cost Vermonters hundreds of millions of dollars in unwarranted health care payments, and it won’t take long to get there.
   I have suggested above that maybe Smith doesn’t want to see reality in this issue for political reasons. I don’t know Smith and I have no direct knowledge of his motivation, but consider:
   One of the most egregiously inflationary decades in Vermont’s hospital history ran from 2000 to 2009. During that period, nearly every hospital in the state doubled its spending, with no obvious demographic changes. Hospital costs went from $922 million to $1.7 billion, a dollar difference of $756 million, less than half of which was reasonably justified. People got older, of course, but at a tiny annual rate compared to the health care costs.
   The Governor for eight of those 10 years was Jim Douglas. His Secretary of Administration was Mike Smith; his Secretary of Civil and Military Affairs was Jason Gibbs, who is Chief of Staff to the current governor. That administration did nothing to rein in the health care cost engine. In fact, it was the decade of the “oughts” that finally convinced every serious policy person that something had to be done to solve the cost problem. The burden of the Smith column was to suggest that this history did not exist, and that the Green Mountain Care Board has become something of an expensive luxury.
   Maybe this is all coincidence, but in my view, the single most important factor in the political environment for health care reform is the fact that Phil Scott is massively conflicted over it. Other than blocking any new taxes, and the fantasy about turning Vermont into some amalgam of eastern Massachusetts and Boulder, Colorado, Scott doesn’t appear to have any substantive policy ideas of his own. But health care reform is plowing steadily ahead and Scott is clearly befuddled by it.
   On the one hand, he has told the federal Medicare officials that he was “all in” on reform. As far as his own public is concerned, Scott has basically told the people nothing. As his Secretary of the Agency of Human Services, Scott hired Al Gobeille, who, as Chair of the Green Mountain Care Board, did a brilliant job negotiating a ground-breaking agreement with the Feds that is taking Vermont to the forefront of 21st century American medicine. Gobeille may be doing a good job as Secretary, but he has basically vanished from the health care reform scene, despite the fact that he knows as much about it as any of the players at any level. I believe that Gobeille’s retreat from the legislative scene is being driven by Gibbs. The only Gobeille appearance in a long time was his recent testimony before Senate Health and Welfare in opposition to the Universal Primary Care bill, which would require a new tax…so, forget about it.
   At this point, I can sense some skepticism from my corps of adepts. Is there evidence that Scott wants to kill the Green Mountain Care Board? Fair enough. My belief is that Scott himself really doesn't want to do that--it would be too much of a political mess. But I think it's clear that Gibbs does--and that sentiment along represents a serious threat to the Board's ability to do the work it needs to do. The argument for that looks like the following:
    The course of reform depends on the outcome of a delicate minuet between the Green Mountain Care Board, and OneCare Vermont, to shift the financing and culture of the whole medical delivery system. A couple of weeks ago, Scott’s budget guys told Kevin Mullin and the Green Mountain Care Board that they would have to cut from their budget for the state’s fiscal year 2019, which starts July 1 of this year, by $250,000.
   That is a 9.4 percent reduction in one of the single most important pieces of state government. What is more striking is that this cut, which will force the Board to lay off three of its 28 employees, will actually save only $75,000, which comes to just four one thousands of one percent in the $1.8 billion General Fund. That number is so small it will get lost in the rounding of the state budget... A budget cut of just under 10 percent, and a 12 percent reduction in its staff to save four one thousands of one percent—is that really about repairing the General Fund, or is it a transparent political move by Scott to push health care reform even further under the Fifth Floor rug, and maybe provide some surcease from the Gibbs pressure as well. And with Mike Smith operating as a stalking horse for his old Douglas-days partner?
   Draw your own conclusions. Mine should be pretty clear by now. But the core question remains: Will the Green Mountain Care Board be able to continue as the effective leader of health care reform in the state?

   I'll come back to that issue on Tuesday.

What is an ACO, Anyway?

by Hamilton E. Davis

   One of the most severe challenges confronting health care reform in Vermont and the United States is the fact that reform proponents speak a different language from day-to-day English. The essence of reform is changing the way money flows into the system so as to change the economic incentives for doctors and hospitals. People who specialize in health care reform understand that and they have developed ways to talk about it to each other. The problem is they talk to the non-specialists the same way.
   To the press, legislators and the public, the language of the priesthood is incomprehensible. The insiders are industrial-strength professionals. Many have advanced degrees in the field. They spend every day at it, and most of them have for years. The rest of the folks, especially the legislators, are amateurs. Many are intelligent, but they are decidedly not trained; they have no professional staff; they have a governor who is hiding from the reform issues; and the legislators who are specifically assigned to deal with reform directly don’t understand the health policy creole any better than their colleagues.
   Some of that is inevitable: any complex, technical matter can be difficult to grasp easily, or quickly. It is also true, however, that the language of the health reform priesthood has evolved in such a way that it deflects inquiry and thereby masks complexity; and, more importantly, reduces the political pressure that inevitably attends major cultural and financial change.
   Following is the kind of thing you hear when the priesthood talks to the congregation. “We need to shift the financial incentives by moving to alternative payment models…we need to shift from fee-for-service reimbursement to value-based payment…we need to shift from paying to cure people after they are sick to keeping them from getting sick in the first place…we need to focus on wellness, not expensive therapies.”
   That effectively shuts down the instinctive resistance to change: who can object to getting value for what you pay? And who wouldn’t rather stay healthy on the cheap than undergo powerful medical therapies that cost a ton of money and involve getting stuck with needles and sliced up with scalpels and made to take horrible-tasting stuff that makes your hair fall out?
   At that point, the priest, or priestess, is off to the races, laying out the intricacies of ACOs, and attributed lives (which actually has nothing to do with “coverage”), and MIPS and MACRA, and multiple payers versus single payers, and one-sided risk compared to two-sided risk, and how CMS (or CMMI) looks at things rather than how DVHA wants its contracts compared to how Blue Cross looks at the whole hairball. All of which sails right over the heads of the congregation, and leads to the confusion and angst that have hung over the legislature for the last few weeks.
   I believe real understanding has to start with what an ACO is. ACOs are the mystery meat of reform. After seven years of work on this issue, you hear questions in the legislature like: “Why do we have to have an ACO? Will I be covered by the ACO? Should we write letters to patients to tell them they are in an ACO, or would it be better to put a sign to that effect on the doctor’s waiting room wall. Questions like these flummox the professionals because they have no relevance to the real issues.
   So, a suggestion on a new way of talking about an ACO:
   An ACO is just a business device that allows a group of hospitals and doctors to deliver a full range of acute medical services to a block of patients for a fixed price per person. That’s it—fixed price contracts, which is the only way to get health care costs under control.
   It’s not that complicated; it’s the kind of thing that ordinary people do every day. They buy stuff -- lawn mowers, cars, ice cream cones. The stuff has to be good enough, or they won’t accept it. The price has to be right, or they won’t pay it. If a person wants to build a garage, he or she finds a guy with a pickup truck, a chop saw, a nail gun and strong forearms. The buyer makes a deal with the pickup truck guy to build the garage for a specific (fixed) price that both can live with.
   There is an alternate way, however. You can hire the guy for “time and materials.” Whatever volume of supplies the guy buys, at whatever price is most convenient, you pay for. You’re paying the guy by the hour, so the longer it takes him, the more he gets paid. Congratulations. You have the most expensive garage in your neighborhood.
   We have been buying “time and materials” health care in the United States for 300 years, and since 1966, when Medicare and Medicaid put a blowtorch under the demand teakettle, it has been killing us. Before the federal and state governments began paying for medical care for the elderly and the poor the country spent 6.6 percent of its gross national product on health care. That number nationally is around 18 percent, and in Vermont, it’s 20. That is why Americans pay twice as much for health care as do the citizens of other fully developed countries—for worse results.
   Fixed price contracts are, by a very long reach, the best way to turn this malignant tide. Federal law established ACOs as the vehicle to make such contracts possible in a very complex industry. If there is a consensus understanding of what the Vermont ACO is, then the at least the profusion of issues that arise in the legislature’s deliberations can begin to focus on real questions:
   So, how has it worked so far? Are patients included in fixed price contracts getting the care they need? Is there any evidence that patients included in the 2017 fixed price contracts got deprived of necessary care? What is the effect of the new contracts on the cost of care in the state? What are the barriers to expanding the project to meet the federal requirements for Medicare participation…how should we deal with primary care as opposed to hospital-based care?
   There will be an avalanche of such questions, but if there is a common understanding of what the ACO is, at least the forum will consist of a conversation instead of cacophony. And perhaps, slowly, the professionals and the amateurs will learn to talk to one another.
   Trust me, that would be a very good thing.   

A Model for ACO Payments to Primary Care Docs

by Hamilton E. Davis

Note to my readers: the following text is a model showing how OneCare Vermont, the state’s Accountable Care Organization, will pay primary care doctors who participate in the expanded reform effort that debuted at the first of this year. The purpose of the model is to underpin two articles that are not yet written—one on testimony before the Green Mountain Care Board last week by a group of primary care doctors, the other on the issue of how the Green Mountain Care Board is managing the reform effort. I am putting up the model by itself because some of the questions it addresses are already under discussion by the House Health Care Committee. The two fully elaborated articles will be forthcoming.

The Assumptions

   The following is a model showing the potential payments to a primary physician who attributes his or her patients to the ACO, OneCare Vermont. The size of the panel is taken from the research done by Dr. Deb Richter in support of her proposal for universal primary care—1200 patients. The actual panel sizes could range from 600 to 700 on the low end to 2,000 on the high end. The revenue in the Richter plan to support that panel would be $500 per patient, or a total of $600,000 per practice per year. The Richter number does not include payments for mental health and substance abuse treatment. Nearly all the numbers in the model are available from public sources; I have indicated where I do not have a hard number.
   A second assumption is that the model practitioner would attribute half the panel—600 patients—to OneCare. That percentage could vary widely. Those patients would be arrayed across three payers—Medicare, Medicaid and commercial. The spread could be highly variable based on payer-mix in the provider’s service area; and it could vary also by specialty—one practice could have large numbers of Medicare patients, whereas a primary care pediatrician probably would have no Medicare patients. The benefit package was designed by OneCare as part of its budget submission to the Green Mountain Care Board; the Board approved the budget in December. The model numbers would apply to the 2018 calendar year (with one exception noted below).
   A third assumption is that a primary care doc working full time would take home $180,000 per year, That number is a rough median from Web data on primary care salaries in Vermont. The $180,000 number would probably be high for a rural doc with a lot of Medicaid patients; some hospital-based providers might be higher. The remaining $420,000 to a single-doc practice would pay for infrastructure—nurses, clerks, other expenses.

The Compensation Plan

   Step One: OneCare will pay an administrative fee of $3.25 per member per month to primary care doctors attributing patients to the ACO. In the model that is 600 patients. The $3.25 rolls up to $39 per patient per year; for our model practice the total per year would be $23,400. The purpose of that is to defray the cost of reporting necessary data to OneCare.
   Step Two: OneCare will pay primary care doctors a premium of $15 per member per month for each medically complex patient in those practices. That would roll up to $180 per patient per year. OneCare will determine the eligibility of a given patient using an algorithm designed by the Johns Hopkins academic medical center in Baltimore. There is no way to determine how many such patients a given doctor would have. But national data shows that the medically complex proportion of the Medicare and Medicaid patients of an average primary care practice runs to about 16 percent. For Blue Cross patients, the percentage would be just three percent.       
   The payer mix for a given practice can vary widely, of course, but the generally accepted numbers show that about half of acute care is paid for by federal and state governments (Medicare and Medicaid) while the other half is paid for mostly by commercial insurers.
   To get a model figure for the complexity payment, I’ve cut the 600 total attributed patients to 300 (using the 50 percent government parameter). Then, based the national averages, I’ve taken 16 percent of the 300, which is 48 patients. At $180 per patient, our model physician would get an additional $8,640. The private insurance cohort of 300, mostly Blue Cross, would yield just three percent, or nine patients, At $180 per year, Blue Cross patients would yield $1,620. The total complexity of care component would amount to $10,260.
   Step Three: OneCare will operate a Value Based Incentive Fund that will pay a premium based the on the quality of the care delivered by the primary care physician. There is no good way yet to estimate what this program might produce for a primary care doctor. OneCare will use the experience obtained in 2017, but that won’t be known until mid summer of 2018. Based on some conversations with people in the industry I have used a placeholder of $8,000. It is a very rough estimate, but considered conservative.
   Step Four: OneCare will also pay a premium of $10 per member per month, or $120 per year, for those primary care docs who are designated by their complex patients as the “Lead” physician in the management of their care across the continuum of that care. This number is likely to be small for a given doc; there is no way yet to estimate what the experience will be in the system. For a panel of 1200, with 600 of those attributed to the ACO, I’ve used a guess/place holder of 20, which would be an additional $2,400 per year to the physician.
   Step five: One of the most financially important components to membership in OneCare is the federal government program to pay primary care doctors in such organizations five percent more for the care they deliver to Medicare patients. The model uses the Richter proposal. If we cut the panel to 600 and then assume that 200 of those are Medicare and multiply by five percent of that we get $5,000. That benefit would not be available until 2020. A positive wrinkle for primary care docs in this category is that Medicare will pay the five percent bump for all the Medicare patients in OneCare participating practice, even those whose lives are not attributed. An example of such an increment would be Medicare patients enrolled in the Medicare Advantage program run by United Health Care; care for those patients is paid for by United, but Medicare would still pay the five percent bump. For the model, that would double the bump category to $10,000. I have limited this category to $5,000, however, because it won’t take effect in 2018; another reason is to render the whole exercise more conservative.

Total Financial Benefits to Primary Care

Administrative fees    $23,400
Complex care               $10,260
Medicare bump           $5,000 (not available until 2019)
Quality incentive        $8,000 est.
“Lead care”                      $2,400  (guess/placeholder)

Total                                   $49,060

Indirect Benefits

       In the planning phase of reform, primary care doctors in Vermont have made it clear that what they want most, in addition to fair financial reimbursement, is a reduction in the administrative burdens they must bear in the process of delivering care to their patients. That theme has led OneCare, the Green Mountain Care Board, federal Medicare officials, and Vermont’s Medicaid agency to develop a series of steps to ease the administrative burden:

• In the first step of the execution phase of reform, which debuted last February, OneCare and the Department of Vermont Health Access (the state’s Medicaid Agency) negotiated a partial waiver of so-called Prior Authorization requirement in the reimbursement system. “Prior Auth” forces docs to get permission from somebody outside the delivery system to deliver care like X-rays and MRIs. There is a long way to go on Prior Auth—it is still required on drug prescriptions, for example--but the reform apparatus has made a start.
• The Vermont health care reform team—The Green Mountain Care Board, the Governor and the Agency of Human Services-- persuaded federal Medicare officials to authorize the expenditure of $7.5 million for the continuation of the so-called Blueprint program in 2018. Blueprint money basically enables primary care doctors to address the social determinants of care. The extra bump was limited to Vermont because the feds are so hopeful that the state can lead the way to capitated financing for Medicare. Those officials believe that costs in the Medicare program cannot be controlled in the current fee-for-service reimbursement system. Federal Blueprint money has been eliminated in the rest of the country.
• The U.S. Congress in 2015 passed the so-called MACRA legislation. This law was designed to provide both a carrot and a stick to encourage providers to participate in an alternative payment model like the one now being operated by OneCare Vermont. In essence, the new federal law says that if you join the OneCare, the operator of the alternative payment model, you will receive up to five percent more for the care you delivered to Medicare patients last year—with no quality reporting requirement…that’s the bump. The stick is that if you don’t join, you have to do considerable quality reporting to Medicare and if you don’t measure up your Medicare payments can be cut by up to nine percent. The carrot here is both the five percent increase in reimbursement, plus the elimination in the amount of federal paperwork you have to produce to show that your quality is high.
• An important factor in the whole primary care political environment is that the benefits listed above are available not only to independent primary care doctors, but to primary care docs in Federally Qualified Health Centers (FQHCs). FQHCs already get federal subsidies aimed at ensuring the availability of primary care in underserved areas. The FQHCs that join OneCare will continue to receive those federal subsidies, as well as the financial support from OneCare.

Discussion/caveats

   An obvious question is to determine how much of the increased revenue to each doctor is needed to support new demands on the practice, and how much would be an increase in income to the doctor. Participating in OneCare will generate some reporting requirements, but some of that work is already being done now. A rule of thumb in the industry is that one should divide the revenue increment in half, which would mean a $24,500 increase in business expense for each doctor and a $24,500 increase in the doctor’s take home pay. How the new payment system will operate in detail in Vermont won’t be known for some time. A preliminary assessment will probably be possible by mid-summer, when the figures from the first 11 months of 2017 are available. A major source of variability will be economies of scale: a five- doctor clinic would be able to structure support services more efficiently than that of a single doc. Moreover, to the extent that the new payment methodology leads to greater participation in the new new model the pay increase to the doctor would rise also.

Vermont Reform Sails Through Headwinds Into 2018

by Hamilton E. Davis

    Vermont’s health care reform initiative is entering its eighth year in a surreal policy and political atmosphere.
    Born in 2011 as then-Governor Pete Shumlin’s single payer plan, the reform project is on track to reach its most important target—cost containment in the doctor-hospital system in the state. The federal government has tasked Vermont with leading the U.S. to sustainable health care costs based on a shift from fee-for-service reimbursement to capitation.
   After five years of planning, the reform project entered the execution phase in 2017, starting with a contract between the state’s Medicaid agency and OneCare Vermont, the state’s Accountable Care Organization (ACO), to deliver care to some 30,000 Medicaid recipients in northwest Vermont, for a fixed price of $93 million; the ACO is now completing contracts with the federal Medicare Agency and Vermont Blue Cross to expand the total covered population to about 120,000 Vermonters.
   So, given this progress, which is unprecedented in the state’s 40-year cost containment odyssey, why should we consider the reform environment surreal?
   An important reason is a historical one. The original Shumlin plan called for getting costs under control first, and then shifting the private sector portion of the health care bill (about half the total) over to the state’s tax base. When Shumlin bailed on that portion of the plan late in 2014, the political momentum for reform faded away. 
  The reality, however, is that getting costs under control was always a prerequisite for the financing side, and that process is still underway. Indeed, there is nothing to prevent curling back to state financing assuming costs can be reliably reined in. That can’t be accomplished for at least another three to four years, if ever. But getting the costs under control would still amount to a stunning performance that would save Vermonters enormous amounts of money.  
   What’s going on now is that myriad issues that really make no underlying sense are coloring the environment for reform. The following is a sketch of those issues, many of which will play out in the current session of the Legislature.
    My tiny audience, with its exceptional motivational purity and its extraordinary depth of insight, will understand immediately that the sketch lacks anything close to sufficient evidence to compel agreement. Trust me that such evidence is extensive; I’ll expand on each element as the new legislative session progresses. Suspend judgment till that is forthcoming. For now: consider:

• The most critical element in carrying out a major reform project is political support from the leader of the government—in this case, the governor. Since taking office last January, Phil Scott has uttered fewer than a dozen sentences about reform and the content of those sentences is strikingly misleading. In his state of the state address last week, for example, Scott referred to the project as an experiment that his government will continue to evaluate.
     The reality is that Scott has evaluated nothing in the reform arena, and is unlikely to do so in the future. In the first place, it is misleading to talk about the project as an experiment that could simply succeed or fail. The project is where the whole health care delivery system is headed. The only element that is directly up to Scott is the decision by his Medicaid Agency to enroll its recipients in a capitated contract with OneCare Vermont.
     Scott neglected to mention in his state of the state that his Department of Vermont Health Access (DVHA) had already signed such a contract with OneCare to extend the Medicaid portion of the project to most of the rest of the state.
     If you check the Green Mountain Care Board website you can see the actual contract. It shows that the $93,357,767.52 payment for 2017 has been increased by $138,965,645.44 to a total of $232,323,412.96 for 2018. (That spending is split between the federal and state governments.)
     And while Scott does not administer Medicare directly, his all-in support for reform is critical to the federal bureaucrats’ decision to break new ground with OneCare on financing of the politically critical health-care-for-the-elderly program.
     Those bureaucrats were in Montpelier to talk with the Vermont players last summer, and all the reports that drifted out of those closed sessions indicated that Scott had indeed signed on. If he hadn’t, the whole Vermont reform would be headed for a ditch.
      In any event, OneCare’s negotiations with the feds are just about complete and should join the Medicaid agreement on the Green Mountain Care Board very soon. Also very near to completion are the OneCare negotiations with Vermont Blue Cross to enroll a portion of Blue Crosses’ Exchange patients in a capitated arrangement. The total OneCare budget approved by the GMCB last month will run to $620 million or so which is one quarter of the roughly $2.5 billion tab for the state’s acute medical care. That’s one heck of a pilot.
     Scott clearly considers the reform project a live hand grenade, but he can’t hide much longer. Health care constitutes about 20 percent of the whole state economy and dwarfs every other single arena that the governor deals with. He’ll have to tell the Legislature, the public and the press where he stands or he’ll just look silly.
• Speaking of the Legislature, its response to the reform project has ranged from perverse to just plain weird. In last year’s session, the major systemic issue was the Senate campaign to force private insurers to pay the University of Vermont academic medical center no more than they would pay to independent physicians.
     The reality is that such a step is impossible because UVM doctors get paid salaries, rather than fee-for-service, the prevailing method for paying independents. Time ran out on the so-called pay parity bill, but it has been passed by the Senate and still sits in the House Health Committee.
     The underlying driver of the Legislative environment has been an extended campaign by Senate President Pro Tem Tim Ashe, a Chittenden Democrat/Progressive and a few of his colleagues to denigrate the University of Vermont’s academic medical center; their argument is that the UVM system is too big and too domineering, and needs to be reined in.
     The difficulty with the Senate campaign is that none of its members understand how health financing works. The evidence for that is that the Green Mountain Care Board did precisely what they were told to in the pay parity bill—even though the bill hadn’t passed--and it changed precisely nothing. More on that soon…
• With no political management of reform, the Legislature has begun to freelance, always a problem if the people trying to move the system have no real idea what they are doing. The pay parity bill in the last session was an example.
     The current session is likely to see more of it. One possibility is a suggestion by Sen. Chris Pearson, a Chittenden County Progressive/Democrat, that non-profit organizations that get state money be forbidden to pay executives more than Gov. Scott, about $145,000 a year. Such a step would be patently ridiculous: it would decimate health care in the state.
     A second initiative, one that is already gathering some steam, calls for the state to pay for all primary care. There will be lots of noise about that, but it isn’t likely to go far because it would require some sort of payroll tax. The most credible thing Scott ever says is that he won’t accept any new taxes. A more subtle, but actually more important caveat is that cost containment for Vermont rests on integrating its delivery system, and the primary care idea would carve primary care out of the system in operationally important ways. It is anti-integration, in other words.
     Still, the idea can be made to sound good and the concept of integrating the health care delivery system as the key to a cost-sustainable 21st century future is way off the Legislative radar; at least it is now.
• One of the more bizarre currents in the reform political ether is the idea that maybe the Green Mountain Care Board should just be shut down, reconfigured, or emasculated somehow. That threat has been implicit in the contentious back-and- forth between the Board and the Ashe wing in the Senate. But it rose nearly to the surface in a column published recently by Mike Smith in VTDigger. Smith, a top staffer for former Governor Jim Douglas, took the occasion of the appointment of Tom Pelham to the Board to raise questions about the Board’s future, now that the financing aspect of reform is off the table.
     Smith didn’t actually say the Board needed to go, but he certainly implied it, and many of his readers took it that way. Smith has a right to his opinion, but the way he wrote it mischaracterized what the Board is actually doing. One of the Board’s key missions is regulation of hospital budgets, but an even more vital task assigned by the Legislature is to oversee the way that money flows through the system; that function is why the Board is a quasi-legislative body, rather than a quasi-judicial one like the Public Utility Commission.  
     The Smith idea is probably too far off the wall to get real traction, but it’s worth watching because Smith is expressing sentiments that are out there in the environment.
• The Smith thrust illuminates another dimension of the reform environment that is surreal—the treatment of reform by the state’s press corps. Most of the press basically ignores it, probably because it’s very complicated and so becomes a minefield for overstretched reporters. The only organization to actually cover it over the last three to four years is VTDigger, and its performance has been, well, problematical.  I’ve written about that in the past, and I’ll revisit it soon.
• The theme so far has been the surreal quality of the reform environment, but there is one overarching issue facing reform that is fully substantive and potentially a serious drag on the project. That element is the posture of the primary care doctors in the state. I say those doctors are more substantive because they are actually playing a key role in the outcome of reform, as opposed to some of the other players I’ve talked about so far. Phil Scott can hide from the reform issue; the Legislature can carp and maneuver around the edges; the press can wander in the health weeds—all without vitiating the complex dance underway between the Green Mountain Care Board and OneCare as they restructure the delivery system.
    The same is not true of the primary care docs. They are critical because of the provision in federal law that patients can’t be included in an ACO and thereby included in a capitated payment agreement unless they are “attributed” there by a primary care physician. There are about 700 primary care doctors in the state, and a significant number of them refuse to participate in OneCare Vermont.
     The effect of that posture is to block reform at hospitals in Rutland, Randolph, and Morrisville and to limit its scope in places like Bennington and Burlington. The 2017 and 2018 levels of participation in OneCare are fine; in fact, the feds would rather have the Vermont project ramp up slowly, rather than leaping ahead.
     It is also true, however, that the feds will require that the state have a very solid majority of the state’s population in capitated contracts by 2022. Reaching that target may not be possible without more primary care docs participating. That situation is fluid right now, and it’s not possible yet to assess it accurately.
     It’s difficult to come to a clear, overarching conclusion about the reform project at this point. It has no political leadership, but that has been true for the last two years and reform has continued to move forward. The Legislature is restive and massively ignorant about health care complexities, but it is not clear how that will play out; so far it hasn’t actually deflected the course of reform significantly. The press hasn’t been a substantive player to this point, and it probably won’t be unless either the Governor or the Legislature clearly sets out on a new course. That would require, I think, that the Legislature actually repeal Act 48, the foundational 2011 law setting forth the track for reform. I doubt that would happen, but who knows?  
     My intuition is that the current Legislative session will be critical. If the GMCB and OneCare emerge in June essentially unscathed by the forces of opposition then I think reform will have too much mass and momentum to be deflected. If not, well who knows?
     What I hope to give my readers is the best analysis I can for the issues I’ve listed above; and the closest watch possible of all the players over the next four months. Stay tuned.

Milestone: CHAC Abandons its ACO

by Hamilton E. Davis

   CHAC, an organization of federally-supported primary care doctors, announced yesterday that it would abandon its five-year effort to operate its own Accountable Care Organization (ACO) in a challenge to the primacy of the much larger ACO OneCare Vermont, which is spearheading the health care reform effort in Vermont.
   CHAC spent two years negotiating with OneCare about establishing a single, overarching ACO to manage the transition from fee-for-service financing for health care to block financing, or capitation, before walking away from the effort earlier this year.
  The decision Wednesday by the CHAC board does not commit any of its member primary care doctors to participating in any of OneCare’s capitation contracts, but it clears away the single most important barrier to that development. And the CHAC press release asserts the organization’s support for the so-called All Payer Model, the putative structure of the Vermont reform effort.
   The first step in the reform effort is now underway in the form of a contract between OneCare and the state’s Medicaid agency to deliver all the medical services necessary to 31,000 Medicaid recipients in the northwest quadrant of the state for a fixed price of $93 million.
   OneCare recently announced that the reform effort would expand to roughly 120,000 Vermonters as of Jan. 1, 2018. That would include people whose health care is paid for by Medicare and private insurance, as well as Medicaid. The areas of the state involved as of Jan. 1 would grow to include the southern tier of Windham and Bennington counties, as well as some sectors along the state’s border with New Hampshire.
   The coverage is patchy, however, owing to the CHAC effort to maintain its own ACO. As of Jan. 1 there will essentially be no reform in Rutland County, nor in the areas served by Gifford Hospital in Randolph, or Copley Hospital in Morrisville. Under federal law, residents cannot be attributed to an ACO unless referred there by a primary care doctor.
   Nonetheless, the CHAC decision marks a significant milestone in what has become a grinding campaign to recast the health care delivery system in the state. I will assess the new development in greater detail next week, but I am appending here the CHAC press release since I have seen no notice of it in the state’s press.   

For Immediate Release

Contact: Dan Bennett, CHAC Board Chair

(802) 728-2304

October 18, 2017 -- MONTPELIER, VT – On October 18, 2017, the Board of Community Health Accountable Care, LLC (CHAC) decided to terminate its Medicare Accountable Care Organization Shared Savings Program agreement with the Centers for Medicare and Medicaid Services, effective 1/1/2018 and to conclude ACO operations. Vermont’s health centers will continue to work together with the state and their community partners to improve the health of the patients that they serve. This will include continued focus on the clinical goals of Vermont’s All-Payer Model.

“CHAC has always believed that a strong primary care system working with other community organizations is the cornerstone to a healthier Vermont and more effective health care system. CHAC is proud of our record, particularly on behalf of the Medicaid patients we served,” notes Dan Bennett, CEO of Gifford Health Care and Chair of the CHAC Board. In August, the Green Mountain Care Board announced that for the third year in a row, CHAC reduced the total cost of care associated with its Medicaid patients, achieving savings for Vermont’s Medicaid Program. Between 2014 and 2016, CHAC’s average total cost of care (expressed as a “per member per month” average) declined by approximately 5%, from $189.83 PMPM (2014) to $180.53 PMPM (2016). At the same time that CHAC reduced the Medicaid dollars spent on care, CHAC implemented clinical quality improvement guidelines in the areas of Congestive Heart Failure, Diabetes, Chronic Obstructive Pulmonary Disease, Depression Screening and Treatment, Falls Risk Assessment, and Colorectal Cancer Screening, and CHAC demonstrated significant quality improvement on quality of care measures.

CHAC’s Board determined that they would make a greater impact for their patients and in support of Vermont’s All-Payer Model by focusing on local collaborations and continuing their joint work on quality improvement and health reform readiness. Vermont’s health centers and their community partners will continue to meet regularly to develop and implement evidence-based clinical recommendations, analyze data for purposes of health improvement and cost management, and learn from each other’s innovative work. “We have numerous opportunities every day to do good work on behalf of our patients in our respective communities and as a statewide network of health centers and primary care providers,” notes Pam Parsons, CEO of the Northern Tier Center for Health and Vice Chair of the CHAC Board. 

CHAC will be winding down its ACO contracts in the coming months and will ensure an orderly close-out for all 2017 ACO programs, including the Medicare Shared Savings Program.

# # #

When the Only Journalism is Biased Journalism

by Hamilton E. Davis

   In the lengthening chronicle of Vermont’s health care reform project, one of the least remarked yet most important factors has been the performance of the press. It is a sad commentary that press coverage is one of the most difficult barriers that reform has had to surmount.
   There are two basic thrusts to this indictment. The first is that press/media coverage has been not good, bad or mediocre, but, for the most part, simply missing. The underlying reason for that is the now years-long collapse of the newspaper business model; there simply aren’t reporters out there to get the job done. Even with that excuse, however, there has been real dereliction here.
   There are some very solid reporters in the state: Paul Heintz and John Walters at Seven Days; Neal Goswami at the Rutland Herald and Barre Times Argus; Pete Hirschfeld at Vermont Public Radio; until recently, Kyle Midura at WCAX; and until a year or so ago, Dave Gram at the Associated Press. These writers and organizations do an occasional story on health care reform, but not one of them really understands the issue, and they completely ignore major movements in the reform saga, whose importance in both financial and social terms dwarfs most of what they do write about.
   The only news organization that actually covers health care reform is VTDigger, the news web site founded in 2009 by Anne Galloway, a former reporter and editor for the Times Argus. That ought to ameliorate at least somewhat the lack of interest in the rest of the press corps, but it doesn’t. For the Digger coverage is badly skewed; it routinely reports material that supports a specific narrative, and ignores material that runs contrary to that narrative. Digger’s stories have regularly flouted journalism’s most basic rule—fairly reporting both or even multiple sides of a story. Unbalanced journalism like Digger’s is particularly damaging to public policy when there is no other coverage at all.
   What is the evidence for such an indictment?

Count One

   In my view, the evidence has been piling up for the last three years, but by happenstance an amazingly clear instance showed up just a few weeks ago, on Aug. 28. It’s worth starting this exercise by looking at the VTDigger story that ran that day under the headline “Regulators may tie pay parity to hospital budget process.” You can read it at this link, or Google it yourself.
   The story was written by Erin Mansfield, and I want to make it clear that my opinion about the quality of Digger’s journalism applies only to Mansfield’s reporting on health care, not to the journalistic work on other topics by either Mansfield or other Digger reporters. I also want to make it clear, however, that the responsibility for egregiously bad reporting lies not just with the reporter, but with the top editor, Anne Galloway. Galloway has backed Mansfield’s health care reporting every step of the way.
   The top of the pay parity story illuminates the way bad reporting can skew an issue to the point where it disconnects completely from reality. The story opens with a sketch of the narrative that Mansfield, along with several of the players in the health reform sandbox, have worked hard to establish over the last few years.
   The principal villain in this narrative is the University of Vermont’s health care network, which is based on the UVM Medical Center in Burlington, and includes its partner, Central Vermont Medical Center in Berlin, and Porter Medical Center in Middlebury, which is in the process of joining the UVM network. The network also includes three hospitals across Lake Champlain in New York. (The New York issue will be the second count in the indictment). Lesser villains include OneCare Vermont, the Accountable Care Organization established by the UVM network and Dartmouth-Hitchcock, the academic medical center just over the New Hampshire boarder; Blue Cross, which has been complicit in steering too much money to UVM; and the Green Mountain Care Board itself, which has been supine in the face of UVM and OneCare’s power and has dragged its feet on legislative demands to cut UVM down to size.
   The good guys in Digger’s narrative are HealthFirst, a small group of independent physicians, whose executive director Amy Cooper, has led the HealthFirst assault on UVM; Sen. Tim Ashe and some of his Senate colleagues, who have argued that the future of Vermont health care depends on independent physicians; BiState Primary Care; and its close partner, Community Health Accountable Care, which is comprised of most of the Federally Qualified Health Centers in the state—groups of primary care doctors that get financial government help to keep them in place, mostly in rural areas.
   Those are the players and that is essentially the narrative that Digger has sought to establish. Look at the article on pay parity, which means paying academic medical providers less and other providers more.
  The subject of the Board discussion was “how to reduce disparities, which independent doctors have been seeking to do for years,” Mansfield wrote. The majority of independent practices are in Chittenden County “where many are either closing or selling to the state’s largest hospital, the University of Vermont Medical Center.”
    And: “HealthFirst has said doctors are often paid 250 to 350 percent more when they work for academic medical centers. The organization says the disparity is pushing doctors to sell or close their practices.” These numbers are completely bogus, because Blue Cross doesn’t report fees for professional services and overhead or facilities separately.
   As for the Board, Mansfield writes: “The Legislature has been passing laws for about three years in hopes of narrowing the gap, but lawmakers complained in April that the board has not done enough to implement changes.” That’s the Digger narrative, and here’s where the specific count of journalistic malpractice occurs:
    The August 28 Board meeting was held for the purpose of laying out the Board’s research project on pay parity, which showed that the entire narrative was simply rubbish. The grounds for that was not simply an array of contrary opinions by this authority or that, but was rather the findings of an unprecedented survey of doctors in Vermont.
   The survey, which you can read at this link, was designed by Board member Jessica Holmes, an economist on the faculty of Middlebury College, and reported the views of 404 Vermont doctors. Those views were crystal clear. They don’t care very much at all about the disparity in payment rates.
   What they really hate are the administrative burdens of independent practice. They also dislike the Medicaid reimbursement rates; and they worry about how reform models might affect their practices. They also worry about the certainty of their incomes, not the size of them. And so far from being pushed to sell out to UVM or giving up practice altogether, the great majority plan to continue practicing just the way they do now.
   As the report said, after summarizing physicians’ dislikes about the medical practice landscape in Vermont: “Even with these frustrations, most clinicians plan to continue practicing in the coming years as they are today.”
   There is definitely a move to consolidate practices, and the claim by players like Ashe and HealthFirst is that the trend is driven by a combination of rapacious acquisitiveness on the part of UVM, along with the pay differential. However, what the survey showed is that the consolidation movement has little or nothing to do with differential reimbursements to UVM but is simply a local manifestation of the same trend that is going on all over the United States. I wrote a lengthy report on the survey on my blog, A Vermont Journal, under the heading “GMCB Survey Blows up Ashe Argument.”
   The survey was a striking departure from normal regulatory practice. It was designed, as I said, by Jessica Holmes, a Yale-trained economist; it was carried out very rapidly by the GMCB staff; and it had a very high response rate for such endeavors—400 of the roughly 2000 doctors in the state. It seemed to me to be close to peer-reviewed technical journal quality. And it absolutely zinged the whole Ashe, HealthFirst, et. al. campaign.
  Anyone who seriously cares about what happens to the Vermont health care system would benefit by looking at the whole thing. You can read the survey itself on the GMCB web site. You can also read my report on my web site at this link. See whether you think I got it.
  My point here, however, is about press performance. And the key takeaway there is simply this:
   The Digger story never mentioned the survey.
   There is no journalism theory on this planet to justify a performance like that. Mansfield often goes in and out of meetings, and an apologist for Digger might suggest that she simply missed it. The fact is, however, that following the staff description of the survey, the Board members spent a goodly length of time discussing how to react to it. And Mansfield’s story carefully picked its way through the discussion, working hard at reconciling their comments with her narrative, and ignoring the striking difficulty the Board members had in trying to figure out what to do in light of the survey findings.  
   The situation was laid out clearly by Holmes herself. The survey was meant to try to comply with the legislature’s insistence that the board deal with disparities in pay. Holmes said there was no question the claims about damage to the system from them was disproved by the survey itself. The problem, she said, is that while the sentiment of the Legislature is clear, trying to drive changes in the way insurance companies reimburse doctors and hospitals is very complex, and potentially very expensive.
   Moreover, the Board needs to keep in mind that the whole thrust of Vermont reform is to shift from fee-for-service reimbursement to block financing, or capitation. The first contracts in that effort have been in place since February, and the project is on track to expand in 2018, and the whole point of the Vermont reform is to render fees for specific services moot.
   It’s a house of cards, she said. It might be better not to monkey around with it.
   Con Hogan, who retired from the Board a week or so ago, said he agreed with Holmes on that point. He said he wouldn’t want do anything that would interfere with the movement of independent doctors into OneCare Vermont, the Accountable Care Organization that is the vehicle shifting from fee-for-service financing to capitation.
   Board member Robin Lunge also sounded amenable to such a strategy.
   But then the chair, Kevin Mullin, stepped in. “That’s just not going to cut it,” he said of the idea of bypassing the problem of trying to tell commercial insurance carriers how they should pay providers still operating under fee-for-service. That was the quote Mansfield needed to drive her narrative, which supports the Senate’s effort to support independent physicians.
   There is nothing basically wrong with that—Mullin’s view is critical and needed to be reported. The problem was that in the Digger story no one could know about the survey that so severely undermined the argument made by Ashe and the Senate. That’s biased journalism. It could go straight into a journalism textbook.   

Count Two

    In an issue that arose out of this summer’s hospital budget hearing, Digger jumped at the chance to take an easy shot at UVM for its management of the New York State segment of its network. UVM owns three hospitals in New York; the largest is in Plattsburgh; the others are in Malone and Elizabethtown. A fourth, a small hospital in Ticonderoga, will down-size to a clinic and be managed as part of the hospital in E-Town.
   Two of the hospitals have lost money in the last couple of years, and Digger began to pursue the question of whether UVM had bailed them out, and in the process sent Vermont money to New York. Is UVM using our money to subsidize New York, was the question. Digger ran three stories on the issue, with the theme that UVM is apparently using Vermont money to bail out the basket cases to the west. A subtheme was the proposition that UVM was hiding the facts from the public and the Green Mountain Care Board. They got a boost from Kevin Mullin, the chair of the Board, who bought right in to the narrative.
   The first story was straightforward enough, laying out the financial problems that had plagued the Plattsburgh and Malone facilities since before UVM got involved; and reporting Todd Keating, the network’s financial officer, comments on how UVM would help the New York units to improve, but would not “subsidize” them.
   A week later, however, Digger ran a second story to the effect that UVM was transferring money to New York hospitals. Keating was “backtracking on recent statements about whether the network’s flagship hospital transfers money to hospitals in New York,” the story said. UVM had sent $7.5 million to Plattsburgh to cover a budget shortfall.
   In the wake of all this back and forth, Marc Stanislas, member of the UVM network’s finance team, provided the Board with a detailed analysis of all the money transactions between the Vermont and New York elements of the UVM network. It was the only hard data that exists on this tempest in a teapot and it fully illuminates the issue.
   The spreadsheet showed that by any measure, it is New York that is supporting Vermont financially, rather than the other way around.
   By far the most important datum is the $180 million that New York patients send to the UVM network for treatment at the UVM Medical Center and associated network units. That money pays for a significant piece of the UVM network’s fixed costs; it also enables UVM to provide a wider array of specialty services than they might otherwise be able to afford.
   The Digger stories, however, focused more on the much smaller internal financial transfers. That analysis is instructive, too. The Stanislas analysis covers the actual spending for fiscal years 2015 and 2016, the projected spending for 2017 (the current year), and the budgeted spending for FY 2018, which starts Oct. 1. It looks like this:

   So, there you have it. Over the four year period of the inclusion of New York’s three hospitals in the UVM network, a flow of more than $100 million to UVM, a huge plus in itself. And then there is the $180 million that will flow into UVM coffers in the coming fiscal year.
   Pretty much disposes of the whole “Vermont is subsidizing failing New York hospitals” issue.
   You won’t read anything about that in Digger, however. Doesn’t fit the narrative.

####

GMCB Survey Blows Up The Ashe Argument

by Hamilton E. Davis

      There has been a vacuum of political leadership of health care reform in Vermont since early in 2015, when the last of former Gov. Peter Shumlin’s credibility on the issue slipped away. The only effort to fill that gap has been mounted by state Sen. Tim Ashe, the Chittenden Democrat/Progressive who chaired the Senate Finance Committee in much of the design phase of reform, and now leads the Senate as President Pro Tem as we enter the execution phase.
  Ashe’s effort, which runs directly counter to the reform design adopted by the Legislature in 2011, is based on a straightforward, fairly simple argument. It runs essentially like this:
   The health care system in Vermont is now dominated by hospital-based doctors, especially those at the University of Vermont, but its real future should lie in building the strength and influence of independent physicians. These physicians now get paid less than their academic counterparts for essentially the same services, and because of that disparity, many are retiring or leaving the state. That trend must be reversed if the Vermont system is to thrive in the future.
   The Ashe theory is invalid on virtually every dimension normally considered by the health policy community, but it is very powerful in Vermont, for several reasons: one is that it appeals to the common American view that competition is the answer to all issues of cost containment; another is that it invokes natural sympathy for the David-versus-Goliath aspect of the case; still another is the near- total absence of competent press coverage that should be a natural corrective to political fantasy.
   The single most important factor, however, is the total success of opponents of reform to paint the University of Vermont as a malignant influence on health care in the state. That argument has been pressed hard by Ashe and some of his Senate colleagues; by some of the primary care community in the state, and by VtDigger, the web news site that carries out the only press coverage of health care reform.
   A result of this dynamic is that the Ashe plan, if I can call it that, dominated the 2017 legislative session. The only reform issue considered, or even discussed, by lawmakers was the effort to reduce or eliminate any payment differential by insurance carriers to academic physicians and independents.
   Which brings us to the Green Mountain Care Board. The Legislature (the Senate, really, because the current House has no visible presence on health care reform) demanded that the Green Mountain Care Board adopt as its principle thrust the so-called pay parity issue. The Board has utterly failed to do its job on this issue, the Ashe argument ran, and they better get it solved now and provide an answer by Oct. 1.
   In response to these pressures, the Board carried out a near journal-quality research project in a three-month period—and simply blew the whole Ashe fantasy to smithereens.
    I have never seen anything quite like it. It was sort of--actual science, which few government bodies ever attempt. The architect was Board member Jessica Holmes, the Yale-trained economist whose day job is teaching at Middlebury College. Holmes designed a survey of doctors in the state and got 404 responses. The key takeaway was that the pay disparity issue at the center of the Ashe theory was, at best, a minor issue.
   The Board’s staff presented the survey findings Board members at their meeting on Aug. 28. The following were the “Takeaways” from the survey listed in the report:

1.      Independent clinicians like the autonomy and flexibility that running their own practice provides while employed clinicians like not having to deal with the burden and high costs of running their own practice.

2.      Both independent and employed clinicians are frustrated by the administrative burdens.

3.      Independent clinicians identify the uncertainty of their income as a frustration whereas employed clinicians identify the level of their income as a frustration. (emphasis is in the report)

4.      Whether independent or employed, the greatest threats to practicing in Vermont are seen to be regulatory/administrative burden, health care reform payment models and Medicaid reimbursement.

5.      Even with these frustrations, most clinicians plan to continue practicing in the coming years as they are today.

   Pay particular attention to four and five. The problems facing independent docs are paper work, potential changes in their industry structure, and the uncertainty—not the level—of their payments. And so far from leaving the state, most of them aren’t going anywhere. To the extent that some independents decide to affiliate with hospitals, it’s basically to deal with those problems, rather than resentment about pay disparity with the UVM network.

   The data looked like this for independent physicians:

Frustrating factors:
Administrative burden                    68 percent
Uncertainty of my income              49 percent
Burden of running own biz.           46 percent
Technology problems                     30 percent
Level of my income                        22 percent
Responsibility for practice costs    21 percent
Long hours                                      21 percent
Limited time with colleagues         9 percent

A slightly different cut at it:
Greatest Threats to Independent clinicians:
Admin burden                          44 percent
Health reform models              34 percent
Medicaid reimbursement         33 percent
Commercial reimbursement    31 percent

   That last figure is the only one that gets at what could be the Ashe theme. But Holmes said in the interview that the burden of the survey is that recasting the commercial fee-for-service rates would have no chance to affect the outlook for independent physicians in the state.
   Fascinating. Ashe and his allies in the Senate are wearing no togas, at all.
   That wasn’t the end of it, however. The Board members, having heard a staff presentation of the survey findings, discussed it at length. And in the process disclosed the political tensions that lie at the heart of health care reform.
   Jessica Holmes led off the discussion by suggesting that since the survey had shown that the pay discrepancy was not a major factor for independent physicians, and further that trying to regulate commercial payment rates was highly complex and could easily have unintended consequences; and still further, that since the state is already moving toward a system in which reimbursement by rates is already giving way to block payments, that it might be wise not to “monkey around with it…this is a house of cards.”
   Con Hogan said that he agreed. “I would not want to do anything that would get in the way of the ACO,” he said. He was referring to OneCare Vermont, the Accountable Care Organization that is the vehicle for moving from fee-for-service to capitation. Robin Lunge also seemed sympathetic to the Holmes suggestion. But then the Chair, Kevin Mullin, stepped in.
   Deferring action until more of the system is under capitation “is just not going to cut it,” he said. He asked the staff to reread the “statutory charge” from the last Legislative session, which directed the Board to take action now to reduce or eliminate the pay differential. That pretty much derailed the Holmes suggestion, at least for now.
   If the survey was an extraordinary development in a complex situation, so was the reaction to it. The whole Ashe campaign is wrong-headed, but he still controls the Senate. So, the survey threw into sharp relief a critical question: what happens if the Legislature essentially tells the Green Mountain Care Board to abandon the shift to capitation and turn back to fee-for-service? It was illuminating in this regard that when Mullin asked to have the statutory charge read, neither he nor anyone else on the Board thought to note that the recent legislative directive is not the only one.
   The far more important charge by the Legislature is the one issued in Act 48, the original health care reform legislation. That charge was to get the system to sustainable costs by moving to capitation, and overseeing the necessary restructuring to meet that goal…directing commercial carriers to pay providers in a certain way does nothing to further the real reform project.
   The Board discussion of the survey does not conclude its management of this issue. The staff and the Board members will continue to mine the survey further and could add to or modify their conclusions before they submit their report to the Legislature on Oct. 1.
   Still, the survey moved the needle on the reform project. For the first time in two years there is hard evidence to show that anti-reform, pro fee-for-service argument is fatally flawed. How much effect that evidence will have on the reform project, however, is still impossible to tell.

                                                           ####

The Salary Issue: Comparing Apples to Trucks

by Hamilton E. Davis

  In an earlier post I described the shift now underway from the theory of health care reform in Vermont to the practice thereof--planning giving way to execution. To me, the execution is problematical for many reasons, but one of the most troubling, and the one almost never remarked, is the performance of the state’s press corps. The latest example of that is now before the public in the form of stories about the salaries paid to executives of non-profit hospitals.
    The flash point of the current stories is the disclosure that John Brumsted, the Chief Executive Officer of the University of Vermont’s health network, was paid $2.2 million last year, based on the latest federal reports. The weekly newspaper Seven Days used the Brumsted salary, along with those of the other Vermont hospital CEOs to raise the question: “How Much Should Nonprofit Hospital CEOs Earn?”
   The story needs to be read in the light of a years-long campaign on the part of several players—the Left in the Legislature, some smaller hospitals, and some independent and primary care doctors—to disparage UVM as a dominating and nasty player in the health care community. The factual underpinning to that effort is bogus, but it has been effective.
    That effect is illustrated by the Seven Days story. While the story itself is competently reported and written, the framing of it—using the non-profit community in Vermont to assess whether UVM’s financial structure is justified—is simply preposterous.
   As the story says, the average leader of a non-profit in the state makes $83,000 per year. So, the idea that one of those non-profits could pay $2 million per year is shocking, unbelievable, who could credit it, the horror, the horror. Okay, this is comparing apples to tractor trailers. The average non-profit in Vermont is tiny; it has a handful of employees; and while many of those organizations do very good work and are an ornament to the state,they have no relationship to the UVM health network.
   Brumsted runs the biggest and most complex organization in Vermont. It consists of the UVM Medical Center, Central Vermont Medical Center, and is now integrating with Porter Medical Center in Middlebury; it also includes hospitals in Plattsburgh, Malone and Elizabethtown, New York. Nothing like that size and complexity exists in Vermont.  
  Every day, Brumsted has to manage an organization with a $2 billion budget and some 12,000 employees. He is responsible for the delivery of nearly 60 percent of all the medical care available in Vermont. And all of the most sophisticated, tertiary care in the state, as well as northeastern New York. Moreover, he has been the driving force behind the Vermont project to shift the reimbursement system in health care to block financing, the key to getting costs in health care under control. That is attested to by the federal government’s health management officials, who are asking that Vermont show the way to the rest of the country. UVM is willing to set hard spending targets within the Green Mountain Care Board caps--and guarantee to hit them. 
   There's more. The UVM system is often derided as more expensive than the rest of the hospital system in Vermont...the fact is that UVM is less expensive than the rest of the system on a cost per capita basis, the only metric that matters in getting costs under control.  
   So, is Brumsted’s salary too big? Who can say? The reality, however, as the
Seven Days story notes, is that Brumsted’s salary is routine in a national context. In the long run, therefore, Vermonters will have to decide whether they want a national class health care facility available in the population center of the state—or not.
   If they want it, they will have to pay for it. And it’s not just Brumsted that will get paid the rates prevalent in a national market. If you are going to manage a two-billion-dollar budget, you’re going to need a national class finance guy like Chief Financial Officer Todd Keating, and if you don’t want to pay high six figures you’re not going have him. If you need to recruit, retain and get high quality performance from 800 to 1000 doctors you’re going to need somebody like Chief Medical Officer Dr. Steve Leffler, and you’re going to have to pay him, too….
   Looked at in this context, the answer seems obvious: The UVM medical system is essential to Vermont’s economy, and to the quality of its society. If Vermonters decide they want to downgrade UVM, they will be able to do it. But they can then start traveling to Boston or New York to get care for the most difficult and often life-threatening problems. If they do that, the cost will be twice as high, not to mention how difficult it would be for lower and middle income people to access tertiary care at all.
   The problem, of course, is that many of the players don’t look at it that way. No one can expect the ordinary Vermonter to relate to a two-million-dollar salary. What is striking is that many of the central players in the health reform domain have been in the forefront of the denigrate-UVM campaign. One has been HealthFirst, the small organization made up of independent primary care and specialty care doctors, which has routinely testified to the legislature that the UVM system has been lying about its organization, as well as claiming UVM’s quality is bad. There is no evidence to support those claims. Another is the Champlain Valley Area Agency on Aging, whose chief told the Legislature that the problem with the Vermont health care system is that the “big fish is gobbling up all of the food.” There is likewise no evidence for that proposition. 
   A third, arguably the most important, is the Vermont Senate, which has been led into an anti-UVM posture by Sen. Tim Ashe, the Chittenden County Democrat/Progressive. Ashe has regularly promulgated the too-big, gobbling up theme.
   None of this means that UVM is beyond criticism; but much of it is simply wrong headed. Seven Days ran a cover story a couple of years ago arguing that the UVM Medical Center was just way too big and domineering, laying the foundation for the “gobbling up the little fish” theme. That story came at roughly the same time that UVM’s real and very serious shortcoming—the access problem posed by long wait times for elective services—was becoming clear. The real problem, in other words, was that the Medical Center wasn’t too big, it was too small…
   In any event, the public in Vermont gets nowhere near enough information from the Vermont press corps to begin to understand the stakes in the reform issue. A major reason of course is the general collapse of journalism generally owing to the fragmentation of its audience by the Web. In the light of that, it’s important that whatever coverage there is needs to be balanced, and we are not getting that. Not even close. That indictment runs across the board.
   Example: 
   The day after the CEO salary issue roiled the reform environment, Brumsted and his executive team spent four hours testifying before the Green Mountain Care Board about the UVM system’s plans to completely rework the way health care will be delivered and financed in its service area. That plan is the leading edge of the effort to render health care affordable not only in Vermont, but in the United States as well.
   Maybe it will succeed, maybe it won’t. But the readers of Seven Days won’t know anything about it all. Seven Days was nowhere to be seen. Neither was the rest of the press corps, the wire service, the major newspapers, the electronic media. The press drops in on an occasional health care reform issue, but there is no reliable coverage at all.
   The single exception to that conclusion is Vermont Digger, which delivers the only consistent and aggressive coverage on health care reform in the state. The problem with Digger is that its coverage is nowhere near balanced. 
   I'll get to that issue next.

Can Reform Succeed in Vermont Without Political Leadership? - Part 2

by Hamilton E. Davis

   One of the most dispiriting things about the recent course of health care reform in Vermont has been the loss of political leadership for the project. The technical aspects of reform are in excellent shape, but considerable opposition lurks out in the delivery system and in the political arena, and the most effective way to manage that is to talk about the issues candidly. That is not happening now, which is a threat.
  On the surface, the reform machinery continues to chug along. The Green Mountain Care Board is now analyzing the Fiscal Year 2018 hospital budgets that begin Oct. 1; and those budgets are in better shape than they have ever been. The state’s Medicaid agency is negotiating with OneCare Vermont, the big Accountable Care Organization, to extend five fold the number of Medicaid recipients covered under fixed price contracts. The federal government, meanwhile, is preparing to move a piece of the Medicare population to OneCare on the same fixed price basis. Vermont leads the country in the campaign to wrestle health care inflation to a sustainable level.
   Yet, that progress is mostly the result of momentum from the earlier stages of the project when the architecture for the project was being designed and put into place. Now, we are entering the very difficult execution phase of the project and we are doing so with an entirely different team on the field. We have a new governor and executive branch health care team; we have new leadership in both chambers of the Legislature. And the Green Mountain Care Board has turned over its membership almost completely.
   One result, it seems to me, is that we have lost the ability to communicate about health care in any effective way. The new governor, Phil Scott, a Republican, has had basically nothing to say about the health reform project he inherited from his predecessor Peter Shumlin. On the key issue involved—the shift in reimbursement from fee-for-service to capitation—Scott said shortly after taking office that the first step then underway in the northwest quadrant of the state was just an experiment and that we could dump it in the fall if it didn’t seem to work.
   In that early statement, Scott didn’t mention that the state, the Green Mountain Care Board, and federal Medicare and Medicaid officials had already signed an agreement in the fall of 2016 to extend capitated reimbursement to a portion of Medicare population as of Jan. 1, 2018; an implicit part of that agreement was that the Vermont Medicaid agency planned to increase the Medicaid population under a capitation contract in 2017 significantly in 2018.
   There have been some indications recently that he will sign on more fully to an expansion of the project in 2018, but he has never made it clear to the public where he stands on it. In the political world, no person is more important than the Governor and no policy initiative, particularly one as vital as health care, can do well if he isn’t prepared to assure the public that it is a good thing. One of the most common and effective defenses for falling short in the health reform project is failing to understand it. That excuse is not available to Scott. He almost certainly has but a shaky grasp of reform complexity, but he has three of the best policy experts sitting in the upper reaches of his administration—Al Gobeille, who lead the Green Mountain Care Board for the last few years and is now Scott’s Secretary of Agency of Human Services; Cory Gustafson, who managed reform in the state house for Blue Cross; and Michael Costa, the financial wizard who handled the financial dimensions of reform for the Shumlin administration…Scott could take a solid position on reform, but nothing he has done or said so far has anything to do with leadership.
   The Green Mountain Care Board is doing its basic job, but it doesn’t actually say much of anything about the difficult issues of refashioning the delivery system. That is understandable because two of the five members—the chair, former state senator Kevin Mullin, and Maureen Usifer—have been in place only since mid May. My impression is that Mullin is both tough and smart and he is coming up to speed very rapidly. But there is no way to tell yet whether he will choose to take a politically active role in explaining the complexities of reform to the public, the Legislature and the press.
   For its part, the legislature has basically split on health care reform. The House has not played a decisive role in the issue, content to try to keep up with developments but not trying to affect the course of reform in anyway.
   The main legislative activity has taken place in the Senate, which has been very active in trying to affect the course of reform. Unfortunately, that effort has headed in precisely the wrong direction to the point where the Senate at this point should be considered a potential barrier to reform. That’s just my view, of course, but it is noteworthy that none of the major players have anything to say about it. That shortfall is exacerbated by the nature of the press coverage, or more accurately, lack of coverage. (That will be the subject of Part 3 of the series)
   The effect of that is to open the way for reform opponents within the doctor-hospital community, and within the Legislature, to frame the issues so as to support their positions. The central pillar of that position is the claim that we ought to stick to fee-for-service financing and oppose the kind of system integration necessary to enable capitated financing.
   There is no medical merit to those claims, but they are certainly understandable, given that the kind of shifts necessary to effectuate reform will have a powerful effects on the financial flows through the system, as well as the culture in which medical care is delivered. The health policy community, as well as the federal government, know the change has to be made, but that doesn’t mean the doctors and hospitals involved have to like it. And many of them don’t.
   I’ll go into the opposition from some doctors and hospitals in a future post. For today, I am going to focus on the Senate, because its opposition has no policy justification and no real political rationale either.
  It has become obvious over the last couple of years that when the reform legislation passed in 2011, nobody, or almost nobody, in the 180 member Legislature really understood what he or she was voting for. That’s very often true in legislatures, particularly those like Vermont, which have part time office holders with no individual staffs. Moreover, the health reform legislation was incredibly complicated to the point where I would assert that even the architects of reform, like Wallack and Kimbell, never fully grasped how gnarly it would be to go all the way to a sustainable system.
  Still, even on complex matters, there is usually a handful, maybe a small handful, of members of the Legislature who make an important issue their own, who work at it very hard, and for the most part, “get it.” When I was in the Vermont House in the early 1990s, one of those was Paul Harrington, now the executive vice president of the Vermont State Medical Society. Harrington was a Republican, but he was the only one that Ralph Wright, the powerful Democratic Speaker of the House, trusted to handle nasty, complex little devils like, say, an insurance bill. Harrington would be working by five a.m. every day to master the bill, and when he said it was ok to pass, everybody voted for it. Most never read it. I know I didn’t.
   Another example: when the Vermont Supreme Court dumped school financing reform into the Legislature, two Democratic members of House Ways and Means, Paul Cillo and John Freiden, made the issue their own, and they designed and managed the reform bill to passage. They knew every nuance and number possible—“Paul, what will be the effect on the property tax rate in Brownington?” A legislator didn’t need the executive branch. He or she could get anything needed by asking John or Paul in the cafeteria line…
   Nothing like that has happened with Health Care reform. Which isn’t because the issue was ignored. The House set up a committee just to deal with health care reform. The Senate dealt with the bill in Senate Health and Welfare and Senate Finance. The two chambers also established a joint committee called the Health Reform Oversight Committee (HROC)—dubbed H-Rock in the state house. H-Rock consisted of the chairs of the two policy committees—House Health Care and Senate Health and Welfare—and the four “money” committees--House Ways and Means, House Appropriations, Senate Appropriations and Senate Finance, six in all.
   I have sat through interminable meetings of the H-Rock group over the last two years and I have yet to hear so much as a syllable indicating the members understood health care reform at all. The House committee and the House as a body have basically had no effect that I can see on the trajectory of the reform effort. The chair of the House committee over that time has been Bill Lippert, a Democrat from Hinesberg. Lippert made his bones as an effective chair of House Judiciary, but he clearly struggled when then-Speaker Shap Smith gave him the health reform committee. He appears to be coming up to speed now, but his committee hasn’t weighed in on the problems of the execution phase of reform…
   About a year and a half ago, I called the members of the H-Rock to solicit their views on how reform was going. The result was troubling—they didn’t have any. Mitzi Johnson, then chair of House Appropriations (now Speaker), brusque and candid. “I leave that to the policy committees,” she said. Bill Lippert didn’t call me back, but in the H-Rock meetings he made no secret of the fact that he was trying to “get his arms” around the subject. Jane Kitchell, chair of Senate Appropriations, a veteran legislator, was working hard at it, and her questions to the bureaucrats were often far more pointed than anyone else’s, but she didn’t have a real grasp of the subject. (She also didn’t get much help from the bureaucrats, but that’s another story.) Janet Ancel, chair of House Ways and Means, was also working at it, but her knowledge only went a couple of questions deep. I gave up before reaching Sen. Claire Ayer, chair of Senate Health and Welfare. I sat through some hearings of her committee though, and her grasp seemed superficial.
   That left Sen. Tim Ashe, the Democrat from Chittenden County, who was chair of Senate Finance and is the new President Pro Tem of the Senate. As far as I can tell, Ashe is the only member of the Legislature who is really trying to play an active role in how reform actually goes forward. The problem is that what he is doing makes no sense at all. In fact, Ashe represents one of the two or three most dangerous threats to reform as we move into the execution phase. Here’s why:

• Keeping fee-for-service payments to independent doctors would simply retain the system that has been place since World War II. For more than half a century, that system has generated huge increases in health care costs, from roughly six percent of the Vermont state product to 20 percent today. The whole point of reform is to cut that rate of inflation.
• The essence of the strategy adopted by Legislature was to assign the Green Mountain Care Board the task of overseeing a reorganization of the doctor-hospital system so as to permit the shift from fee-for-service to capitation, or block financing. The mechanism for reorganization is the formation of an Accountable Care Oganization, OneCare Vermont, which signed its first capitation with the State Medicaid agency for the current year, and which is on track to expand significantly as of Jan. 1, 2018. Under reorganization, “fees” begin to go away altogether.
• Even if we were going to retain fee-for-service as the reimbursement structure for the Vermont system, there wouldn’t be anywhere near enough independent physicians to make a difference in overall spending. On this point it is necessary to distinguish primary care doctors from specialists. There are a significant number of independent primary care doctors, but we have to pay them more, not less—so no savings there. There are some specialists outside of hospitals, but not enough to deflect the roughly $2.5 billion hospital spending juggernaut.
• The cause of independent physicians is appealing, especially in small-community, but the reality is that American medicine is rapidly moving away from that model. Medical students now lean more toward working for organizations, and the potential benefits from integration in both cost and quality simply can’t be ignored much longer.

   It is not clear what ultimate effect the Ashe campaign will have on the course of reform. It is clear that he can get what he thinks he needs from the Senate. He demonstrated that in the last legislative session when the Senate pursued a bill to force payers to change the way they pay independent physicians compared with how they pay hospital-based doctors.
   The bill in question, the Pay-Party proposal, ultimately failed because they ran out of time. It also didn’t help that the Senate bill was based on bogus Blue Cross numbers…that is a longer story in itself...

   What is clear is that none of the policy players--the governor, the Green Mountain Care Board, or the House--challenged the Ashe position that the main issue  facing the Vermont system is bolstering the position of independent physicians. That is simply absurd, but it is what Vermonters heard, if they heard anything, during the legislative debate. 

   A potential counter to that could be solid press coverage, but we don't have that in Vermont, owing primarily to the collapse of the newspaper business model in Vermont, as in the rest of the country. That fact is difficult enough, but the situation in Vermont is even worse, because we are seeing biased journalism.

   I'll get into that in Part 3 of this series.

######

The $60 Aspirin Syndrome - Part 1

by Hamilton E. Davis

   The Green Mountain Care Board had an illuminating epiphany last Thursday when they got their first look at the Vermont hospital budgets for Fiscal Year 2018, which begins Oct.1. Most of the figures were routine: net patient revenue for the hospitals, operating margins, inpatient and outpatient trends…the financial bones of a very complex system that costs the people of Vermont between $2.5 and 2.6 billion a year.
   For the first time, however, the Board’s financial team decided to look at the difference in pricing for various services among the 14 hospitals. The financial regulators haven’t tended to do that very much over the years. The Hospital Data Council didn’t do it at all in the late 1980s and early 1990s; its successor, BISHCA, didn’t do it much if at all in the late 1990s, and the oughts; and I don’t recall the Green Mountain Care Board doing it either, when it took control of the system in 2013. The primary focus over the three decades or so was net patient revenue, which was defined as the total amount of money Vermonters had to pay for medical care in hospitals. In 1987, when I was chair of the Hospital Data Council, we called net patient revenue the “Green Dollar Number”, the actual amount of money Vermonters had to come up with for health care each year.
   Now, the whole regulatory landscape has changed. The Board has a new chair, Kevin Mullin, and a new member, Maureen Usifer, neither of whom has seen Vermont’s hospital budgets before. Even more importantly, the financial team, which was run by Mike Davis from 1987 until his retirement just a few weeks ago, has new leadership also. Mike’s replacement is Andy Pallito, who came over from the Scott administration. Pallito has very impressive credentials—he has been running the finances of the whole state since 2015. But he has had only a few weeks to get his arms around the hospital numbers.
   So, it made sense for the first pass of a new team to look into what it costs to buy various services from each hospital. Their report laid out the prices for cataract operations, and colonoscopies, and broken legs, and heart failure, and knee replacement, and kidney infections, and office visits, and lab services, and MRIs—the whole miserable, amazingly costly symphony of modern health care treatment. The Board members looked at these numbers for a while, and then you could almost see their minds start to boggle. For at first glance, the numbers made no sense at all.
   Start with cataracts (known in the trade as lens replacement). The cost at Northeastern in St. Johnsbury: $9,572; at Springfield, $4,066, less than half, with the rest all over the place in between.
   Colonoscopy: at Northwestern in St. Albans, $2,064; at Gifford in Randolph, $5,426; at North Country in Newport, $4,583; At UVM in Burlington, $3,770.
   Best place to break your leg: Rutland, $6,379; at Gifford, a cool $31,941, five times as much; at Northwestern in St. Albans, $9,709; at Copley in Morrisville, $25,731.
   An MRI: at Northwest, $1,764; at UVM, $5,311.
   There’s more, but you get the idea. It was obvious within a few moments to the Board members that something unusual was going on, and that it would be necessary to dig deeper. What they will find out when they look deeper, is that the numbers make even less sense they did at first glance. Because the numbers lead right into the funhouse reality of health care financing.
   Why?

1.     The first thing to note is that the “costs” cited in the tables mean nothing at all. They come from the listed prices at the hospitals. Each hospital has one of these "charge masters." They don't mean much because  nobody pays the charges, and on the few occasions we have seen inside of that, the actual prices differ in ways that make no sense at all. Medicare and Medicaid pay what they feel like paying. In the private sector, half of the costs is paid by Vermont Blue Cross, MVP, and a few other carriers like Signa. All of the prices on the charge master fare are discounted. Beyond that, they are negotiated between the insurance carrier and the hospital in a dance between the hospital’s need to get as much as possible and the carrier’s need to spend as little as possible. It is a little bit like the sticker price on new cars, but only a little bit because you are never going find the same Chevrolet selling at five times at one dealer as it does at another. Everyone will tell you that the patient’s needs are paramount in the dance, which is the sheerest eyewash. The whole thing is about money and market share, and if you don’t believe that consider that the hospitals and the carriers actually sign contracts pledging never, ever to let anyone know what the actual cost is.

2.     The second critical point is that even if the prices in the charge masters were the actual prices, you would still have no idea which hospital was the most cost efficient. The reason is that the cost to the Vermont “tax” payer isn’t the unit cost, it’s the unit cost times the wildly variable volume of the service delivered. I laid out how that works in my last post.

   You can see an example taken from the current tables combined with work that I did several years ago.
   The sticker price of an MRI in the table was $5,311 at UVM and $3,960 at Rutland. That’s a difference of $1,151, pretty significant given that so many of these scans are being ordered that the MRI machines at both hospital are working overtime. Looks like the thing to do is force the UVM price down to Rutland’s. That might be a good idea, but there is no way to test it because you can’t find out the per capita rates of MRI use going on in either the UVM or the Rutland service area. That data used to be reported regularly, and I looked at it all the time, first as a journalist and then as a regulator, in the 1980s and early 1990s. By happenstance, one of the metrics I used then was the per capita rate of MRI imaging in Rutland and Chittenden County. I want to emphasize that I have no idea what the actual comparative rates are today, but when I checked it in the early 1990s, the ratio was two Rutland MRIs for every one performed in the UVM service area. And those figures were age adjusted; age being the most important demographic difference between service areas in Vermont. In other words, the raw data would have showed a larger difference in use rates.
   As an illustration, it is interesting to test which hospital in the MRI case was financially more efficient. Let’s take two hunks of population from each service area, each comprising 10,000 people and apply at a use rate of 100 per 10,000 in Chittenden and the corresponding rate of 200 in Rutland. Result:

                                       Chittenden-UVM                 Rutland

                                              $531,100                       $792,00

                                      Total Difference: $260,900

   Pretty interesting, eh? If you are responsible for the cost of health care in Vermont, which of these per capita use rates needs work? These kinds of differences are now reported routinely in something called the Dartmouth Health Atlas, which uses the techniques designed in Vermont. A particularly good look can be found here, a 2009 look by Atul Gawande, a Harvard  professor, at the  differing practice patterns at medical systems in Texas and Minnesota. 

3.     The above doesn’t begin to exhaust the funhouse dimensions of the health care financing craziness. Back in the early Pleistocene when I began working on this issue (1980) the iconic example was the $60 aspirin. Woman goes to the emergency room of the hospital because she is sick or hurt. They fix her up, and then she gets the bill. It’s fully itemized, prima facie evidence of integrity. So much for this, so much for that. And what jumps out at her first is the $60 for an aspirin (not a bottle of aspirin, one aspirin). Outrage all around. Can you believe it? The nerve.

   No problem fixing this—just look at the individual elements, substitute a number that makes at least some rough sense, and you’ve cut the cost by a third, maybe more.
   Sorry, won’t work. Because the $60 for the aspirin has no meaning at all. It certainly didn’t actually cost that much. The reality is that the bill is what the hospital has to get to keep the emergency room going at all. And at a larger remove, it isn’t just the money you need for the emergency room, it’s the money the hospital itself needs just to stay in business. That’s the number that really counts. Once you go inside that top number, it doesn’t really matter how you spread it around. If the cost of the scalpel looks a little high, cut it and increase the price of the peanut butter sandwich or the towels, or bandages or whatever. Just make sure that you get the total needed to keep the doors open.
   That doesn’t mean that the total cost in our ER example or anywhere in the system isn’t too high. It is and after 40 years of exploding costs in the American health care system it is clear even to the family dog that something has be done. The question is what, or how. The first step is to get a grip on how the whole mess works. And it is absolutely shocking how badly we’ve done on that in Vermont.
   I’ll defend that proposition in Part Two of this little series.

N.B. I said in my last post that the current one would be about the primary care physician problem in reform. Sorry about that: I couldn't pass up the epiphany for the Board on the unit cost issue. Primary care docs coming soon. 

Vermont Health Care Reform: The Basics

   The Vermont health care reform project was born in 2011 when the Legislature passed Act 48, the basic reform law. The various players--doctors, hospitals, legislators, advocates of all sorts, the state administration, the press--have talked and written about it at great length. Yet the subject remains opaque to all but a tiny priesthood of adepts, and even they almost never speak plainly about what is going on. The following is an attempt to clarify the whole tortuous mess.

by Hamilton E. Davis

   Why do we need it?
   Because costs are out of control. By costs, I mean the money we spend on doctors and hospitals to deliver medical care. There are other costs in the overall system, like paying for health insurance administration and the like, but the engine is spending on doctors and hospitals. In 1966, Vermont spent just over six percent of its gross state product on health care; now it spends 20 percent. No serious person thinks this trend can be allowed to continue.

   How do we fix it?
   The strategy that Vermont adopted in 2011 was three pronged: The first step aimed at slowing down cost inflation by traditional regulation. That function was to be carried out by a new, five-member body called the Green Mountain Care Board. At the outset, the Board would tell hospitals how much they could spend. The first year of that process was 2013, and while the Board got rolled by the hospitals that year, it brought inflation down in the following years from the seven-to-ten percent range to the four-to-five percent range.
  That helped, but it was still not sustainable. An acceptable inflation rate a level estimated at about three percent, which is the long-term increase in Vermonters' ability to pay.
   The second prong was to shift the reimbursement in the system from fee-for-service to capitation, in which a group of doctors and hospitals provide all the necessary care to a block of patients for a negotiated price. Such a shift required that the doctors and hospitals in the provider group cooperate with one another rather than competing. In the health policy field nationally, that strategy is considered essential, because 50 years of experience has shown that traditional regulation does not work. With capitation, doctors and hospitals take financial responsibility for the system they run.
   The third prong in the original Vermont plan was to shift the private sector health spending in the state away from insurance companies, individuals and self-insuring companies to the Vermont tax system. The understanding was that such a shift, about half the cost of acute care, could not take place until spending in the Vermont system was firmly under control, meaning that spending would be three percent or less year over year. Then-Gov. Peter Shumlin abandoned that leg of the stool in late 2014. Full government financing is dead for now, but there is nothing to prevent it from reconsideration if the costs are sustainable.

   Why not base reform on market forces?
    That question gets at the essence of the reform strategy. There are two core realities that are driving the reform process, and the inability, or unwillingness, of many of the players to deal with them go a long way toward explaining why the reform process has been so slow and difficult.
   The first reality is that delivery of acute health care is wildly variable. The inclination of doctors to order, or not order, tests like MRI; or to do a wide variety of surgical or medical procedures, can vary by two to five times; and years of research has shown that such variations cannot be explained by physical differences in the patients treated. The excess care delivered in the system both wastes money and constitutes poor quality.
   The second reality follows from the first. That reality is that the “cost” of health care services is not equal to the “price” for each episode, but the price times the volume of care. Whether a person is healthy or not, he or she pays the total cost for care, because it is spread across the population by state and federal taxes, and by insurance premiums on the private sector side. The critical consequence of that is that competition raises costs, it doesn’t lower them. In the health policy biz, it’s called “supplier-induced demand.”
    Both these themes are powerfully counterintuitive: when we go to the doctor and he or she says we need this, that or the other, it just seems to make sense that, in fact, we must need this, that or the other; as for competition, the idea that competition is necessary in an efficient economy is close to an American religion, right up there with motherhood and apple pie. Actually, motherhood and apple pie are second and third.
  This screed is supposed to be a summary of the essence, but the above is so critical that it calls for at least a few examples.

1.     For much of the 20th century, there were two community hospitals in St. Albans, Kerbs Memorial and St. Albans. Head-on competition every day. In 1974, the two hospitals merged. Then, total monopoly every day. Once competition went away, the cost-per-capita for hospital care in the St. Albans area dropped in half. That’s one divided by two. Fifty percent down. And it stayed there. In the early 1980s, I interviewed Dr. Francis Moore, a professor of surgery at Harvard Medical School and Chief of Surgery at Peter Bent Brigham Hospital in Boston. He occupied arguably the snootiest aerie in American medicine. When I told him about the St. Albans data, he said it was impossible; and that, even if it happened one year, it would surely reverse the next. He hadn’t seen the data.

2.     The most important scholar in this area over the last half century has been Dr. John Wennberg, originally from the University of Vermont College of Medicine and later at Dartmouth Medical School. Now retired, Wennberg developed the tools necessary to examine the patterns outlined above. One of his striking findings came in the comparison of costs of care in the Boston area to costs in New Haven, Conn. In Boston, three prestigious medical schools, Harvard, Tufts, Boston universities; prestigious hospitals all over town. The most over-bedded and over-doctored city on the planet. Ding dong competition every day. In New Haven, basically, there is just Yale-Haven Hospital. Yale is just as snooty as Harvard, but in New Haven, Yale rules the roost. Little to no competition, ding dong or otherwise. Wennberg’s finding: New Haven’s area cost per capita were half those in Boston. One over two, fifty percent. The New Haven dynamic can be seen in many other areas:  the Mayo Clinic in Rochester, Minn.; The University of Iowa in Iowa City; The University of Wisconsin Hospital in Madison; Dartmouth-Hitchcock in Hanover, N.H., and the University of Vermont Medical Center in Burlington. That pattern is common where you have a high-quality academic center in a relatively small area.

3.     My homely example: In a real market, if you want to buy a TV set, you might go to Costco, and see a set for $490; then Best Buy, where the price is $640 and some boutique place where it’s $925. Same TV. set. Pretty easy, eh? You order from Costo, and feel quite smug. If we now shift to the American health care “market,” however, Costco delivers eight sets, Best Buy delivers five and the boutique one. And you have to pay for what gets delivered because the supplier decides the volume…Your wallet just got hammered, like all our wallets have been hammered by health care costs for the last 50 years. The essential enabler of this process is fee-for-service reimbursement for doctors and hospitals. Rule of thumb: anybody that doesn’t get this doesn’t get health care.

4.     If you remain unconvinced, read Atul Gawande’s 2009 New Yorker article examining in detail the highly variable cost of expensive care between the Mayo Clinic in Minnesota and the Anderson system in McAllen, Texas. No serious health policy maven is going to argue with Gawande on this issue. The real question is what to do about it.

   What would the new system look like?
   In order to function efficiently, health care has to operate as closely as possible to a private sector company that has to produce a very technically complex product that satisfies rigorous quality requirements at a price the consumers can afford. The federal Obama care law sets out a way for health care units to accomplish that by joining together in something called an Accountable Care Organization (ACO). An ACO is a sort of baggy “company” that is managed by the doctors and hospitals themselves, without any one unit owning all the assets.
   Those units can’t compete with one another, any more than one section of a private company can compete with another. The guys who machine the cam shafts in a Toyota factory have to do so in a way that fits the overall design. If the cam shafts don’t mesh with the piston design, the car won’t run and the whole company is in deep trouble. The same thing is true of organizations making computers, or tractors or chain saws. Keeping people healthy is very complex and difficult in the best of circumstances; doing so without close coordination as patients move from one level of complexity to the next is ever so much more so. Is there an issue with management of an integrated system getting too much pricing power? Yes, which is why the Green Mountain Care Board has so much power to keep the lid on such an eventuality. In a big state, rich in health care assets, it might be possible to build ACOs that compete with one another. No such possibility exists in Vermont because there is only one source of the most expensive, most complex care. The same pattern holds in Iowa City, Madison and Hanover, as well as Burlington.

   How would the ACO work?
   The clearest way to demonstrate that is to look at the way the major ACO in Vermont is “taking risk” for the treatment of Medicaid patients in the northwest quadrant of Vermont. The ACO, called OneCare Vermont, negotiated a contract with the state Medicaid agency to deliver all the necessary care to 31,000 recipients that receive treatment at the University of Vermont Medical Center in Burlington, Northwestern Medical Center in St. Albans, Central Vermont Medical Center in Berlin, and Porter Medical Center in Middlebury, for a total price of $93 million. Central Vermont and Porter are part of the UVM health network; Northwestern is connected to the others by virtue of its participation in OneCare.
   Beginning last February, the state sent a check to OneCare for one twelfth of the agreed upon amount and OneCare sent a check for part of that to each of the four hospitals. All the care to the 31,000 recipients in the four hospitals has to be paid from that allocation. The critical point: 

There is no more money.

   There are a variety of details that go along with this structure, but the essence is plain enough. For the first time ever, the most important  part of  the health care system—hospitals and the doctors who practice there--are directly responsible for their own financial performance. In the biz, that form of reimbursement is known as capitation. It is the polar opposite of fee-for-service, and it is the only viable route to sustainable costs in Vermont’s health care delivery system, or in any other state’s delivery system, for that matter.
   The contract for roughly 20 percent of the Medicaid recipients in Vermont, while important, is still a relatively small piece of the state’s roughly 625,000 residents. However, OneCare and the state have signed an agreement to extend “risk contracts” to part of the Medicare population in the state beginning on Jan. 1, 2018. That will be a huge step. The Medicare population is the most politically important piece of health care puzzle. Medicare financing is the purview of the federal government, and the enthusiasm of the feds for the Vermont plan is the most important shift in the history of the issue in this state. As of the same date,  OneCare and Medicaid officials  plan to increase the number of Medicaid recipients under risk contracts from the current 31,000 level to around 100,000. And OneCare has talked to Vermont Blue Cross about risk contracts in the private sector. The OneCare budget for 2018 contemplates taking its total covered lives to roughly 135,000 four fold  increase.
   The Vermont performance so far has been sufficiently impressive that CMS, the federal Medicare and Medicare agency, has selected Vermont and OneCare to be “Next Generation” players who can lead the way to shifting reimbursement from fee-for-service to capitation; and to lead the integration of the delivery system sufficiently to carry that effort off. There are only 20 or 30 or so such “Next Gen” players out of hundreds of ACOs in the U.S., and even within that group Vermont leads because their structure involves both hospitals and doctors. CMS believes that if Vermont can wrestle costs into submission here the rest of the country could follow.

   Sounds good, any problems?
   Well, yes. Very serious problems, in fact. The principal one is that a big chunk, probably nearly half, of the primary care doctors in the state are either flatly opposed or are deeply ambivalent about reform. A second is that reform has lost its political leadership. The momentum that grew out of Peter Shumlin’s elections to the governorship in 2010 and 2012 began to erode in 2013 and has now vanished entirely.
   In the political vacuum that followed, the Vermont Senate went off on a pro fee-for-service tangent, lead by its new president pro tem, Tim Ashe, a Chittenden Democrat. In the absence of strong leadership from anywhere and with a new Speaker, Mitzi Johnson, the Vermont House wandered in circles to no visible effect.
  At the beginning of 2017, the Green Mountain Care Board lost its chairman, Al Gobeille, who left to run the Agency of Human Services (AHS) for the new Republican Governor, Phil Scott; another of the five-member body left the state. So the new Board drifted with just three members until a few weeks ago when the Governor named a new chair, former Republican State Sen. Kevin Mullin, and a new Board member, Maureen Usifer. The Board’s first act was to approve the construction of a stand-alone surgical center in Colchester, a terrible decision that, in effect, endorsed fee-for-service medicine and directly invited for-profit surgical player for the first time. There is no gainsaying the damage from that but it remains to be seen where the Board goes from here on.
   Mullin and Usifer are very new, but if they become strong players then the Board could assume the political leadership mantle.
   It us also uncertain what the Scott administration will do. Scott has two of the state’s most knowledgeable reform players in Gobeille, now Secretary of AHS, and Cory Gustafson, a former Blue Cross representative in the Legislature, who now serves as commissioner of the state'Medicaid agency. It is not clear yet what influence they will have on the Governor. Scott so far has been at best diffident about reform, and Jason Gibbs, his top aide, is considered to be an opponent.
   The executive branch will face a test in the next two to three months when it decides whether to provide funding to a group of primary care doctors that is committed to fee-for-service financing, and which has spent the last two years maneuvering against OneCare and reform. If the Medicaid agency spends its very-scarce money keeping the primary care group afloat, it and the Scott administration will lose their credibility with OneCare and the big hospitals, which are putting their financial futures at risk. The same thing is true for the Green Mountain Care Board. The Board isn’t directly involved in the primary care financing issue, but the members could weigh in on it, and if they support it, on top of their recent decision on for-profit surgery, then their credibility will go glimmering too....
   In short, very strong headwinds for health care reform. What we will see between now and Thanksgiving are answers to the following:

• Where will the Scott administration come down on the choice between fee-for-service and capitation, competition or integration? Will Scott lead or just meander along?
• Where will Kevin Mullin take the Green Mountain Care Board, and will Mullin be able to fill the leadership vacuum?
• What role will the small community hospitals play in reform?
• Will the non-hospital primary care doctors insist on a separate role for themselves, built on fee-for-service, or will they agree to integrate with the hospital system? And will the Scott administration support their efforts to operate as separate ACO?
• How will the Fiscal Year 2018 hospital budgets affect the reform environment?

   These are just some of the issues shaping up now. In the health reform biz, the theory is clear. But in the political/policy world, the theory part is often the easiest part. It is the execution phase that is make or break. You can design the world's best automobile engine, but if you can't actually build it and make it work, all you end up with is a very expensive boat anchor. That is where we stand now with health care reform in Vermont. My own sense after watching the process since the early 1980s, is that the odds for full success run to just a little better than fifty-fifty.

   That assessment is based on my belief that all the players have to bring up their game, some of them by a a lot. The Scott administration has two of the best players in  the persons of Al Gobieille and Cory Gustafson. They have big jobs that extend beyond reform, but from the reform perspective both have been missing in action since January. Governor Phil Scott, meanwhile, has to decide whether to lead the parade or just wander along in its wake. The Legislature has to get real on the key issue of competition versus capitation. The Green Mountain Care Board has to get up to speed very quickly...all of these players assert that they support reform, they're in favor of it, they just love it, blah, blah, blah. The question is whether they play like they mean it.  And many of them don't.  

   The most immediate issue is how to manage the whole primary care doctor issue. That is very complex, but it's on the table right now. I'll look at that issue in my next post.  

####

New Green Mountain Care Board Flunks First Test

by Hamilton E. Davis

   The Green Mountain Care Board, under new leadership and operating in a transformed political environment compared to the last six years, has just faced its first serious test—whether to approve the construction by a small group of doctors of a stand-alone surgical center in Colchester. The Board failed the test, approving the center on a 4-1 vote, thereby dealing a body blow to health care reform in Vermont.
   In purely medical terms, the proposed Green Mountain Surgical Center would be marginal to the delivery system. It will have two operating rooms and four procedure rooms procedure rooms and will deliver care that is not complex enough to require a hospital.
   The significance of the decision lies in the fact that it rested on a choice between two diametrically opposed views on how to pursue reform in Vermont. The health care reform project adopted by the Legislature in 2011 was based on the proposition that getting health care costs under control could only be achieved by shifting payment to doctors and hospitals from fee-for-service to block financing or capitation. That shift, the consensus view in the health policy community,  requires that the various elements in the system be integrated and run on a cooperative basis.
   In the last couple of years, however, opposition to the reform project has arisen on multiple fronts, including a sizeable block of primary care doctors, a smaller group of independent physicians (comprising both primary care doctors and specialists), the Vermont Senate, and several of the smaller community hospitals in the state. All of these players pledge total fealty to “reform”, but their opposition coheres in support for a system built on doctors and hospitals competing with one another, and paid by fee-for-service. Hence the choice:

   Integration and capitation versus competition and fee-for-service.

   There are all sorts of problems with the fee-for-service route. The most important is that fee-for-service with competing as opposed to cooperating units is precisely the system that has been in place since the mid-1960s and which has driven health care costs into the stratosphere. An example: from 2000 to 2009, virtually every Vermont hospital doubled its budget, a blowtorch rate of increase that was clearly unsustainable. The Green Mountain Care Board managed to cut that rate significantly, but still not enough; only system integration and capitation can take us the rest of the way.
   A second major problem is that the Green Mountain Care Board has already signed an agreement with federal Medicare and Medicaid officials to begin moving Medicare recipients into an integrated system as of Jan. 1, 2018, less than six months from now.
   A third problem is that the Surgery Center decision introduces for-profit health care in Vermont, a thoroughly pernicious idea that has been rejected by Vermont state administrations of both parties for the last 40 years.
   A fourth problem is that free-standing surgical centers threaten every small hospital in the state. The current proposal has been cast as a way to challenge the preeminence of the University of Vermont Medical Center, which the opponents of reform have spent the last two years vilifying as the Great Satan. The idea that the Colchester facility will seriously shift the trajectory of the UVM system is just silly. But a surgi center could take out small struggling community hospitals, like Gifford, North Country, Springfield and Copley. A couple years ago in its budget hearing the then president of Copley Hospital told the Board:

   Without Mansfield Orthopedics, we don’t have a hospital.

   It doesn’t get any clearer than that. The finances of small hospitals usually rest on the facility squeezing out every dime it can from less-than-tertiary severity surgery. Payment for surgery cases usually consists of a professional fee to the surgeon and a facility fee to the hospital. A common question heard in the payment debate is why hospital-based physicians get paid a facility fee whereas stand-along doctors don’t. There’s actually a straight-forward answer to that:

   You need a facility fee because you need a facility.

   Meaning a hospital. Stand-alone, independent doctors are all well and good, but when your teenager runs a car into a tree at three in the morning, you need a hospital. And if you’re going to have a hospital, you’re going to have to pay for it.
   The Green Mountain Care Board tried to square the circle on this whole mess by attaching a laundry list of conditions to the permission. A major one was the requirement that the Surgical Center participate in the so-called All Payer Model, which is the framework for shifting Medicare recipients into an integrated system with capitated payments. The applicant has enthusiastically said it will do that.
   It is a complex issue, but the essence of the posture of the independent physicians is that they want just that—to remain independent, rather than putting up with the variety of constrains involved in being part of a larger enterprise. So, fitting the new structure into a fully integrated structure with a different payment system looks like a very long reach.
   And while the permission law provides for the type of conditions attached here, 40 years of experiences shows that the conditions in cases like this seldom have much, if any, effect. Once a facility is built and is operating, the chances that the Board would shut them down for reneging on a condition are vanishingly small. Getting that toothpaste back in the tube is very unlikely.
   Hence the conclusion about the quality of the decision. In my next posts, I’ll try to assess the situation with the newly constructed Green Mountain Care Board and the prospects for reform going forward.