One or more Vermont hospitals may switch to a system that would dramatically change they way they receive payment, starting by the end of this year.
Rutland Regional Medical Center has asked state regulators to transition to “global budget” payment model and the Green Mountain Care Board intends to test the idea. Other hospitals are considering the plan.
Global budgets are set payments determined by regulators to care for the population a hospital serves, rather than the hospital billing for each individual service it provides.
Vermont has long regulated hospital budgets, and since 2012 the Green Mountain Care Board has set hospital budgets by approving a maximum dollar figure for a hospital’s total revenue.
Currently, when a hospital exceeds its budget it could lead to greater scrutiny from the board and also impact the following year’s budget.
Under a global budget model, a hospital loses money if it exceeds its budget. That’s because a global budget is the sum of all payments made to a hospital or hospital system from all payers over a given period, typically the previous year. If they go over budget there’s no additional money.
The budget is based on a hospital’s historical revenues, which are adjusted for inflation and changes in the age and size of the population a hospital serves.
Advocates say they have the potential to reduce overall health care spending by changing the financial incentives for providing care.
Maryland began a global budget pilot in 2009, which has demonstrated promise in controlling costs, while still providing quality care, according to a former Maryland hospital regulator who now consults for the Green Mountain Care Board.
As Richard Slusky, the board’s director of payment reform puts it, “Everything that was revenue for hospitals becomes a cost they need to manage.”
So why would Vermont’s hospitals be interested in such a payment model?
“(Global budgets) align incentives in a way that drives unnecessary utilization out of the health care delivery system, but also allows the health care delivery system to survive,” said Tom Huebner, CEO of Rutland Regional Medical Center.
Vermont is already exerting downward pressure on the growth in health care spending in anticipation of providing residents with state-sponsored health coverage.
Global budgets offer hospitals a consistent revenue stream, according to Huebner and other advocates.
Rutland Regional is at the forefront of the push for global budgeting in Vermont. The hospital is working in concert with the Green Mountain Care Board, state agencies and the Legislature, and Huebner plans to initiate a global budget pilot starting in October, when the hospital’s fiscal year begins.
“This needs to be tested, that’s why we’re proposing piloting it,” Huebner said. “We’re not proposing rolling this out statewide until we’ve tested it.”
Rutland Regional is a logical choice to test the new system because of its relatively stable patient population.
“We’re pretty isolated and insular in the sense that there’s not a lot of people going in and out of the area for care,” Huebner said. “Because we have such a well-defined service area, it’s an easier area to do that kind of pilot.”
Southwestern Vermont Medical Center in Bennington has also shown interest in participating in the global budget pilot, but for Southwestern and other Vermont hospitals global budgeting could be more difficult.
“(Southwestern) has been discussing it with the state,” said Kevin Robinson, a hospital spokesman. “The question is really whether it will work in our region.”
Unlike Rutland, Southwestern and some other Vermont hospitals have significant numbers of out-of-state patients. The hospital is currently working on an analysis to determine if they should participate, Robinson said.
Roughly 25 to 30 percent of Southwestern’s patients come from New York or Massachusetts. The recent closure of nearby North Adams Regional Hospital in North Adams, Mass., could drive that percentage even higher, he said.
Out-of-state patient populations served by Vermont hospitals could be addressed by limiting the pilot to patients covered by Vermont payers, said Al Gobeille, director of the Green Mountain Care Board.
That would mean only Vermont-based private health plans, the state’s Medicaid program and Medicare would participate, leaving some portion of hospital revenue outside the global budget.
Getting all the Vermont payers on board by October will be a challenge, Gobeille said, and Medicare is out of the question, because there’s no way the state could obtain a federal waiver in time.
“The question that needs to be answered is whether there’s a way to align the incentives properly even if we only have 90 percent of the payers covered,” he said.
It will also take time for the participating hospitals and payers to settle on care quality requirements and what the actual payments will be.
“When we did the Accountable Care Organizations it was a similar process and it took close to a year to get all the payers on board,” Gobeille said.
But Gobeille still thinks Vermont can get the pilot off the ground before October, he said, adding, “It’s one of those things where we don’t lose anything for trying.”
The global budget pilot begs another question: How does this initiative gel with other payment reform efforts already underway – most notably the fledgling shared savings programs payers and Accountable Care Organizations agreed to this year?
Huebner and the Green Mountain Care Board see the efforts of Accountable Care Organizations in delivery reform as complementary to what would make hospitals successful with global budgets.
But the Vermont Medical Society has raised concerns about the volume of reporting for doctors who must show they’re meeting the quality standards for shared savings programs.
Global budgets would also require stringent oversight and potentially additional reporting requirements for clinicians.
The quality standards and oversight are crucial to the success of global budgets. That’s because a hospital could feel pressure to reduce services, transfer costly patients or refuse care for patients with complex medical needs in order to stay within their budget.
So if hospitals can’t reduce services or cherry-pick healthy patients, how do they improve outcomes and still stay on budget?
Hospital administrators, policymakers and regulators say cost reductions will come through better care management and care coordination.
“That means doing things like making sure when (sick patients) leave us, they’re getting to their follow-up appointments; that they’re getting on their medication and staying on them; that they’re home health visit occurs in a timely basis,” Huebner said.
That work is done through care coordinators, he said, or groups of primary care doctors, specialists, nurses and home health agents who have shared protocols and review cases where a patient has had to be readmitted, he said.
The model has shown promise with Rutland’s congestive heart failure patients, a very fragile group requiring lots of hospital services, he said.
National congestive heart failure patients are readmitted within a month of discharge 25 percent of the time. Through better care management practices Rutland reduced its rate to 15 percent, Huebner said.
Now the hospital intends to expand the model to other high-need conditions such as pneumonia, pulmonary disease and other chronic conditions.
Chronic condition management is where the greatest savings are to be gleaned.
“That’s the first place you look is folks with those big chronic disease, who if you really get your arms around them you can avoid hospitalizations, and of course we’re the most expensive place to get care,” he said.
Critics question the model’s potential for reduce costs in other areas. They say Vermont hospitals already manage care well.
As Vermont drives costs down, it’s also driving dollars out of health care. But providers have fixed costs, which likely means downsizing for the industry.
That’s what makes payment reforms such as global budgets so important, Huebner said.
“We need to have a system that allows enough money to stay in it, so that we are here to take care of people,” he said, “but also incents us to do the right thing for patients, and that’s the key.”
