Editor’s note: Hamilton Davis is VTDigger’s health care columnist.
Vermont’s health care reform project is now entering its fifth year, and it seems appropriate to look at how far we’ve come, where we are now and where we might be headed. It has been a strange and difficult trip so far, and it is likely to be just as strange and perhaps even more difficult to reach high ground on the issue over the next few years. High ground meaning a delivery system that is efficient, and has high quality and costs that would be sustainable over several years.
One of the confounding elements in looking at how far we’ve come is the extent to which the original understanding of the task has changed. Health care financing now is split between the state and federal government on the one hand and private insurance and individuals on the other. When Gov. Peter Shumlin launched his single payer project in the spring of 2011, the primary objective was shifting private sector financing to the state’s tax base.
The Shumlin team knew from the outset that containing costs in the system was an absolute precondition to such a shift, but that appeared to be manageable; the “heavy lift,” the major barrier to be surmounted, was getting the public and the Legislature to buy into a major increase in state responsibility for coming up with a big piece of the overall costs. This involved very big numbers. The total cost of acute medical care in Vermont is roughly $3.5 billion. (Total health care costs include things like long-term care; acute care is delivered by doctors and hospitals.) The amount to be shifted from private insurance and payments by individuals would run to something around $2.5 billion.
The whole financing goal, however, was hijacked by a pair of developments that weren’t foreseen, when the project began.
The first was the administration’s inability to get the federal insurance exchange to work in 2013. The exchange was never an integral part of the Shumlin program — it was driven entirely by Obamacare — but failure to manage it competently eroded public and legislative confidence that Shumlin could manage a major change in the health care delivery system.
The second was Shumlin’s insistence that the shift to tax financing be carried out all at once. This involved very big numbers. The total cost of acute medical care in Vermont is roughly $3.5 billion. The amount to be shifted from private insurance and payments by individuals would run to something around $2.5 billion.
There was considerable pressure on Shumlin to carry out the insurance tax shift incrementally, but he absolutely refused to consider it. In any event, after spending two years on a plan to make the shift, Shumlin failed to design a viable plan, and in December 2014, he abandoned financing altogether, saying the tax burden would be too high. That step, combined with his unexpectedly narrow re-election the previous November, destroyed his fading political credibility, and he soon announced he would retire from politics entirely.
What seems clear in retrospect is that the withdrawal of the finance plan was very fortunate. The reason: It was not clear then — and it is not clear now — that costs are reliably under control. Which gets us to where we are now. Health care reform in Vermont for the foreseeable future will be cost containment. And that depends on the following propositions:
Health care reform depends on controlling costs in the delivery system. That in turn relies on a corollary: Controlling health care costs can only be accomplished by shifting from fee-for-service reimbursement to providers — doctors and hospitals – -to some form of block financing that vests responsibility for financial performance in the delivery to the providers themselves.
A second corollary is: You can’t move away from fee-for-service financing without changing the way the delivery system is organized now. High quality, lower cost care can only be delivered in a system where the doctors and hospitals cooperate on care, rather than competing for market share.
These exact words are not in the law, but their essence permeates the whole project; the idea also represents a powerful consensus in the health policy world. And scrolling across the screen they seem perfectly plausible. In the real world, however, they require a huge cultural and financial upheaval in the most important and certainly the most financially important social institution that exists in the state.
We’ve done well so far on cost containment with just regulation. Beginning with fiscal year 2013, the Green Mountain Care Board, which has the responsibility for both regulating costs in the system and rendering it more efficient, has cut the inflation rate in the Vermont hospital system by more than half. From 2000 to 2009 costs in the system increased by anywhere from 7 percent to 11 percent per year. Virtually every hospital in that decade doubled its annual budget.
What casts a shadow over the Green Mountain Care Board, the quasi-judicial body that regulates health care costs, is the historical fact that over the last 45 years or so, every purely regulatory scheme to manage costs has failed utterly. Maryland is a striking example. Regulatory efforts over decades there have been the most aggressive in the country, yet Maryland has the fourth most expensive system in the country. Regulation simply erodes over time in the face of the financial incentives built into fee-for-service reimbursement.
And in Vermont so far there has been no change in the structure of the system — no real integration of the disparate and competing units that deliver the care. And no progress to speak of in moving away from fee-for-service.
A Vermont example: A woman falls on the ice and breaks her arm badly. In Vermont, ice happens. She goes to the hospital to get it fixed. That hospital fails. She goes to a second hospital; that hospital fails also. She goes to a third hospital and they get the arm fixed, although the procedure is the more difficult because of the damage that resulted from the first two efforts. Every node on the journey generates bills from the hospital and doctors involved. We had one broken arm and we paid for fixing that arm three times.
A systemic example: in the middle of the 1900s there were two community hospitals operating in St. Albans. The two facilities competed hard for patients — market share. In 1978, the two merged into Northwestern Medical Center — and the cost per capita in the St. Albans service area dropped in half. And stayed there. That wouldn’t happen in an ordinary market; it does in health care.
If you think these examples are rare occurrences rather than everyday experience you are simply wrong. Patients pinballing through an uncoordinated system and getting charged at every step is the engine of growth for health care costs in Vermont and across the United States.
The crux of the issue, therefore, is how to reorganize the system in a way that permits replacing fee-for-service with block financing — capitation in the policy biz system, where primary care, community hospital care and highly sophisticated tertiary care providers work together for a single price.
Obamacare provides a template for a solution in the form of something called an accountable care organization (ACO), which is nothing more than a framework within which doctors and hospitals can cooperate with one another for a single price. You could do that of course within a single company, but Obamacare permits providers to cooperate without having a single ownership, a much less drastic step; the key is bypassing federal anti-trust laws.
To relate this to our broken arm example, the patient might still have to go to three difference sites, but all the cost would be included in a single price. If the first two sites failed, the financial burden would not fall on patients, as it does now, but on the providers themselves. Policy makers describe that as providers taking risk for the financial performance of their own system.
We stand on the brink of doing that today — but the process has become the focal point of an array of cultural, political and financial forces that stand in the way.
The role of OneCare
We have had an ACO in Vermont since 2012. It is called OneCare Vermont and it comprises both tertiary centers serving the state — Dartmouth-Hitchcock and the UVM system — along with nine of the state’s community hospitals. Northeastern Vermont Medical Center in St. Johnsbury, Springfield Hospital, Grace Cottage in Townshend, and Gifford Hospital in Randolph have opted out of OneCare. There are two smaller ACOs in Vermont, but neither has the capacity to develop an integrated system in the state.
OneCare has been selected by the federal government to be one of a couple of dozen or so such entities in the United States to get a special designation called Next Generation, Next Gen in the vernacular. OneCare is now on track to begin operations on Jan. 1, 2017. This means that OneCare would begin seeking risk contracts with large blocks of patients—the state employees, for example, or Global Foundries, or General Electric.
The process of getting OneCare ready for an opening 11 months from now, however, has been very slow. The most critical uncertainty lies in the question of primary care doctor’s participation in the ACO. Under federal law, a Vermont resident can only be included in an ACO if he or she is referred there by a primary care physician.
A major block of the primary care doctors in the state are members of federally qualified health centers (FQHCs), which are clusters of doctors who get extra money from the federal government because they work in underserved areas. The FQHC’s have their own trade group known as CHAC (Community Health Accountable Care). CHAC, along with a smaller group, Healthfirst, that includes both some primary care as well as specialty physicians, have acknowledged that there needs to be just one ACO in the state, but they have not been willing to actually agree to join OneCare. OneCare now includes more than 90 percent of the acute medical providers in the state, including a considerable number of primary care doctors, but OneCare is hoping to increase their potential for risk contracts if the FQHCs are included under the their umbrella.
Representatives of OneCare, CHAC, and Healthfirst have been meeting weekly for nearly a year to resolve the issues surrounding the movement of the primary care doctors into OneCare, but it hasn’t happened yet; and we are rapidly approaching the point where OneCare will have to build a business plan for 2017 and the CHAC doctors will have to choose to be in or out before that plan can be put in place.
This is a difficult challenge for health care reform; it is rendered even more difficult by a number of cross currents and adverse forces in the health reform environment. I will write about all of these critical pieces in the reform puzzle in the next several months. In no particular order, following are some of the issues involved:
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- The Green Mountain Care Board’s all payer model. The board and OneCare are both dealing with a critical question going forward: how will Vermont manage the flow of Medicare money through the state’s delivery system. OneCare already qualifies for a waiver to link Medicare payments into a capitated payments system. The Green Mountain Care Board also needs a waiver to manage the annual inflation rate of Medicare payments flowing into the state. I described how OneCare might be regulated by the Green Mountain Care Board in a pair of articles last fall.
(The articles were: ACOs Offer Solutions to Health Care crisis on Oct. 20, and The Vermont ACO Landscape on Oct. 22)
- Medicaid. The Medicaid situation is a conundrum for policy makers. The Legislature badly needs to get Medicaid costs under control, but nobody seems to know how to do it. There are two areas to this challenge: the first is the management of acute care; the second is a block of care that has both a medical and social service dimensions.
The medical care part desperately needs to get into a risk contract within OneCare. But how to structure care to the social side — to areas like substance abuse, mental health, and other specialized services — is highly problematical. Much of this care is delivered by so-called designated agencies, which are formally independent, but which get much of their funding from the Department of Vermont Health Access, which is the state’s Medicaid manager. This is the key issue left in the question of whether CHAC comes into OneCare.
- Tension and dislike. There is considerable tension and palpable dislike between the state’s 13 small hospitals and the UVM system. Several of the small hospitals see UVM, along with Dartmouth, as big, well financed providers who they think want to dominate the small hospitals and leave them with just the crumbs.This sentiment has been out there at least since the early 1980s and it has become more virulent with the prospect of serious reform on the horizon. One particularly dangerous aspect of this is the claim that the UVM system is the expensive element in the cost equation; and, moreover, that the quality of care is as good, or even better, in the small hospitals as it is at the tertiary centers. This narrative is false, but it is affecting the environment for reform.
- The Legislature. What is the posture and ultimately the role of the Vermont Legislature in the process of reform. Over the period of reform, there has been more than 100 hours of testimony by all the players on every aspect of reform. Just last week, Al Gobeille, chair of the Green Mountain Care Board spent almost two full days talking about reform issues with committees in the House and Senate. I believe it is fair to say that the level or knowledge on the intricacies of reform is very low among lawmakers.
- The political environment. A major factor in the trajectory of reform is the loss of any real influence by Gov. Peter Shumlin. Health care reform is probably the most complex and financially formidable an issue ever faced by a Vermont Legislature, and the Legislature is trying to manage it on its own. And irrespective of how that plays out in the current session, everyone involved has to factor in the fact that when the 2017 session opens, there will be new governor and a whole new high command at the state’s health care bureaucracy.
- A return to financing. There is still pressure from the left to resuscitate the financing aspect of reform. There is no chance of that in the near future, but financing could breathe again if cost containment succeeds; and it’s worthwhile to look at it one more time.
Taken as a whole at the outset of reform’s fifth year, we are now moving from the design stage of reform to the execution stage. And it is turning out to be very difficult. The old chestnut that “the devil is in the details” doesn’t begin to capture just how difficult. Difficult, however, does not mean impossible.
