(Editor’s note: Hamilton E. Davis is VTDigger’s health care columnist.)
Last week, federal Medicare officials notified the Shumlin administration and the Green Mountain Care Board that they could not reconfigure their computers to handle block financing for Medicare patients until sometime in 2018. The target date had been Jan. 1, 2017.
However, they will be able to move partway to their goal, albeit based on fee-for-service reimbursement, by the original go-live date. Word on the delay came from the Centers for Medicare and Medicaid Services on Monday.
The effect on Vermont’s health care project probably won’t be severe, although it comes at a time when the reform atmosphere has been roiled by upheaval in the state’s Medicaid agency, and by legislative inquiries into the all-payer model effort being carried out by the Green Mountain Care Board.
The backstory runs like this: The key to the cost containment piece of Gov. Peter Shumlin’s reform plan is based on shifting from fee-for-service reimbursement to block financing, or capitation, for doctors, hospitals and other medical providers. The vehicle to effect the transfer is a statewide accountable care organization called OneCare Vermont. OneCare was selected last year as one of a couple of dozen ACOs to lead the way in the United States toward block financing.
An ACO is analogous to a loosely organized company in which disparate units can cooperate on group pricing without triggering federal prohibitions against price fixing.
Even with the lag on Medicare, OneCare could enter into full block financing contracts in 2017 with private insurers such as Blue Cross Blue Shield of Vermont, and with the state for the Medicaid population. According to Lawrence Miller, Shumlin’s health care reform chief, the administration intends to get the Medicaid population into a block financing contract as soon as possible.
And even in the Medicare arena, the statewide ACO could move partway to block financing. To illustrate with a crude example:
The ACO could assemble a group of 100 doctors to treat 100 patients for a target price of $100 each. The doctors would submit their fee-for-service claims to the Centers for Medicare and Medicaid Services; the federal agency would pay most of those claims, but the ACO would retain a “withhold” of some amount, say $10. If the total for the group came in at the target price, the ACO would return the full amount of the withhold to the doctors.
If the total came in under the target, say at $9,000, a savings of $1,000, the doctors would get to keep 80 percent of that amount, or $8 per doctor. If the total came in at some higher figure, say $11,000, then the doctors would have to return up to 80 percent of the “withhold” to the federal government.
An important component of the scheme is that at this level there would be tough quality requirements to meet.
The above calculation is drastically simplified to make the calculation easier. One trap that should be avoided is the assumption that the numbers are based on office visits to primary care doctors. One of the few things that everyone in the health policy communities agrees on is that primary care providers need to be paid more, not less, no matter what system they are in.
The place where capitated or block financing will make a major effect on health care costs is in the hospital system and the specialist community. The point of the whole exercise is to begin to tie the disparate elements of the delivery system together so they can coordinate care, rather than compete with one another.
The full effect will not be seen until you get to level four — full capitation for large blocks of patients with care delivered by a full integrated system of primary, secondary and tertiary care.
As far as Medicare is concerned, we won’t see that fully implemented until 2018. We could see it for private insurance next January. Medicaid is also a possibility by that time depending on whether the state Medicaid agency can manage it.
