How much should Vermont taxpayers foot the bill for the state’s health care reform efforts?
That was the question that lawmakers posed to OneCare Vermont on Monday, as they quizzed executives of the state’s accountable care organization about whether it really needs an additional $13.1 million in Medicaid money.
OneCare had included the request as part of its 2020 budget, which it presented to state regulators last week. The ask includes $4.5 million in state money next year, as well as $8.6 in federal funds. All told, OneCare is seeking approval to manage $1.43 billion in cash for next year, most of which goes directly to hospitals and providers.
The state’s all-payer health care system — spearheaded by OneCare, a for-profit company — started in 2016 with the aim of saving money by focusing on preventative primary care. It also changes the way health care is funded, paying hospitals a set fee for each patient rather than for each procedure.
But realizing those savings will take time, OneCare CEO Vicki Loner told the legislative committee as part of a three-hour hearing on the subject. And the organization first needs an influx of cash to help set up the system.
The additional money would take the strain off hospitals, which have already put in $50 million to prop up the new system, Loner said. The $13 million would go toward expanding home health care programs, embedding pharmacists in the offices of primary care doctors, and placing mental health workers in emergency rooms, among other initiatives.
Lawmakers weren’t convinced — especially when they learned that offering more funding could bring the state dangerously close to its limit for Medicaid spending, making it difficult to tap additional federal health care funds if there’s an unexpected rise in costs.
“I don’t think anyone’s convinced the investment is healthy,” given that cap, said Sen. Ginny Lyons, D-Chittenden, chair of the Senate Health and Welfare Committee.
Rep. Anne Donahue, R-Northfield, said the request represented “a significant concern” about whether the bureaucracy of OneCare Vermont could bring about cost savings. But Donahue said she’d wait to get more information before deciding whether or not she’d vote in favor of the $4.5 million in funding as part of next year’s state budget.
Loner pointed to early successes from the all-payer model; Medicare patients who participated in OneCare programs had fewer emergency room visits and were more connected within the community, she said.
But the “tiny numbers of people” participating in those programs mean that the success rates “can be misleading,” Donahue said. Sen. Jane Kitchel, D-Caledonia, said outcomes for some of OneCare’s other pilot programs had been “mixed and disappointing.”
It wasn’t only OneCare asking for more state money. Green Mountain Care Board Chair Kevin Mullin came before the committee to explain a letter he wrote in August to Gov. Phil Scott asking for more state investment for hospitals.
In that letter, Mullin argued that Medicaid and Medicare were not paying high enough rates for medical procedures, which hospitals are making up for by “shifting” costs onto Vermonters with private insurance.
Mullin also pointed to suffering hospitals as evidence of the effects of low Medicaid and Medicare reimbursement rates. Six Vermont hospitals are operating in the red, while Springfield hospital declared bankruptcy last year.
Both Scott and Senate leader Tim Ashe, D/P-Burlington, were skeptical of Mullin’s request in August, arguing against more taxpayer money and a further increase in health care spending.
Care board member Robin Lunge urged the state to step in Monday, calling it a “critical moment” for health care reform.
Currently, the state is a mere $300,000 under its cap of $138 million in Medicaid spending, explained Sarah Clark, chief financial officer for the Agency of Human Services.
“We were actually getting closer to Medicaid spending cap than we ever have before,” Clark said. There may be space for more spending next year, she said, but that remains to be seen.
The committee also brought in experts, who challenged Mullin’s ideas of the “cost shift.”
The issue is not that hospitals aren’t paid enough for the Medicaid and Medicare patients they see, said Chapin White, an economist for the RAND Corporation. The federal government doesn’t underpay, he said; in fact, private insurers overpay.
The federal government pays as much, or more, than the average in other similar countries. White also argued that hospitals could cut costs to adjust to the amounts that they take in, and in turn the costs they pass on to patients and insurance payers.
Giving money to hospitals would not “naturally and directly” lead to reduced private prices — “unless there was an enforcement mechanism” to drive down costs, he said.
Committee members pointed out that the Green Mountain Care Board could serve as that enforcement mechanism. The care board approved substantial increases in the coming year for both health insurance rates and some hospital budgets, notably a 5.9% increase for UVM Medical Center.
Rising hospital costs
Stanford University economics professor Kevin Schulman attributed the high cost of health care to widespread hospital consolidation. He did not mention recent trends in Vermont specifically, thought both UVM Medical Center and Dartmouth Hitchcock in New Hampshire have actively pursued mergers and acquisitions in the region in recent years.
Hospitals are rapidly buying up local health clinics, Schulman explained to the committee, in testimony he gave over the phone. In 2018, 44% of doctors nationwide worked for hospitals, compared to 26% in 2012, Schulman notes.
As hospitals become bigger and face less competition, they are able to exert “enormous pressure” on health insurance companies to negotiate higher rates, he said. Those hospitals also have high overhead costs, and have been rapidly building new facilities to attract more patients.
Hospitals are “not accountable” for cost, because they can just raise rates. “Cost is not a set amount, it’s the result of a strategy,” he said.
Schulman noted that CEO salaries are tied to how much money the hospital makes, a relationship that he suggested changing to incentivize less spending. He also suggested limiting hospitals’ ability to negotiate rates, by making health care prices more transparent, or having a court work with insurers and hospitals to negotiate prices.
The Legislature would consider stepping in to help control health care costs and playing a more active regulatory role in the next legislative session, said Lyons, who chairs the Senate Committee on Health and Welfare.
Creating a new all-payer system will require “a significant amount of oversight and regulation,” she said. “We all need to work as carefully and assiduously as we can to build a successful reform effort.”
