Editor’s note: This commentary is by Richard Slusky, of South Burlington, who was the CEO of Mt. Ascutney Hospital and Health Center in Windsor from 1982 to 2010, after which was director of payment reform for the Green Mountain Care Board until 2016. He is now the owner of Slusky Consulting.
In late 2016, the state of Vermont and the Green Mountain Care Board entered into an all-payer model waiver agreement with the Centers for Medicare and Medicaid Services. Under this agreement, Vermont established a target to limit the annualized per capita health care expenditure growth rate for all major payers to 3.5%. A second goal in the agreement was to improve the lives of Vermonters by making value-based payments that reward providers for improved communications and patient outcomes, rather than the volume of services they provide.
Although no one could have predicted the impact of a coronavirus pandemic, the terms of the all-payer model provided for hospitals and other health care providers to be paid based upon predetermined, historical payments, rather than fee-for-service payments based on the services provided. In other words, health care providers would know in advance what they could expect to be paid from all payers and payers would have more certainty in the amounts they would be paying for health care services. These payments would be adjusted annually based on inflation. Under this payment model, hospitals and other health care providers would have more incentives to improve the health of Vermonters and reduce the number of unnecessary procedures, tests, and emergency room visits. Safeguards have been built into this plan to ensure adequate access for patients, and high-quality services.
In regard to hospital payments specifically, according to the Green Mountain Care Board 2019 Hospital Budget Report, over the past five years (2015-2019) Vermont hospitals generated operating margins/profits of $329.2 million. Of that amount, 90%, or $295.5 million, was generated by the University of Vermont Medical Center. In four of the past five years, hospital operating expenses have outpaced operating revenues. As a result, in 2019, seven of Vermont’s 14 hospitals lost money and the hospital system generated a total operating margin/profit of $21.1 million, an 81% decline from 2015. Furthermore, in FY2019, UVMMC generated a margin/profit of $31.4 million, while all the other hospitals lost nearly $10 million in total. These facts do not bode well for the future of the smaller hospitals in Vermont or for the future of Vermont’s health care system as we know it today.
Isn’t it ironic that, in the midst of a pandemic, hospitals have lost between 40% and 80% of their revenues due to cancellations of all elective surgical procedures and non-urgent medical visits? As a result, they are being forced to consider reducing services and staff, while the insurance companies accumulate premium dollars that are not being used to pay for services. Under a fully implemented all-payer model agreement, the hospitals would have continued to receive most of their payments under a fixed payment/global budget contract and would have been in a much better position to fund the additional costs related to the coronavirus.
Vermont Medicaid and Medicare have begun moving toward these fixed payments through the accountable care organization OneCare Vermont and Blue/Cross Blue Shield has also begun to take small steps in that direction. However, a significant portion of health care payments are still being made through fee-for-service, thus contributing to the adverse financial condition of the state’s hospitals
The coronavirus has brought to light many of the vulnerabilities in Vermont’s health care system. While our medical center has the size and financial wherewithal to withstand a crisis of this magnitude, many of the smaller hospitals are struggling to survive. Although some progress has been made to shift hospital payments away from fee-for-service, the pandemic has made clear how dependent the hospitals and other health care providers remain on payments based solely on services provided. School budgets are stressed by the impact of double-digit increases in health care premium rates and, as businesses increase layoffs and furloughs, the risks associated with employer-based health care coverage become more apparent.
There seems to be a growing recognition that many things in our nation and our state will never return to what we thought was normal. Perhaps now is the perfect time for the Green Mountain Care Board to reassess the status of Vermont’s health care reform initiatives and establish a stakeholder process to address a number of very difficult questions that have been ignored for far too long. For example:
- — How many full-service hospitals do we need in Vermont?
- — What services should each of the hospitals provide?
- — Are there opportunities for cost reduction and improved efficiencies throughout the system?
- — What will it take to accelerate the process to move a substantial portion of private insurance payments away from fee-for-service to fixed payment models, based on enrolled beneficiaries/members, similar to what Medicare and Medicaid is doing now?
- — Is the current investment in primary care services sufficient to address the medical and socio-economic needs of Vermonters?
- — Is the Green Mountain Care Board prepared to hold the hospitals and the payers accountable for meeting the financial and quality goals of the all-payer model?
- — Have Vermonters been adequately informed about the potential of Vermont’s health care reform initiatives and/or the consequences of failure?
If we don’t address these issues soon, we may be left wondering why Vermont’s reform initiatives did not succeed, and future health care researchers will have the task of chronicling how and why we failed? Let’s not let that happen.
