Mark Hage: Rebalancing Vermont’s health care system and lowering health care costs

This commentary is by Mark Hage, director of benefit programs at Vermont-NEA.

This commentary is the last in a series that included pieces by Patrick Flood and Julie Wasserman. We linked arms to make the case that a more affordable and equitable health care system is within Vermont’s reach. 

But we must act. We can’t wait for the federal government, even as the debate on “Medicare for All” continues. It’s our health care system — and it’s failing us.

The Vermont Department of Health’s 2021 Household Health Insurance Survey tells us:

• 2 in 5 privately insured Vermonters (41%) have an annual deductible greater than $4,000.
• 44 percent of us under the age of 65 with private insurance — roughly 131,000 — are “underinsured.” To be “underinsured” means your benefit plan doesn’t sufficiently cover current medical expenses or potential future ones should you develop a serious condition or illness. 
• Low-income Vermonters, BIPOC residents, members of a gender-identity minority, and those with disabilities are more likely to be medically disadvantaged compared to other groups. 

A modest path of reform

What can Vermont do now to lower health care costs? And how can we strengthen community-based care practices in local communities and provide predictable funding to hospitals?

Building on the contributions of my colleagues, I propose these reforms:

• Transition hospitals to global budgets to ensure fairer prices, greater efficiency, and sustainable funding.
• Develop a multiyear plan to rebuild the community-based sector of care, and to reallocate revenues spent on avoidable or low-value hospital care to community-based care practices.
• Establish a Prescription Drug Affordability Board to negotiate lower prices for high-cost medications.

Global budgets for hospitals

A global budget is a publicly regulated system of funding that disburses fixed payments to cover a hospital’s prospective costs for a designated population area in any given year. It is a model used commonly across the world.

The primary goal of global budgets is rational planning, with reasonable financial controls, to provide stable amounts of revenue and to optimize the delivery of essential services. The development of these budgets is based on several factors: previous expenditures, financial management, clinical outcomes, projected changes in levels of services, labor costs, administrative expenses, and proposed new programs. 

Global budgets can also establish the same prices for the same services (they vary wildly today). 

In a paper published by the Commonwealth Fund this year, Robert Murray, an expert in health care reimbursement systems, discusses both fixed and variable global budgets. He characterizes global budgets generally as having “great potential for controlling overall costs, including by containing or reducing unnecessary hospital services.” 

Global budgets, he argues, can also promote investments in programs that better coordinate hospital care with primary care doctors and expand access to early intervention for patients with chronic illnesses. Murray asserts further that global budgets can require “a minimum of regulatory complexity to implement and enforce.”  

Reference-based pricing

As Vermont’s global budgeting system is being developed, I propose we bridge to it with a model of reference-based pricing benchmarked to Medicare rates. This means hospitals would be paid for services based on a multiplier of what Medicare pays.

In 2017, Montana implemented reference-based pricing benchmarked to Medicare rates for hospital services for its 31,000 state employees and their dependents. No hospitals were shuttered in the aftermath, and cost savings were impressive:

• In fiscal year 2019, the average per member per month spending for state employee insurance benefits decreased by 22% for inpatient services and 14% for outpatient services.
• From 2017 to 2019 alone, health insurance costs for state employees were reduced by nearly $48 million.
• Reference-based pricing “enabled the plan to become more financially sustainable … without pushing costs onto employees.”

Other states, in their fashion, have followed Montana’s lead.

Rebuild and respect community-based care 

Revenue spent now on low-value care, emergency room overutilization, and potentially avoidable hospital services should be invested in rebuilding community-based care practices staffed by well-paid providers. 

The state must also make an enduring commitment to resolve critical workforce shortages in primary care, nursing, mental health and home health. That we have allowed their ranks to become depleted and overextended is a severe indictment of those who administer our health care system and of OneCare Vermont, the state’s failing accountable care organization. 

Prescription Drug Affordability Board

Nearly one in four Americans report not taking their medications because of cost. Yet, from 2016 to 2020, 14 major drug companies spent $577 billion on stock buybacks and dividends — $56 billion more than they invested in research and development over the same span of time. 

Facts like these led Maryland in 2019 to establish the first Prescription Drug Affordability Board, a public body of clinical and health economic experts charged with “protecting Marylanders and the Maryland health care system from the high costs of prescription drug products.”

Other states have since followed Maryland’s example. Vermont should be next. 

Funding reform

Patrick Flood recommended we start funding the revitalization of community-based care with money from OneCare Vermont’s budget. I agree. This infusion of revenue will jumpstart a larger transformation process that will pursue systemic cost savings and efficiencies of care through rational planning and pricing through global budgeting.

Vermont has spent approximately $80 million on OneCare’s administrative costs since its inception, with $15.4 million approved in fiscal year 2022. 

Most of us, though, have no idea what OneCare is or why it exists, as it provides no direct care to patients. Since it launched in 2014, the number of underinsured Vermonters with private insurance has jumped by 17 percent (27 to 44 percent) and state health care spending increased from $5.5 billion (2014) to $6.8 billion (2020).

The Green Mountain Care Board should develop a multiyear plan that would redirect OneCare’s administrative revenue to these purposes: 

• Fund tuition grants and debt-forgiveness initiatives to educate, recruit and retain primary care doctors, mental health counselors, nurses and home health caregivers, to begin raising their salaries, and to phase out the absurdly expensive practice of hiring “traveling nurses” (in 2021, Vermont spent upward of $100 million on travelers).
• Enhance the financial capacity and administrative flexibility of federally qualified health centers to offer primary care and mental health services at no cost or on a sliding-income scale.
• Eliminate nonclinical demands on providers that do not improve care but take time away from patients and inflate costs.

The Green Mountain Care Board’s redistribution of OneCare funds should be informed by a task force of representatives from community-based care practices, hospitals, employers and unions, state colleges, and organizations committed to advancing health care affordability, equity, and anti-discrimination protections. 

Let’s move forward

It is in our power to rebalance the scales of hospital and community-based care and to restructure the integration of their missions. 

By necessity, this means bringing more rationality and accountability to hospital prices and expenditures with global budgets. It also requires eliminating or curtailing surplus accumulation by hospitals and reducing the volume of practices that land people in emergency rooms and hospital beds.

Finally, the state must compel the pharmaceutical industry to negotiate lower prices. 

These objectives are achievable with legislative will, regulatory resolve, and public support.