Dean Endorses Shumlin's Strategy for Health Care

January 22, 2011


Gov. Peter Shumlin announced Thursday that he would look to cut health care costs first—then figure out how to pay for a single-payer plan for Vermont.

In a press conference, Shumlin repeatedly said that extending coverage to all Vermonters, and finding a way to pay for the new system, is not a big deal—compared with altering the economics of the health care system. He said the elimination of administrative waste and duplicative services will go a long way toward creating the savings needed to overhaul the system.

“Let’s focus on the challenge of doing something that no one else has done anywhere in the country, designing a smart, sensible health care system that contains costs,” Shumlin said.

Shumlin made the statements a day after Harvard economist William Hsiao outlined a recommendation to the Vermont Legislature for a single-payer health care plan that also includes a significant cost-control component. Hsiao, in a meeting with lawmakers on Thursday, said that savings could be found immediately if the state moved to a common claims database for Medicaid and private insurance bills. If Vermont could also get the cooperation of Medicare administrators, Hsiao said it “would enable you to look at potential fraud and abuse and control it through the information system.”

Shumlin endorses Hsiao’s cost-cutting proposals, including a unified payment system administered by a single private or public entity.

When asked if he would consider Hsiao’s 14.5 percent payroll tax proposal in the bill his administration will present to the Legislature, Shumlin sidestepped the question—for now.

 “You know I’m going to resist the temptation to talk about how we pay for it, because I think if we make that mistake, we lose sight of the prize,” Shumlin said. “The prize for Vermont is designing a health care containment system that works. This is about reducing the amount of money we spend on health care. It isn’t about spending more money. That’s the hard part, designing cost containment. No one has done it—we have an opportunity to do it. Let’s get that done, then we can talk about how we’ve raised less money than what we’re raising now.”

It’s a strategy that could spell success for the new governor, according to former Gov. Howard Dean, who is a health care reform expert, physician and former Democratic candidate for president.

“I think it’s brilliant,” Dean said. “Set the system up and see if people think it’s worth paying for.”

Shumlin’s cost-containment-first strategy could enable the governor to work with one stakeholder group at a time (docs and hospitals this legislative session, then businesses and single-payer advocates in the second year of the biennium), according to observers. They say it could also set the stage for a transition from the existing multi-payer insurance system to a plan in which one private or public entity handles all medical claims.

Bill Gilbert, a retired lawyer who served as the head of Fletcher Allen Health Care in the 1990s, said cost containment is the biggest problem to solve with regard to a single payer system.

“It is wise to address cost containment first because without it you can’t afford the promise of health care for all,” Gilbert said. “The other piece that is very difficult is that for everyone to receive care—you have to have virtually everyone contributing.”

Speaker of the House Shap Smith embraces the idea of examining the spending side first; he is cautious, though, about expediting the process at the expense of ensuring that all the “pieces fit together.”

“When dealing with almost 20 percent of the economy, there are a lot of moving parts,” Smith said. “First you have to understand how those moving parts interact and what type of influence you can have over them.”

Paul Harrington, executive director of the Vermont Medical Society, a powerful voice for the state’s physicians, said his members support the idea of reducing administrative costs and reducing duplication in the system. They would oppose, however, a single-payer system that sets low rates based on the Medicaid reimbursement model for Vermont’s poorest patients.

“We’re interested in working with Shumlin to make the payment system more rational,” Harrington said.

Dean endorses Shumlin’s approach
The eat-your-vegetables-first philosophy is also in play as Shumlin shapes his political strategy for advancing single-payer. Dean supports Shumlin’s approach to the economics of health care reform, arguing that reform can’t move forward without taking a hard look at the expenditure side of the equation.

“(Shumlin’s) taking on the toughest problem first,” Dean said. “If you do the easy things first (providing universal coverage), as (President Barack) Obama did, you never solve the problem.”

Dean is a veteran of the health care reform wars. The former governor spearheaded the creation of the Dr. Dynasaur program, a Medicaid-subsidized health insurance plan, which ensures all children under the age of 18 have access to medical care. His attempt to create a single-payer health care plan in 1992 stalled in the Vermont Legislature.

Shumlin, when asked by reporters if he would support a government-administered plan, made a reference to the failed attempts at health care reform made by “some of the best politicians in America – President Clinton, Hilary Clinton, Barack Obama and Howard Dean.”

“We have a lot of battles ahead,” Shumlin said. “There are so many landmines in the health care reform efforts. … Let’s acknowledge as Vermonters, we’ve got a problem to solve. If we keep spending $1 million more tomorrow than we spent last year at this time on health care, we will bankrupt small businesses, we’ll bankrupt middle class families, we cannot win this battle. We’ve got to contain costs. None of the health care reform efforts including those in Vermont have succeeded in containing costs. To argue about whether it’s more economical to actually run the payment system ourselves or to contract it out to those who do it every day I think is missing the point. I don’t care. What I want is a system that contains costs and I’m going to ask Vermonters to work together with us to help design it. There’s going to be some heavy lifting.”

Dean points to Massachusetts, where health insurance coverage is mandatory for state residents and medical spending has continued to escalate. “What Massachusetts shows is you can’t do this without cost controls,” Dean said.

In Dean’s view, however, cutting administrative costs and curbing waste and abuse is only part of the solution. He believes fee-for-service remuneration for doctors and hospitals is the main cost driver. “I don’t know anyone who is saying…fee-for-service can survive if you have cost controls,” Dean said.

Massachusetts, he said, is now pushing for the elimination of a la carte medical payments—five years into the implementation of its universal coverage system.

Dean says if Shumlin can prove that a single-payer system will contain costs, he will win over business leaders who tend to believe free- market solutions could be more effective.

“If you can show this will save money, they’re going to be on board,” Dean said.

Craig Fuller, managing director of the Vermont Employers Health Alliance, which represents large employers like Cabot Creamery, Pizzagalli Construction, among others, said the 1992 reform effort collapsed of its own weight: “It was too damned expensive.” Fuller agrees with Shumlin’s approach, but he doesn’t believe that Hsiao’s projected savings will bear out.

“He’s right, it is all about cost,” Fuller said. “But that’s a tough nut to crack. Hospitals and doctors are powerful people. They have us by the short and curlies, they really do.”

He points to the Catamount Health plan as an example of a system that was supposed to save money but that continues to run over budget. “We’ve had so many opportunities, and they get derailed somewhere down the line,” Fuller said. “We’re really good at talking about this — we’ve had a lot of practice.”

The flip from medical specialization to illness prevention
In the existing system, doctors and hospitals are rewarded for each treatment they provide. That creates an economic incentive for specialists, who make money based on the number of treatments they provide, and a disincentive for primary doctors, who prevent patients from developing health problems that require high-tech interventions and intensive medical attention.

 The best way to lower health care expenditures, Dean says, is to shift the economic imbalance in the system. He said the state should eliminate most fee-for-service payments and instead require a global budgeting process, in which hospitals would meet spending targets, and a “capitation” system for doctors, who would be paid a flat fee for each patient (some managed care plans already place a cap on payments to physicians).

Dean said the only way “money follows prevention” is when “people get a reward for doing it.” Prevention is less expensive than “tertiary” care, i.e. treatments provided by specialists.

The savings in the system, he said “will come at the expense of tertiary care.”

“I don’t think that’s a bad thing,” Dean said. “We spend a hell of a lot on tertiary care—a great deal of which is not necessary.”

Harrington, speaking as executive director of the Vermont Medical Society, disagrees with the notion that there are too many specialists in Vermont.

He said many rural areas have a shortage of tertiary-care doctors.

Dean said in a global budgeting and capitated payment system, the state doesn’t tell doctors and hospitals how to spend their money. “They have to figure out how to maximize the money they keep,” Dean said. Many Vermont hospitals and primary doctors would embrace global budgeting and capitated payments, Dean argues.

“We don’t have to change the system,” Dean said. “We have to change the economics of the system, and it will change itself.”

Obviously we’re going to be kicking the tires to make sure the savings are there, because the savings are key to making the money work.”

Harrington said his members support the idea of reducing administrative costs and reducing duplication in the system. They are less enthused, however, by the idea of capitated reimbursement method, which is used by some insurance company health-management organizations.

“Going to a total capitation (in which all reimbursements are made in this fashion), where there is an integrated delivery system and lump-sum payments,…is probably the other extreme, and it will take Vermont and its physicians and hospitals working with public policy makers to sort through,” Harrington said. “My sense is, there is a broad interest in moving away from a system of fee-for-service to one that is more prospective in nature—up-front payments as opposed to respective payments once services are delivered.”

The Vermont Medical Society is also wary of another option for controlling rates for provider reimbursements known as the uniform payment system.

In his report, Hsiao said such a system, in which a single rate is assigned to each treatment, regardless of what hospital or doctor provides the service, is the best way to control costs. Hsiao described the current payment system in Vermont as one of the most “chaotic,” or with the largest degree of variation, he’s ever encountered. He said in a uniform payment system, providers could negotiate payments with members of an independent board representing business and government interests.

The Medical Society wouldn’t support such a system if reimbursement rates were set too low, Harrington said.

“The uniform payment system concept is a good idea,” Harrington said. “But if the uniform amount is set too low, or if it is set at reasonable amount and then whoever sets it feels political pressure to reduce the amount, then it’s a worse situation, because then (doctors) don’t have the cross subsidization (from private insurers) that can buffer under-reimbursement from the state and federal government.”

Shumlin made a reference to cutting Medicaid payments on Thursday in his presser. He will release his budget on Tuesday, and he has said that in order to resolve the $125 million budget gap, he has had to make deep reductions in spending. No details have yet been made available.

“The urgency (of the budget) is the necessity of government in tough times to balance the budget on the backs of hospitals and providers by reducing reimbursement levels and by finding creative ways to draw down more federal dollars,” Shumlin said. “My budget will not be immune to any of the techniques that have been used by past governors.”

House leaders on the same page with Shumlin
A uniform payment system is at the top of Mark Larson’s list of priorities. Larson, chair of the House Committee on Health Care, said “the one pipe for payment is the initial step” toward initially reducing costs.

“What’s encouraging about Dr. Hsiao’s report is that within the current spending in our health care system, we can actually cover everybody and save money,” Larson said. “Finding the specific way that we can pay for the system in a more equitable and transparent manner is an important part of the discussion. Right now, our focus should be: can we spend less, cover everybody and improve our outcomes?” 

Hsiao estimates that Vermont could save $500 million in the first year of implementation of the hybrid single-payer model he developed for the Legislature ($400 million of those savings would be used to provide “essential” benefits for uninsured and underinsured Vermonters). Under Hsiao’s plan, one administrative entity—likely a private company—would handle all claims, which would be simplified by a rate structure that sets a single price for a procedure, test or treatment—regardless of what doctor or hospital provides the service.

Larson will likely be one of the first House leaders to get a glimpse of the administration’s legislative proposal. At the moment, Larson is singing in two-part harmony—he likes what he sees in Hsiao’s report, and he supports Shumlin’s cost-cutting-first approach.

That said, Larson said his committee will be “examining all aspects of pay reform, the development of an integrated delivery system and the component of how you look at providing an essential benefit package to everybody.”

“Obviously we’re going to be kicking the tires to make sure the savings are there, because the savings are key to making the money work,” Larson said.

The savings, he said, would be realized on two levels. The initial drop in spending would be a result of the creation of a uniform payment system and a single claims administrator. In addition, growth in spending would slow over time as the doctors, local clinics and hospitals move toward an “integrated delivery system,” in which enhanced communication between providers leads to less duplication of services and more efficient care for patients.

“There’s an initial drop in the cost, and then there’s going out a slowing of the growth,” Larson explained. “The initial drop is from moving toward one payment method, and removing the administrative costs. The slowing of the trend going forward is where the integrated delivery system achieves additional savings.”

In the meantime, House Speaker Shap Smith questions to what extent the state, outside of the programs it already controls, such as VHAP, Catamount Health and Dr. Dynasaur, can influence the rates negotiated by health care providers and insurers. Smith said the “rate structure is one of the issues we need a fair amount of testimony on.”

As for a revenue source for a single-payer system, Smith said he agrees with Shumlin that “we’ll have to figure how much a system would cost and what revenue we need.”

He said he doesn’t necessarily oppose a payroll tax, though he doesn’t think “that could happen this year.”

“Most health care costs are borne by employers and employees,” Smith said. “In some respects, there is already a payroll assessment going on out there.”