Green Mountain Care Board: Medicare and Medicaid are “the lynchpins” to the future single-payer system in Vermont

by Matthew Strong

According to Richard Slusky, the Director of Payment Reform of the Green Mountain Care Board (GMCB), Medicare and Medicaid are “the lynchpins” to the future single-payer system in Vermont. The state would have to have these two payers agree to higher growth rates of fees in order for the single-payer system to work. While no discussions have taken place with these two organizations, Slusky says he believes they would be willing to increase their growth rate (increasing the annual increases in healthcare spending) because Vermont would be saving them money.

Slusky was testifying before the House Health Care Committee last week about the Vermont Health Systems Payment Variation Report, which was prepared by the Vermont Association of Hospitals and Health Systems (VAHHS). Rep. Gage asked Slusky if he felt Act 48 would prohibit a private individual from paying a doctor directly. Slusky initially laughed and looked as if he thought Rep. Gage was joking and eventually decided he need more time to investigate before answering the question. “Well, our goal is that everyone would have insurance, so you wouldn’t need to do that” replied Slusky.

On Feb 3rd, a NY Times article covering a newly released report points to the issue Rep. Gage was asking about. Within the European Union (EU), citizens have to circumvent onerous regulations in order to accomplish many tasks including, most notably, to get healthcare. Patients are paying doctors directly with cash under the table to have necessary treatments performed in a timely manner. Even though they have universal health care in many of these countries, the red tape and wait times have created an entire system within the system. In the countries where people report the most bribery, the biggest culprit, by far, is the healthcare industry. Around one fifth of Lithuanians and Romanians report giving an extra, unofficial payment to a doctor, nurse, or hospital in exchange for treatment. This is backed up by other studies; the World Bank estimates that Romanians pay $1 million per day in bribes to medical staff. According to the EU study, the total corruption costs the member states of the EU $120 billion euros per year. This is the same system that most single-payer proponents want Vermont to move towards.

There were several important findings that came out of Vermont’s Payment Variation Study. Two being what was not in the study; Medicare data (due to technical issues) and Dartmouth-Hitchcock data (because it is not a Vermont hospital). The study looks at payments of all the payers (excluding Medicare) operating in Vermont paid to all the hospitals in the state (not including Dartmouth-Hitchcock). This information was made available because legislation required all Vermont hospitals to release this information, which is now on a website specifically for this purpose. The issue with the two factors missing from the study is that there are 117,393 Medicare enrollees in Vermont according to the American Medical Association (AMA), and Dartmouth represents a full 20% of the hospital care provided to Vermonters, which makes it the second largest hospital by volume. The AMA also says that “in 2014, Vermont Medicare physician services face an across-the-board pay cut of 24.7 percent due to a flawed payment formula, the Sustainable Growth Rate (SGR), created by Congress, on top of a 2 percent sequestration cut that began in 2013 as required by the Budget Control Act of 2011”. It is unclear whether or not these two missing sets of data will be included in further drafts of the study.

What the GMCB wants to do in order for the single-payer system to work is to make all payers pay the same amount for any given procedure, all insurance companies, including Medicare and Medicaid, as evidenced by the following two graphs from their presentation.

Pricing of Chest X-Ray – Current System

Current system

Income

Payer                              %Total      Volume         Paid @      Total Paid

Self Pay/ Uninsured 5%                50               $396.82        $19,840

Comm. (90% charge) 25%           250             $357.14          $89,285

Medicaid (75% cost) 20%            200             $187.50          $37,500

Medicare (85% cost) 50%            500              $216.75          $108,375

Tot. Inc. $255,000

Cost Volume Cost@ Tot. Cost

Chest X-Ray 1000 $250.00 $250,000

Profit (2%) $5,000

 

Pricing of Chest X-Ray – All Payer System

All-payer example, reduces prices from $397 to $255 per unit of service

Income Regulated Price

Payer     % Total          Volume          Paid @             Total Paid

Other       5%                   50                  $255.00              $12,750

Comm.   25%                 250                $255.00              $63,750

Medicaid 20%              200                $255.00              $51,000

Medicare 50%              500                $255.00              $127,500

Tot. Inc. $255,000

Cost                            Volume         Cost@              Tot. Cost

Chest X-Ray               1000        $250.00           $250,000

Profit (2%) $5,000

On paper it looks like a great idea, but the bigger issues of government regulated prices versus privately negotiated insurance-provider contracts (and the questions of who will determine the pricing and what formula will be used) and if Medicare, Medicaid, and other insurers will actually play along, and how this addresses the actual cost of healthcare, remains unanswered.

“Health insurance is one of the craziest things ever” says Dr. Corey Pacek, an Orthopedic Surgeon who is fellowship-trained in hand and upper extremity surgeries. The practice Dr. Pacek is a partner of, in Pennsylvania, is a multi-specialty orthopedic surgical group. The practice receives up to 1,000 phone calls every day, which for comparison is between 30% and 50% of the calls received by the customer support center for Vermont Health Connect, for the entire state of Vermont. Dr. Pacek, who was not at the committee meeting, was contacted for comment because he is outside the VT health system and his opinion is valuable as an impartial yet highly respected health care provider.

“As an example, I performed a complicated thumb reconstruction the other day. My practice has a standard fee that is charged for that surgery. However, that is not what I get paid. We billed the insurance company and got paid 20% of the billed amount. On average we get paid 30% of what we bill to insurance companies (including Medicare and Medicaid). In order to accept insurance payments, I have to enter a contract with each company saying I accept what they pay as payment in full. As the insurance companies keep merging and getting bigger, our ability to negotiate higher fees is reduced dramatically. If I don’t enter into contracts, then I can’t see any patients with that particular insurance company, as none of those patients will be willing to pay cash. This forces doctors to do more work to make the same income.” Dr. Pacek also pointed out that health care providers are already going to be under a lot of pressure in the coming year. “Between income tax increases and joint replacement reimbursement decreases, if you’ve been a surgeon for 10 years or more, you are looking at an almost 20% pay cut this upcoming year. The vast majority of physicians and surgeons aren’t doing this for the money. It’s a rare thing to be able to help people in such profound ways. But, if you can’t make a living while doing it, at a certain point, no one will be willing to put in the huge amount of effort required to get into the field.”

Rep. Gage said he had serious doubts about “basing our hospital system on federal dollars (Medicare and Medicaid) since federal deficits continue to grow and many economists believe our borrowing ability will end within 5-10 years, Vermonters will be left holding the bag (having to raise taxes to fill the gap).”

“My assumption here is that Medicare would continue and that they would participate in an all-payer model that we would design in Vermont that would, in fact, be attractive to them in terms of managing growth (increase in healthcare spending) in ways that would be different than other states” said Slusky.

Gage responded “I don’t see us getting them (Medicare/Medicaid) up to what other payers are paying”.

“No, what we want them to do is to keep up with the growth rate” Said Sluksy. “We wouldn’t be asking Medicaid to come up to a higher payment level. I mean, we’d like to, but, you know, maybe over time that gap would be narrowed. But that’s not the starting point, it’s the growth. If there could be a commitment from all payers to participate in the growth rate… that’s what we would be looking for.”

Slusky made one more point since he had some time to think about the question from Rep. Gage regarding direct patient-to-doctor payment. He recalled his time “in a small town on the cape” during the 70’s. “There was a doctor there who treated a lot of people who had no insurance and basically negotiated their payments with them and when I looked at the grand lists, he owned about 30 properties, most of which were acquired from patients who had died and left him their property (as payment)” he said. “So, those are the kinds of things that can happen.”

http://www.nytimes.com/2014/02/04/business/international/European-Union-Report-on-Cost-of-Corruption.html?_r=0
http://www.ama-assn.org/resources/doc/washington/sgr-states-vt.pdf