Vermont Takes a Health Risk That Many States Abandoned

When states tried the all-payer model decades ago, it largely didn't live up to its cost-cutting goals. But Vermont is taking a slightly different approach.
by | December 6, 2016
Members of the Green Mountain Care Board, which is responsible for reducing health costs in Vermont, meet to discuss issues. (AP/Toby Talbot)

While most of the country has their eyes on what a Trump administration will do to the Affordable Care Act, health policy experts also have their ears on Vermont.

In an effort to cut costs while improving care, Vermont is creating its own version of a health system that was abandoned decades ago by almost all states that had it. In October, the Obama administration gave Vermont a green light to move forward with its plan to create the most comprehensive all-payer health system in the country.

What is an all-payer system?

Essentially, it's a departure from the status quo in American health care, a fee-for-service system, which many blame for the hard-to-control rise of medical costs. Instead of billing doctors for each service they provide, insurers in Vermont will now give them a fixed sum each month, along with bonuses for keeping patients healthy. (Doctors can also pay penalties for adverse health effects, like having a high number of patients getting readmitted to the hospital within 30 days.) The hope is to eliminate unnecessary procedures, reduce costs and elicit more positive health outcomes.

In the 1970s, a dozen or so states tried all-payer systems for their hospitals. Except for Maryland, they all eventually shifted back to the standard fee-for-service because there was little evidence that all-payer was actually reducing overall health-care spending.

All of those states, however, only applied all-payer to hospitals -- leaving out a large portion of health-care providers and limiting its potential impact.

Maryland, which still has an all-payer system but only for hospitals, has had mixed results: While the state's hospital spending per patient grew at a much lower rate than the national average for years, between 1990 and 2009, the state's hospital spending grew at a slightly higher rate than the national average, according to a 2012 report from the University of Pennsylvania.

In 2014, Maryland revamped its all-payer system, forcing hospitals to limit spending to 0.5 percent less than the national growth rate until 2018. The change is slated to save the state $330 million over four years.

Health policy experts are often skeptical of the all-payer model.

"The ability of the Maryland system to survive is probably best viewed as a difficult-to-replicate anomaly rather than a model that can be readily adopted by other states," according to the authors of the University of Pennsylvania report.

But Vermont’s plan will differ from the Maryland model.

For one, Vermont's system will cover all providers -- hospitals, primary care, specialists, urgent care clinics, you name it. And instead of the state paying the providers their monthly fixed sum, it will be up to accountable care organizations (ACOs), which are groups of providers that have the same goals as all-payer: to reduce spending by rewarding better, not more, care.

This is where some say the state could run into problems. If the state becomes saturated with ACOs looking to capitalize on the new market, Dylan Roby, associate health professor at the University of Maryland, cautions that that could spell disaster for the system because it could lend itself to more free-market tendencies, which negates the point of an all-payer system.

Architects of the system in Vermont, however, aren’t worried.

Right now the state has two ACOs: OneCare Vermont and Community Health Accountable Care, according to Al Gobeille, chair of the Green Mountain Care Board, which is responsible for reducing health costs in the state. While they aren't limiting their pool to just those ACOs, the goal is to start small and grow over time.

The system isn’t slated to take effect until January 2018, leaving plenty of time for potential kinks to be worked out, said Gobeille.

This isn’t the first time the state has attempted to overhaul its health-care system. In 2011, the Green Mountain Care Board helped design a single-payer system that would have been the first in the nation. Even though it was signed into law, cost concerns eventually killed the idea in 2014.

The failure to launch the single-payer system is a big reason many, including Gov.-elect Phil Scott, are skeptical of the all-payer plan. While Scott hasn’t signaled that he would stop the change from happening, he argues that the Green Mountain Care Board and outgoing Shumlin administration haven’t been transparent enough.

“We simply cannot afford any more expensive and unsuccessful health-care experiments," he said in a statement while campaigning. "I think it’s premature ... to lock Vermonters into an agreement, without first explaining how, exactly, it is going to work and what, if any, savings Vermonters can expect to see in the cost of care and in their insurance premiums.”

Still, Gobeille is confident that Scott will work with the board to make all-payer happen in Vermont.

“There’s a strong showing, with bipartisan support, that fee-for-service has to change,” he said.