State News
September 3, 2014

Hospital payment reform focuses on primary care

Hospital payment reform focuses on primary care

By Morgan True, VTDigger.org

If hospitals are going to be paid based on keeping the people they serve healthy—one of Vermont’s health care reform goals—they need to invest in primary care services, according to state regulators and hospital executives.

That’s difficult when hospital income is still dependent on fee-for-service—billing for each patient visit or procedure—especially when primary care is less lucrative than other hospital services.

Hospitals, government, and private insurers are actively adapting to meet that goal, but for the state’s smaller community hospitals, the change can’t happen quickly enough.

That’s because many are seeing a decline in the demand for their services, even as state regulators are pushing them to invest in the “population health” model of care.

“Everything is moving toward the hospitals’ accepting some risk for the total cost of care, so unless they address the health of the population, that risk will be catastrophic,” said Dr. Allan Ramsay, a member of the Green Mountain Care board, which has regulatory authority over hospital budgets and the rates they charge.

Focusing on primary care is the best way to take on risk for people’s health, because of its emphasis on prevention, said Ramsay, a long-time family medicine doctor.

Blueprint for Health

Vermont made primary care a policy priority almost a decade ago when it launched the Blueprint for Health in 2005. The Blueprint supports the patient-centered “medical home,” a model for care coordination that has doctors working with nurses and case managers to meet a patient’s needs. Healthier patients will be less involved with their medical home, whereas those with chronic conditions might be in daily contact with theirs.

In 2013, the Blueprint added 17 new physician practices, bringing its total to 121 practices serving 514,385 Vermonters, according to its annual report. The state’s total population is roughly 620,000.

“It’s an epidemic of health,” Ramsay said. “Is that the best thing for Vermont? Yes. Is it the hardest thing for the payment system to adjust to? Yes.”

Adapting to a healthier payment model

Government programs and insurance companies must find a way to offer stable payments to doctors, hospitals, community health centers and clinics in order to make population health a sustainable model.

Vermont received a $45 million federal grant in 2013 to help develop payment systems that will achieve that goal. That money has supported the development of the shared-savings programs offered to Vermont’s Accountable Care Organizations, which are health care provider networks. All 14 Vermont hospitals and the Dartmouth-Hitchcock Medical Center in Hanover, N. H., provide specialty care for the network.

Shared-savings programs work by offering the network a set payment to serve a defined population and allowing them to split any savings with the entity making the payment—provided they meet certain quality standards.

OneCare Vermont is the largest ACO in the state, with 112 participating health care providers. Several hospital executives who testified at this week’s budget hearings suggested that in the future OneCare could be the arbiter of large-scale payments to finance the health care activities of its members.

Roger Allbee, CEO of Grace Cottage in Townshend, said OneCare CEO Todd Moore recently told him that there won’t be shared savings anytime soon, but (paraphrasing Moore) “we think there is a benefit in the future.” That benefit might not realize savings down the road, either.

“Global budgets”

Set payments from insurers or government programs, adjusted for trends in use and demographics, are often called “global budgets” in health policy.

The attraction of global budgeting for state officials working to build a public universal health care program, often called single-payer, is understandable. If state government were to take over the majority of payments to the health care system, making one large payment might be seen as a way to simplify the program.

But stakeholders underestimate the complexity of global budgeting, said Joseph Woodin, CEO of Gifford Health Care. The assumptions used to define a global payment would have to be checked at the end of the period the payment is meant to cover and trued up to match what actually happened, Woodin said.

The number of adjustments required to flesh out actual global payments for one hospital would be labor- intensive, he said. Woodin did not speculate about how difficult it might be for the state’s health care system to complete the same exercise. But he did point out that close to 20 percent of Vermonters’ health care is provided by Dartmouth-Hitchcock, which will further complicate Vermont-specific payment reforms.

The plan presents challenges. Rutland Regional Medical Center came close to developing a global budget for Medicaid and some payments from commercial insurers, but the deal couldn’t be brokered before hospital budgets had to be completed. Southwestern Vermont Medical Center had expressed interest in a limited global budget as well, but, after hiring consultants to review the plan, decided it wouldn’t work. A global budget won’t work for the Bennington hospital, said Stephen Majetich, Southwestern’s CFO. It has too many out-of-state patients and its utilization is in flux after the closing of North Adams Hospital in western Massachusetts.

In the future, there will be fewer health care dollars spread across more organizations, Southwestern CEO Thomas Dee said. “In the past, we had control of a lot of the dollars in our area, and we’re going to have to learn how to share that, while remaining financially sustainable,” he said. That has led his hospital to expand its affiliation with Dartmouth-Hitchcock. Mt. Ascutney Hospital in Windsor has done the same, and other hospitals, such as North Country Hospital in Newport, are interested in new affiliations.

At the same time, Fletcher Allen Partners, the parent organization of Vermont Academic Medical Center and Fletcher Allen Health Care, has said it will look to integrate with other health systems in the state. Fletcher Allen is starting a primary care residency at Champlain Valley Physicians’ Hospital in Plattsburgh, N. Y.

Staffing shortage

Another challenge to the population health model is finding enough doctors and nurses who are interested in doing primary care. Part of the problem is that doctors are graduating with an average of $170,000 in debt, according 2013 figures from the Association of American Medical Colleges, and primary care salaries are often half those offered to specialists. Integrating with an academic medical center can also help with recruiting primary care practitioners.

“I can’t emphasize enough the need for primary care in southern Vermont and north Berkshire County,” Dee said. The Bennington hospital will invest $1.3 million in primary care this year.

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