Single Payer Ahead — Cost Control and the Evolving Vermont Model

By Anya Rader Wallack, Ph.D.
The New England Journal of Medicine, July 20, 2011

Governor Peter Shumlin of Vermont recently signed into law ambitious health care reform legislation that puts Vermont on course to implement a single-payer health care system. The law creates a Health Benefit Exchange, consistent with the federal Affordable Care Act, and anticipates using it as the administrative structure for a publicly funded program of health insurance coverage for all Vermonters. The Shumlin administration believes that a single-payer system offers the greatest promise for reducing administrative waste and hassle in our health care system, guaranteeing coverage to everyone in the state, and relieving employers of the increasingly crushing burden of health insurance costs.

Vermont’s plan would include many features common to single-payer systems around the world: a global budget for health care expenditures, guaranteed coverage that is not linked to employment, and a single system of provider payments and administrative rules. The health care delivery system would remain privately owned, however, and the state could contract with a private insurer to perform some functions required of the single payer. It is not yet clear how far the state can go toward establishing a complete single-payer system. Our administration is exploring the potential relationship between the single payer and federal programs such as Medicare and TriCare (the military’s health plan) and determining how self-insured employer plans will fit into the Vermont system. Other elements yet to be worked out include the specific sources of public financing and detailed specifications for covered benefits. We intend to develop these facets of the plan during the next 2 years and will request federal permission to have the single payer fully operational by 2017.

Admittedly, Vermont is a small state (population about 625,000), but even on that scale, plans to launch a U.S. single-payer system seem noteworthy. Moreover, the single-payer provisions are not the only important components of our legislation; equally significant are the provisions for controlling health care costs. The governor has made clear that he will not pursue public financing for a single payer if Vermont hasn’t found a way to control cost growth — implementing true cost control, not just Medicaid fee cutting or cost shifting.

The law creates a new public board, the Green Mountain Care Board, that will be the locus of responsibility for cost control. The board can wield traditional tools such as fee-for-service rate setting, controls on the acquisition of technology, and reviews of both health insurers’ rates and hospitals’ budgets. However, the law also provides explicit direction to the board to create a global budget for health care spending and develop new payment models that create incentives for providers to stay within the budget. Like most states, we rely almost exclusively on a fee-for-service model to pay health care practitioners. This system creates a financial incentive to deliver more care and does not reimburse on the basis of quality, value, or health outcomes. The board is charged with implementing payment methods that encourage high quality and efficiency and provide the impetus for fundamental changes in the structure of the delivery system. It will apply these methods across all payers, private and public (we will seek permission from the federal government to include Medicare), and will monitor the effects of payment changes on both cost growth and quality indicators.

Achieving measurable cost control while tangibly improving the quality of care is certainly an audacious goal. But health care costs are eating up more and more of our economy even as the value of health insurance is eroding. Health care providers, particularly primary care providers and community hospitals, are financially stressed and drowning in red tape supposedly aimed at cost control. Vermont needs a framework within which providers have the right financial incentives, without all the wrong interference from insurers and government. Moreover, we must align incentives for payers, providers, and consumers so that the risks and rewards embedded in provider payment systems, benefit designs, and cost sharing all promote a higher-value health system and better health.

We have seen that changes in health care payment can drive more fundamental change. Since 2006, Vermont has been pursuing an ambitious project aimed at implementing the “advanced primary care medical home” model for care delivery. The state’s “Blueprint for Health” augments the capacity of physician practices with a community health team that helps manage patients’ care and connects them with social services. It also provides bonus payments, through all payers, whose amount is linked to performance on quality metrics. In January, the project will expand to include “anchor” specialists attached to advanced primary care medical homes, with bonus payments linked to both quality and total cost of care.

The next phase of our payment reforms will build on the Blueprint’s foundation of pay for performance and also move some groups of providers into budgeted or virtually budgeted arrangements. Such groups could include those capable of accepting a single, global payment for the complete care needs of a population, as well as looser affiliations of providers who will receive fee-for-service payments but face some combination of risk and reward if their total payments end up being above or below a targeted per capita level. The board will explore various models, as well as the use of bundled payments by all payers. The key to the board’s success will be focusing on implementing a narrow array of reforms that are predicted to have a high likelihood of success. The reforms must be readily understood by providers and create clear and strong incentives for re-engineering delivery systems and care patterns and making more efficient use of capital, technology, and human resources.

Our biggest challenge will be making the transition to a budgeted world. Much of Vermont’s existing regulation has been aimed at ensuring financial solvency for institutions, both hospitals and insurers. New payment models aimed at reducing waste and improving prevention and chronic care management necessarily shift resources out of the hospital. The Blueprint for Health already confirms this effect: as we have invested in and rewarded good primary care, hospital admissions and readmissions have been reduced. How do we continue this trend but assure Vermonters that they will have appropriate access to specialty and hospital services within their communities?

In addition to the direction and authority provided by the new law, Vermont has some other key ingredients for success in controlling health care costs. We believe we have a more efficient and collaborative health care system than most states. We have 14 community hospitals, all with fairly exclusive service territories. Competition for patients is not a major factor in how they do business. Our physicians did not come to the state to get rich. Our health care system is by no means bloated, and our providers want to do the right thing. We currently don’t reward them for doing the right thing. If we begin to reward them, and we clear away bureaucratic requirements, we believe we can achieve great things and provide an example to the country.

It is worth watching Vermont’s development of its single-payer system as a model for guaranteeing coverage for all citizens, reducing administrative waste, and simplifying insurance for both patients and providers. We can make health insurance simpler and easier for everyone and save money at the same time. But Vermont’s most meaningful work in the near term will be aimed at changing our health care payment and delivery systems. I am convinced that that’s where the real savings, and the sustainabili
ty, lie.

Disclosure forms provided by the author are available with the full text of this article at NEJM.org.

Dr. Wallack is special assistant to the governor for health reform, Montpelier, VT.

This article (10.1056/NEJMp1104562) was published on July 20, 2011, at NEJM.org.