Are We Ready for a Functional Healthcare System?
UVM Medical Center
The healthcare industry in Vermont is at a tipping point and the outcome depends on Vermonters understanding what is broken and how to fix it. Just leaving it to hospital leadership, as they have suggested, will only perpetuate the problem and continue to explode the costs, lack of access, and now, diminishing quality.
To better understand the system, let’s look at the swarm of disinformation being spread about the system, which, by its complex nature, is easily subject to misinformation. Here are some examples.
On the healthcare insurance front, Vermont has two regulated nonprofit healthcare insurers, MVP, and BCBSVT. Vermonters are also served by two for-profit insurers, Cigna and United Healthcare, often through an employer’s group plan. These national for-profit plans aren’t regulated by the Green Mountain Care Board (GMCB) and can raise rates or deny coverage without local oversight.
To no one’s surprise ̶ but not for the reasons most people assume, Blue Cross Blue Shield (BCBSVT) just announced that they must amend their regulatory filing for an annual increase in premiums to 21% for individual plans and 24% for small-group plans, up from the original requests that were closer to 16%. But before you complain, remember the classic idiom, “Don’t shoot the messenger.”
Of all our healthcare entities, BCBSVT is perhaps the most regulated, with oversight both by the GMCB and the Vermont Department of Financial Regulation (VDFR). As a nonprofit, its established authority is clearly defined. Unlike Vermont hospital budgets, The Affordable Care (ACA) act limits BCBSVT to 20% of budget for administration, overhead, and management, although they spend considerably less than that. The remaining premium revenues are exclusively for claims and for holding in reserve a contingency fund meant to be between $154M to $230M which is overseen by the VDFR.
Given the past-Covid era claims spike, recent claims escalations attributable to an aging customer base, and, more important, the annual budget increases from Vermont hospitals averaging 16%, BCBSVT’s reserve dropped to $88M at the close of 2023 and has continued to decline in 2024. It may seem like a large number, but it actually represents less than two months of claims ̶ meanwhile UVM Health Network (UVMHN) had reserves in excess of $600M. This drop has caused the VDFR regulator to recommend a rate increase to rebuild the minimum contingency fund balance.
To call on another idiom, BCBSVT is hardly “master of its own fate.” Historic cost escalations for hospital care and pharmaceuticals drive the increase. BCBSVT must pay the bills that healthcare providers submit for payment regardless. They have no control over those bills, nor do they determine their amounts. Hospitals, medical instrument manufacturers, and drug companies do.
This is but one example of our tendency to see the surface and fail to dig into the actual drivers of change. If we are to truly get our arms around the chaos that we call healthcare, we must first understand it.
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Another common misunderstanding ̶ sadly often fueled by our political leaders ̶ town voters are routinely rejecting their local school budgets in the belief that education is propelling higher local property taxes.
There’s logic behind our belief that local school budgets are the drivers of property tax increases. They are and it’s been much in the news. But all this noise masks the underlying driver, burgeoning healthcare costs. Do we honestly believe we overpay our children’s teachers?
As a recent report by the State Auditor’s office makes it clear that it’s not education costs that drives school budgets, it’s healthcare…on several fronts.
“According to the Vermont Education Health Initiative, through which most teachers receive their health benefit, the plan’s costs grew from $194 million in FY10 to approximately $266 million in FY23. FY24 costs are expected to exceed $300 million, and that does not include the state’s share of most retired teachers’ health benefits.”
So, a primary driver of rising education costs (and the taxes that pay for them) are teacher and administrators’ healthcare costs. Just this year, they’re estimated to grow a staggering 16%, and insurance costs, as we saw above, will exceed 20%.
But this isn’t the only healthcare cost that drives educational cost increases in our schools. They’re also skyrocketing as schools compete to hire guidance counsellors, psychologists, and nurses to deal with the rapid increase in emotional symptoms manifesting in their students. According to the American Psychological Assoc., more than 20% of teens have considered suicide. Our emergency rooms are filled with kids struggling with anxiety, depression, eating disorders, and impulses to self-harm and we have few resources to help them.
In order to deal with this, we need to correctly understand the problem. Like our emergency rooms and jail cells, our classrooms have become a downspout of our upstream broken socio-economic system. As the economics of survival put more pressure on families, our schools have become a de facto shelter where we feed, babysit, and care for our children.
If schools were solely about the business of education, as they were when I was young, and we supported our families and children in their needs, as well as adequately regulating the profitable business of healthcare, our property taxes and school budgets would be manageable.
Our healthcare system is broken and costs will only escalate as long as we see it as a lucrative enterprise. The business of business is profit. The work of nonprofits is defined by mission. All our hospitals are legally nonprofits and their mission is healthcare. Where are they?
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Another serious inhibiting factor in healthcare reform and managing costs is our popular anxiety about closing or repurposing some of our local hospitals. While a town hospital can be a driver of local economic opportunity, it also follows that it will contribute to systemwide healthcare costs.
So one source of our anxiety is our desire to have local access for all hospital-based services. But in a well-designed system, this makes no economic sense. Not every hospital should offer all sophisticated surgeries or treatments. For example, it’s far cheaper, and probably safer, to travel to Mass. General in Boston to get an organ transplant than it is to maintain that service locally when there are only a few procedures a year. Plus, it’s generally understood that a benchmark for quality is the volume of specific medical procedures a facility performs in a year.
We simply can no longer sustain the luxury of having so many local full-service hospitals. A solution does not necessarily mean closure, but it will, in all cases, mean converting the hospital to a more cost-efficient local primary-care clinic offering robust primary and chronic care to the community in partnership with local service agencies. Procedures such as dialysis, orthopedic surgeries, or pediatric specialties may be allocated to a regional facility.
Seeing the writing on the wall, three Vermont hospitals ̶ Brattleboro Memorial, Copley, and NW Medical Center ̶ took the initiative this spring to form the New England Collaborative Health Network (NECHN) to share services, specialists, and better manage costs collaboratively. This entrepreneurial collaboration reverses the prior competitive culture of community hospital survival and promises a new era of integrative services and better cost management.
NECHN Board Chair and President of Copley, Joseph Woodin, put it this way.
“The collaborative is designed to provide a third option for small independent hospitals and health systems. Hospitals had two options -struggle to stay independent on their own, without cost savings of scale, or become part of an academic or regional medical center and give up control. NECHN now gives them a third option. Joining the collaborative offers community hospitals enhanced bargaining power and cost savings enjoyed by much larger organizations, while allowing them to stay independent and focused on the needs of their local community.”
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On August 6th, the GMCB will post on their site data analysis derived from unimpeachable federal sources, showing that our largest hospital and its owner-network are rife with waste, both in costs and in procedures that could be performed locally for far less. The ratio of clinical expenses to administrative, technical, and management expenses is among the worst in the nation when compared to similarly sized facilities.
The data also puts the lie to the oft-touted myth that an institution cannot provide healthcare services with current reimbursements from Medicare and Medicaid. The term-of-art hospitals have coined is “cost-shifting.” But in this independent analysis, 72% of the comparable academic medical centers either break even with these federal reimbursements or generate a positive fund balance from them.
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In June of this year, the GMCB heard from Oliver Wyman Associates about what’s broken and why.
In a thorough overview by Dr. Bruce Hamory of Oscar Wyman Associates Monday afternoon in South Burlington, the depth of collapse facing Vermont hospitals and Vermonters was made painfully evident. Considerable public testimony supported his presentation.
Given the exploding healthcare crisis, we must first understand what is wrong and then begin to imagine a system that offers quality, access and affordability for all Vermonters. It’s a reachable goal. We’ve done it in our past. But it will require us to understand what’s broken and then agree on how to fix it.
We must also support the vital work of the Green Mountain Care Board, as they are the primary authority under Vermont statute that regulates our healthcare system in service to Vermonters.
There is good news in all this. Our solutions are not about more money and taxes, With some $200M annually of waste in our largest system, we have the wherewithal to reengineer a functional system that delivers quality, affordability and access to Vermonters.
The full report will be delivered to the Governor, the Agency of Human Services (AHS), the healthcare committees of the legislature, the GMCB and the public in August.
The question we must face is whether or not we have the courage to imagine a system that serves Vermonters or continues to serve a lucrative healthcare industry at large.
