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Vermont All-Payer Reimbursement System Approved by Federal and State Regulators


Email Alert

October 27, 2016

By Jane Sitorius*

In September, Vermont Governor Peter Shumlin and the Center for Medicare and Medicaid Innovation (CMMI) entered into a draft agreement allowing Vermont to move forward with a value-based all-payer health care plan. On October 26, the plan was approved by Vermont’s Green Mountain Care Board (Board), the state entity that will regulate reimbursement under the plan. Federal approval from the Centers for Medicare & Medicaid Services followed. Under the plan, Medicare, Medicaid, and commercial payers will reimburse providers at the same rate for services, and reimbursement will be on a performance basis, rather than on a fee-for-service basis. Although all-payer reimbursement is not a new concept—Maryland currently applies a fee-for-service version to hospitals—Vermont’s all-payer plan will be the first to apply to reimbursement to all providers, rather than just hospitals.

Under the current payment system, providers are reimbursed for each service provided and quality is not taken into account, which emphasizes quantity, not quality, of health care services. The new plan aims to contain the growth in health care spending, while improving health. Specifically, Vermont looks to limit the growth rate in health care spending to 3.5% in aggregate across all payers, with a commitment that Medicare will grow more slowly in Vermont than nationally. To improve health, the all-payer plan has three main goals: (1) improve access to primary care; (2) reduce deaths from suicide and drug overdose; and (3) reduce the prevalence of chronic disease. Achieving the first and third goals could result in great cost savings because improved access to primary care and preventing chronic disease would reduce expensive inpatient treatments, hospitalizations, and prescription drug costs.

Vermont’s plan is based on Medicare’s Accountable Care Organizations (ACOs) and relies on providers joining a state-run ACO that pays to manage the health of the ACO’s patient population. Participation is optional and providers can choose to continue being reimbursed on a fee-for-service basis, which could jeopardize the success of Vermont’s plan if too few providers participate. The payment structure in the all-payer plan pays providers a global fee to manage a patient’s health and requires providers to manage expenses for each patient. Any expenses on a patient’s care above the global fee are borne by the provider and reduce the provider’s bottom line. Due to this risk associated with participating in an ACO, the Board may need to incentivize participation, which could be accomplished by paying higher rates to providers in an ACO or imposing fees on those who are not in an ACO. Another unknown is whether the Department of Health and Human Services Secretary will issue waivers for fraud and abuse provisions in Sections 1128A, 1128B, and 1877 of the Social Security Act. These waivers are necessary for the all-payer plan to succeed, but must be set forth in a separate document.

The Board held public meetings over the last several weeks to gauge public opinion of the plan. Not all residents are supportive. Some independent physicians and smaller medical practices are concerned the ACOs will create a hospital monopoly and drive them out of business. Further, some providers believe ACOs are mechanisms for health care rationing, but feel they may be forced to participate because the state can implement a discount on Medicare fee-for-service payments to providers who do not participate. Other residents believe the cost-saving projection and health goals are unrealistic and worry that taxpayers will bear any losses the ACOs experience due to providers overspending, among other things.

At the same time, there are reasons to be optimistic about Vermont’s all-payer plan and many residents see its value, especially those who are fed up with ever-rising insurance premiums and health care costs. For example, Maryland’s all-payer system has demonstrated significant cost savings for the state and, even though Maryland’s system applies only to hospitals, it demonstrates that all-payer systems can be successful. In addition, the federal government will not penalize the state if it fails to meet the cost-savings goal and will contribute $250 million to support Vermont’s efforts for the all-payer system.

The all-payer plan is projected to save the state $10 billion over the next ten years, according to Board chair Al Gobeille. However, the upcoming elections could delay implementation of the plan, potentially indefinitely. The agreement with CMMI allows Vermont to back out with six months’ notice, and a new governor could prevent implementation altogether if he or she does not believe the plan will reduce health care spending. The draft agreement has a five-year term and is set to run from January 1, 2017 through December 31, 2021, so any delay in approving the plan could jeopardize its success.

Providers around the United States should monitor the progress and implementation of Vermont’s all-payer plan because, if it proves successful, it could serve as a model for other states.

*We would like to thank Jane Sitorius, JD/MHA (YMCA of the USA, Chicago, IL) for authoring this email alert. We also would like to thank Theresa E. Thompson (Epstein Becker & Green PC, Washington, DC) and Amy Sanders Morgan (Bass Berry & Sims PLC, Nashville, TN) for reviewing this email alert.

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