Regulators Say Health Care Reform In Jeopardy Without Increase In State Medicaid Funding

Aug 23, 2019

State regulators told Gov. Phil Scott Friday afternoon that the future of health care reform is in peril if he doesn’t increase funding for Vermont’s Medicaid program.

In a letter sent to Scott, Kevin Mullin, chairman of the Green Mountain Care Board, said double-digit increases in private health insurance premiums are the latest symptom of the so-called “Medicaid cost shift.” A failure to mitigate that cost shift by upping state support for the Medicaid program, Mullin wrote, “threatens Vermont’s transition from fee-for-service to value-based payments.”

Mullin wrote the letter on behalf of all five members of the Green Mountain Care Board, which regulates virtually all aspects of health care in Vermont.

In a phone interview Friday evening, Mullin said the cost shift is the result of years of underfunding in the Vermont Medicaid program. Medicaid reimbursement rates, Mullin said, no longer come close to covering the cost of care for the low-income patients that qualify for the program.

Mullin said that underfunding has shifted a disproportionate share of overall health care costs to the private insurance market. Earlier this month, the Green Mountain Care Board approved double-digit premium increases for plans sold by the state’s two largest private health insurers, Blue Cross Blue Shield of Vermont and MVP. 

"We want people to move away from people being awarded for every single procedure that they do to a system that rewards prevention and wellness ... And it's not going to work if we keep going on that path we're on now." — Kevin Mullin, Green Mountain Care Board

Mullin said that, according to numbers provided by Blue Cross, if Vermont eliminated the Medicaid cost shift next year, Blue Cross premiums would go down by 16.8%.

“What I’m very afraid of is that the cost shift over to the commercial payers will end up making people believe that the All Payer Model, which is our strategic plan to meet the triple aim in health care of access, quality and containing cost, will be thought of as being a failure because what’s happening is more and more burden on the system is being placed on commercial ratepayers,” Mullin said.

Scott, lawmakers, regulators and providers have all pointed to the All Payer Model as a roadmap to cost-containment in a Vermont health care system that has seen annual expenditures exceed $5 billion. The model attempts to bend that cost curve by rewarding hospitals and other health care providers for keeping patients healthy, instead of reimbursing them for the volume of procedures they perform.

Mullin, however, said that model is imperiled if Vermonters continue to see premium increases that outpace the cost of living.

“If commercial rates continue to rise the way they did this year, people are going to drop their insurance,” Mullin said. “And that’s going to put pressure onto the Medicaid program. It’s going to put pressure on the hospitals for free and uncompensated care.”

Mullin said the looming threat of insurance market disruption makes it critical that Scott devote more money for Medicaid in next year’s budget proposal.

“Now is the time when the administration starts to put a budget together, so that’s the timing for this, really to have that letter over to them as they start to prepare next year’s budget,” Mullin said.

Reached for comment Friday evening, Scott’s chief of staff, Jason Gibbs, said the governor had just received letter.

“We will review it and respond directly to the board directly,” Gibbs said.

The Green Mountain Care Board is also calling on the administration to increase funding for so-called “delivery system reform.” Mullin said the upfront costs of implementing the All Payer Model are significant. But he said right now, those costs are falling largely on Vermont’s hospitals.

Mullin said the state could alleviate that pressure by availing itself of some of the $56 million the federal government has authorized for delivery system reform in Vermont.

But that would require investments by the state as well, because Vermont would have to contribute matching money to draw down those funds.  

Mullin said it’s a needed investment, however, because so long as hospitals bear the brunt of the reform costs, they’ll be less likely to participate in an All Payer Model that policy makers are relying on to reduce overall health care costs. He said the reform costs are an especially severe disincentive for small, rural hospitals that are already struggling to stay afloat.

“We want ... to move away from people being awarded for every single procedure that they do to a system that rewards prevention and wellness, so they’re keeping people healthy, keeping people out of chronic disease and out of hospitals as much as possible,” Mullin said. “And it’s not going to work if we keep going on that path we’re on now.”

VPR is unable to post a copy of the board’s original letter to the governor, but a transcript follows (the letter was also addressed to Secretary of Health Martha Maksym):

Dear Governor Scott and Secretary Maksym,

“We applaud your support of Vermont’s All-Payer Accountable Care Organization model (All-Payer ACO Model, or APM) and its goals of ensuring that health care costs remain in line with the growth of the Vermont economy while sustaining high-quality care and improving access to primary care for Vermonters. I am writing on behalf of the Green Mountain Care Board (GMCB, or “the Board”) in the midst of our annual review of Vermont hospital’s budgets and following a very tough health insurance review season, to express concerns about the affordability of health care in Vermont and about barriers to the further success of Vermont’s APM.

This year, the Board saw a double-digit increase in commercial health insurance premiums for the individual market and small group market. In addition to growing pharmaceutical costs, increased use of medical services, and changes to state and federal policies, a concerning factor behind this increase has been termed the “cost shift.” The cost shift is due to uncompensated care and disparities in reimbursement amounts between governmental (Medicare and Medicaid) and commercial payers; to make up for low reimbursement rates from governmental payers, providers charge higher prices (shift costs) to commercial insurers and those who pay for their care out-of-pocket (self-pay). The actual cost shift for Vermont hospitals in FY2018 was $458 million with Medicaid accounting for $207 million, and it grows annually: Based on FY2019 hospital budgets, we estimate the total cost shift at approximately $493 million, with Medicaid accounting for $217 million. In their 2020 filings, many Vermont hospitals reiterated the cost shift as a driver of their commercial price increase requests.

While commercial rate increases were approved at 12.4% for BCBSVT in 2020, down from the requested 14.3% - 14.5%, State of Vermont Medicaid appropriations for health care services increased by just 0.9% over 2019; this increase fails to keep up with the rate of inflation. BCBSVT quantifies that if the cost shift were eliminated by 2020, it would lead to a rate decrease of 16.8% from 2020 filed rates. With almost half (45%) of Vermonters relying on Medicaid and Medicare as their primary health plan and an aging population, these effects are only likely to be magnified in the foreseeable future.

In addition to contributing to health care’s unaffordability, the cost shift threatens Vermont’s transition from fee-for-service to value-based payments by increasing risk to both providers and insurers when negotiating a per-member per-month payment system.

The cost shift is also a barrier to achieving the targets outlined in the All-Payer ACO Model - including containing health care cost growth, achieving Model scale and alignment across payers, and maintaining and improving health care quality - for which the Office of the Governor, Agency of human Services, and Green Mountain Care Board are jointly responsible. For example, the cost shift endangers Vermont’s ability to recruit hospitals from rural or poor communities to the ACO, because they are less likely to recoup their costs due to disproportionate reliance on Medicare and Medicaid. Through Vermont’s APM agreement with the Centers for Medicare and Medicaid Innovation, the Board has some ability, within agreed upon growth targets, to ensure that per capita Medicare payments to the ACO grow fairly over time. The APM Agreement recognizes that the cost shift has the potential to negatively impact Vermonters and the Model’s success, and requires the GMCB, in collaboration with AHS, to assess these impacts in a report due at the end of this year and to propose solutions to reduce the cost shift by the end of 2020.

In addition to the challenges to affordability and provider solvency created by the cost shift, hospitals are disproportionately shouldering the cost of delivery system reform (DSR) - another barrier to APM success. Specifically, 53% of the ACO program funding comes from hospitals. To the extent that hospitals have no choice but to raise commercial rates to fund DSR, the burden largely falls on commercial premium payers. As you know, the sustainability of Vermont’s small critical access hospitals (CAHs) is a pressing issue we are all monitoring, and we are concerned that shifting the majority of the responsibility for DSR implementation to these hospitals has resulted in additional financial pressures. In addition to the concerns of cost outlined above, federal disproportionate share (DSH) payments have declined, another pressure on hospital revenues.

The Centers for Medicare and Medicaid Services (CMS) made funds available for DSR investment when the Global Commitment to Health waiver was renewed in 2017. To date, there has been minimal use of the DSR funds to assist with one-time start-up costs of the ACO program, including costs associated with OneCare Vermont (OCV), community-based providers, and other partners. OCV’s contract with the Department of Vermont Health Access (DVHA) reflects $2.5M in DSR investments for CY2018 and $10.8M in DSR Health Information Technology (HIT) investments in CY2019. The SFY2020 DVHA budget requested a reduction of $1.88M in DSR Investments from the base budget; however, we believe the DSR investment remains at $2.6M. This totals approximately $16M to date. There remains $56M in capacity ($32M in 2020 and $24M in 2021).  

While we recognize that the Scott Administration is concerned about hitting the Global Commitment to Health waiver’s budget neutrality cap, we are concerned that the lack of support early in the Model for these reforms has made it difficult for the ACO to implement its programs.

We understand that limited revenue, tight budgets and limits on investment funds make it challenging to choose to invest Medicaid funds in health care reform at this time. Without Medicaid support, however, the investment in health care reform falls disproportionately on hospitals, Vermonters and employers in the commercial market, and those who self-pay. We urge you to consider these impacts and to prioritize affordability and health care reform by considering increasing your investment in Medicaid and DSR.

Sincerely,

Kevin Mullin