Highlight on Vermont: New all-payer model grows out of state Medicaid budget crisis

For months, Vermont has been struggling with how to pay for its Medicaid program as reported costs have far outstretched allotted budgets. Instead of reducing benefits for all of the newly insured enrollees in Vermont’s health care programs, Governor Peter Shumlin announced a new payment system entirely, one that he claims will transform its health care system from one that rewards fee-for-service, quantity-driven care to one that rewards quality-based care that focuses on keeping Vermonters healthy.

All payer model. This new all-payer model is described by Shumlin as an agreement between the state and CMS that enables the three main payers of health care in Vermont–Medicaid, Medicare, and commercial insurance—to pay for health care differently than the traditional fee-for-service reimbursement. In an all-payer model, Vermonters will continue to have the same choice of providers as they have today under Medicare, Medicaid, and commercial insurance. Benefits will not be reduced and by changing the payment structure, Medicare beneficiaries may have access to, and coverage for, new services not currently covered by Medicare.

In Vermont’s proposal, the all-payer model will require commercial insurers and Medicaid to pay the same way Medicare will be paying for health care under its Next Generation program. All involved payers will approach health care payment to accountable care organizations in a common way and all payers will provide doctors and other health care professionals the flexibility they need to lead health care delivery change. Maintaining the same set of rules, standards, and methods of payment across payers will drive efficiencies in the system. The all-payer model builds off current federal and state health care reform efforts that have value-based payment components.

Outlined to the public on January 25, 2016, Shumlin and the Green Mountain Care Board released an outline or term sheet detailing the new all-payer system. The state is focusing on three main health goals: increasing access to primary care, reducing the prevalence of chronic diseases, and addressing the substance abuse crisis. The term sheet lays out plans to curb expenses by setting a 3.5 percent spending target and 4.3 percent spending cap, with a commitment that “Medicare will grow more slowly in Vermont than nationally.” These financial targets, the term sheet notes, are based on health care services in Vermont’s Medicare, commercial, and Medicaid shared savings programs today, mostly hospital and physician services.

“From Day 1, reforming the way doctors and other medical providers are paid has been a priority of my administration,” Gov. Shumlin said. “This is the only way we will curb the rising cost of health care that gobbles up money faster than Vermonters can make it. Today is the beginning of the rubber hitting the road on cost containment. Our success will mean better health outcomes for Vermonters and the end to health care costs rising faster than our economic growth.”

Investments in infrastructure. To curb spending, Vermont is planning to incorporate old and new ways of making health care more affordable. By investing in the state’s current infrastructure, Shumlin plans to expand the Services and Supports at Home (SASH) program, which already has a track record of saving money while keeping seniors in their home and out of hospitals. Another program Vermont intends to continue with is Medicare participation in the Blueprint for Health, Vermont’s nationally recognized initiative transforming primary care, which has also already demonstrated success. The state also proposes to add Medicare participation in the Hub and Spoke opiate addiction treatment program.

The state is currently in the process of finalizing negotiations of the terms of the all-payer model with the federal government. The information and terms released by Vermont do not represent the final state plan.

FDA approval of new hepatitis C drug may temper drug prices

Patients with hepatitis C have gained a new treatment option, which may help curb the rising cost of drugs treating the virus. The FDA has approved Zepatier® with or without ribavirin for the treatment of chronic hepatitis C virus infections in adult patients. Previously, the FDA gave Zepatier a breakthrough therapy designation, which is a program designed to expedite the development and review of drugs intended to treat a serious condition after preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over currently available therapy.

Growing competition among hepatitis C drugs may help to stabilize the increasingly high prices for these products. Merck stated that including Zepatier in treatment options for patients with chronic hepatitis C virus (HCV) provides the U.S. “with an unprecedented opportunity to significantly reduce the burden of [the virus.]” Merck has set a list price for Zepatier of $54,600 for a 12-week regimen, which it believes to be in the range of net prices for other 12-week antiviral regimens used to treat HCV. Merck anticipates that its competitive pricing and its comprehensive access strategy to seek broad coverage “will help broaden and accelerate patient access to treatment and move us closer to our shared goal of reducing the burden of chronic HCV in the U.S.”

Compared with the prices of treatments from Gilead Sciences Inc., an early competitor in the market for oral hepatitis C drugs, like Sovaldi® being sold at $1,000 per pill ($84,000 for a single course of treatment) and single-tablet regimen Harvoni® with a list price of $94,500, Zepatier is expected to be a welcome addition to the market. In December 2015, the Senate Committee on Finance found, through its own investigation, a revenue-driven pricing strategy behind Sovaldi, which caused Medicare and Medicare to spend more than $5 billion on Sovaldi and Harvoni in 2014. Financial statements showed U.S. sales of the drugs through public programs and private payers totaling $20.6 billion after rebates in the first 21 months following Sovaldi’s introduction to the market.

Dual eligible demonstrations huge undertaking, but may show promise

Coordinating care for beneficiaries who are eligible for both Medicare and Medicaid (dual eligibles) can be challenging and demand a significant amount of state resources. Reports released by CMS that evaluated the implementation of its Financial Alignment Initiative demonstrations in various states and in Washington’s health home managed fee-for-service model revealed the unexpected challenges states faced in attempting to improve care coordination across the two complex and distinct health care programs. However, the reports also indicate that Washington’s demonstration shows initial promise in significantly reducing Medicare costs.

Multi-state Demonstrations

CMS contracted with RTI International to review the first six months of implementation of dual eligible demonstrations in California, Illinois, Massachusetts, Minnesota, Ohio, Virginia, and Washington. The demonstrations arose from CMS’ Financial Alignment Initiative, which was created to test integrated care and financing models for dual eligibles. The goals of the demonstrations were to develop person-centered care delivery models that would integrate medical, behavioral health, and long-term services and supports (LTSS) for dual eligibles and address the current challenges associated with care coordination between Medicare and Medicaid.

The review examined integrated delivery systems, enrollment, care coordination models, beneficiary safeguards, and stakeholder involvement in each of the demonstrations. Although the models and features of the demonstrations varied across the states, the review found notable similarities.

For states that adopted the capitated model, three-way contracts have been negotiated between CMS, states, and Medicare-Medicaid plans (MMPs) that create delivery models, provider networks, access and quality standards, beneficiary protections, requirements for data submissions, and payment arrangements. In order to implement the demonstrations, state officials had to entirely redesign eligibility, enrollment, and data systems so that they could effectively interface with Medicare.


The review found that fewer beneficiaries enrolled during the first six months than were previously anticipated, which may have been caused by the difficulties states experienced in locating beneficiaries and persuading them of the benefits of the service model.

Other findings

States also made significant investments in training care coordinators, providers, and MMPs about dual eligibles’ special needs. States used CMS funds to establish or enhance assistance and ombuds programs to support beneficiaries so as to facilitate informed and impartial decision making and to resolve problems. Stakeholders were found to be actively engaged in ensuring the transparency of the demonstration and to be responsive to beneficiary needs.

Resource commitments

States found that the upfront time and resource commitment that was needed to implement the demonstrations “far exceeded” their estimates, with officials reporting that they were unaware of many of the Medicare requirements. As a result, reconciling the differences between Medicare and Medicaid operations took up a significant amount of resources. At the time of publication, it is unclear whether the resource commitments will lessen as the demonstrations progress.

Washington Model

RTI also reviewed the first six quarters of Washington’s managed fee-for-service model, which uses Medicaid health homes, which were established under Section 2703 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) in an attempt to integrate care for high-cost, high-risk full-benefit Medicare-Medicaid beneficiaries. Medicaid health homes are the lead local entities in the demonstration that are responsible for care coordination and bridge care across the health care delivery systems.

Care coordinators

Beneficiaries are assigned a health home coordinator who will assist in coordinating their services. A coordinator works with beneficiaries to develop Health Action Plans (HAPs) and has access to information about the enrollee’s utilization of Medicare and Medicaid-financed services through the Predictive Risk Intelligence System (PRISM). The HAP will be used to prioritize health action goals and will set forth action needed to accomplish those goals and identify where intervention and supports are needed.


The state hired a sufficient number of health care coordinators so that it was able to offer the health home demonstration to beneficiaries in all of its 37 counties. Enrollment in the demonstration increased every quarter, with over 50 percent of eligible beneficiaries enrolled by the end of 2014.

Cost impact

Initial findings suggest that the demonstration has been successful in reducing costs. The review found substantial reductions in monthly, per-member Medicare costs that exceeded the largest monthly payments that were made for health home services. The report notes that further adjustments will be required to account for changes in Medicaid costs, but that the health home intervention has successfully lowered costs.

Quality of care

It is not yet known whether the quality of care was able to be maintained or improved while the cost savings were achieved by the Washington demonstration. However, none of the findings suggest that the demonstration is having a detrimental effect on beneficiaries or on costs. While further research will provide more information about the demonstration’s impact on utilization and quality of care, Medicare Utilization Data did show some decreases or leveling off of rates of inpatient hospitalization admissions in general and physician office visits. Other measures showed either no trend change during the demonstration period. The report notes, however, that the trends could be attributable to the fact that new demonstration entrants may have fewer health care and LTSS needs than earlier program entrants.

Continued Evaluation

RTI will continue to monitor and evaluate all of the demonstrations by collecting information on a quarterly basis and producing annual reports for each demonstration performance years, which will be posted on CMS’ website. RTI will also examine the experiences of beneficiaries, their families, and caregivers to determine whether the demonstrations meet their goals of developing person-centered delivery models. Additionally, a quantitative evaluation of quality of care, utilization, access to care, and cost will also be conducted as soon as the data is available.

Kusserow on Compliance: OIG Advisory Opinion okays hospital billing of radiology

The HHS Office of Inspector General (OIG) issued Advisory Opinion No. 15-15 regarding a hospital’s proposal to bill a radiology group. Under the proposed arrangement, the hospital would bill for transcription of the radiology group’s reports as a professional component of a radiology service. The reports are for individuals who are not hospital patients, but patients of a separate third-party clinic providing the technical component of the radiology exams. The clinic bills payors such as Medicare and Medicaid for the technical component of the radiology services, while the radiology practice bills the same payors for the professional component. The requesting entities inquired whether the billing arrangement would constitute grounds for sanctions under the Civil Monetary Penalty (CMP) provisions as they relate to the federal Anti-Kickback Statute (AKS). The OIG responded, noting the following:

  • The clinic and the radiology practice are possible referral sources for the hospital, and the clinic is a referral source for the radiology practice.
  • Absent an express agreement from a third party to be billed for these services, it would be logical for the hospital to bill the radiology practice.
  • The clinic would not pay for any transcription costs that the hospital bills to the radiology practice.
  • The CMS payment rules state that Medicare covers indirect expenses for technical and professional components of radiology exams including transcription costs.
  • CMS has further indicated that when different parties perform the technical and professional components, the parties may determine who pays the transcription costs.

Based upon the above, the OIG determined that remuneration would not pass between the radiology practice and the clinic because: (1) a condition of payment for the professional component of a radiology exam is preparing a written report; and (2) the radiology practice pays for the transcription of its own reports. The OIG concluded that the proposed arrangement would not generate prohibited remuneration under the AKS, and that it would not impose administrative sanctions in connection with the arrangement.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2016 Strategic Management Services, LLC. Published with permission.