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Dean: Health Care Rate-Setting Will Fail

Montpelier — Former Gov. Howard Dean says that one of Vermont’s major health care initiatives won’t save Vermonters a dime.

In a controversial op-ed in the weekend edition of the Wall Street Journal, Dean, a medical doctor, panned a key element of the Affordable Care Act: the Independent Payment Advisory Board, charged with finding a way to hold down Medicare costs.

The “rate-setting” board, Dean wrote, “will never control costs based on the long record of previous attempts in many of the states, including my own state of Vermont.”

In 2011, Gov. Peter Shumlin signed Act 48, which created a Vermont rate-setting board, called the Green Mountain Care Board. The board has the power to set hospital budgets, insurance rates and physician rates — the latter of which the board has not yet exercised. Dean’s former deputy chief of staff, Anya Rader Wallack, was the lead architect of the bill, and is now the board’s chair.

“The Green Mountain Care Board is one of the boards that I don’t think should regulate health care,” Dean said in an interview, pointing out that the 3 percent cap the board has put on hospital budget growth exceeds inflation.

On regulating hospital rates? “I don’t think it works,” he said. “I don’t think it’s ever going to work.”

On insurance? “It might help a little.”

On setting provider rates? “I think it’s a terrible idea.”

“Here’s the problem in Vermont,” Dean said, “regulation generally doesn’t work, and it hasn’t worked to control costs.”

In the past week, members of the national media have taken Dean to task for comments like this. He is a strategic adviser to the Washington, D.C., lobbying firm McKenna, Long and Aldridge, which represents various health care and pharmaceutical companies. Reporters, like the New Republic’s Jonathan Cohn and New York Magazine’s Jonathan Chait, have questioned the motives behind his op-ed.

“How ridiculous,” Dean said of the media coverage. “I say what I think, and if companies like it, that’s great.”

Dean says the answer to reducing health care costs in Vermont is to do away with a fee-for-service system, in which doctors are paid for quantity of care rather than quality, and replace it with one global budget for all Vermont health care providers to operate within.

“The market doesn’t work in health care now because the incentives are all backwards,” he said. “What’s going to happen in a global budget is you can’t make more money by having more MRIs and more cardiac catheterizations. You’ll make your money by hiring more nurse practitioners and internists to keep people out of the ICU (intensive care unit), rather than putting them in the ICU.”

Dean is a proponent of capitation, a model in which providers are paid a set amount for each patient, regardless of whether that patient receives care. Capitation is associated with health maintenance organizations, or HMOs. This model restricts patient access to providers within the organization, and the provider organization also acts as an insurance company, taking on the financial risk.

HMOs have been criticized in recent decades for cutting corners, but Dean says this is only part of the story.

“There will always be some small percentage of doctors — just like a small percentage of lawyers, teachers and everyone else — who are crooks. That is the way humanity is,” he said. “The real problem with HMOs was when they became IPOs and went to Wall Street. Then you created a fiduciary responsibility to maximize your earnings every quarter, and then the market got saturated with this wonderful new idea ... and then the only way you could meet those quarterly expectations was to squeeze costs.”

Dean said he would like to see nonprofit groups of providers take on the financial risk of providing care and bring on insurance-like staff to carry out actuarial analyses — effectively combining hospitals and insurance companies.

“I do think insurance companies are either going to have to buy hospitals or go out of business, and I’d prefer they do the latter,” he said.

Dean is a fan of Accountable Care Organizations, like Onecare. This is the limited liability corporation formed by Fletcher Allen Health Care, Dartmouth-Hitchcock Medical Center and 12 other Vermont hospitals to administer care to 42,000 Vermont Medicare patients within one budget. Dean said he would like to see the ACO expand its reach in the future and sell access to the organization on Vermont Health Connect, the state’s up-and-coming health insurance market for more than 100,000 Vermonters purchasing insurance individually or through companies with 50 or fewer employees.

“When an ACO can get on an exchange and be big enough to offer care to a wide enough variety of people so that they can qualify as an insurer, they can compete directly with insurance companies and drive them out of business,” he said.

Although Dean says he is “not ideological about single payer,” he adds that a hybrid single payer system for Vermont “could work really well.” He isn’t as keen, however, on creating a single payer system, like Shumlin has suggested, with one insurance company acting as that payer.

“If you had one nonprofit insurance company, i.e. Blue Cross and Blue Shield, they could be a single payer,” he said. “But the problem is that begins to look like Canada. They have good health care, but their costs are not under control. I would make a deal directly with an ACO. This is what you get this year, and you budget for it. Then you could have a big fight with the ACO about what they can deliver for the amount of money they are getting.”

Dean also doesn’t like the idea of telling Fortune 500 companies, like IBM, that their employees would need to take part in a single payer system.

“There will always be people who get more than other people because they have money. I don’t think we should focus on that,” he said. “I think we should focus on the 95 percent of the people who need to be in a good health care system and not worry about the outlier, and the fortune 500 companies are going to be an outlier.”

While Dean says the Green Mountain Care Board won’t have a large effect on costs by setting rates, he said it could play an important role in a single payer system by setting global budgets and keeping an eye on quality of care.

“You’ll need some kind of regulatory apparatus — more regulation here than you’ll have elsewhere because you’re going to have a monopoly,” he said. “I’d prefer to do that through competition. But if there is only one provider, it looks like there is no competition.”