PNHP comments on Hsiao draft report "Achieving Affordable Universal Health Care in Vermont" 1/19/11

January 21, 2011
William Hsiao, Ph.D.
124 Mt. Auburn Street, Suite 410 South
Cambridge, MA 02138

Dear Dr. Hsiao,

Thank you for this opportunity to comment on your draft report, and for generously volunteering your time and international expertise to this project.

PNHP agrees that the most effective, evidence-based approach to addressing the health care crisis facing Vermont is the adoption of a single payer system, and applauds the work of your team in preparing two models of single payer - with different benefit packages and governance structures - for the Vermont legislature to consider.

We particularly appreciate your recommendation, based on interviews with all the stakeholders, for an Independent Board to determine budgets and payments to providers, to address concerns – real or imagined - about the transparency and accountability of the single payer.  That is a valuable contribution to the design of a single payer system for Vermont.

We briefly outline some questions and concerns, below, with the goal of strengthening the single payer model in Option 1 and Option 3 and giving it greater ability to control costs. 

We also have concerns about the fiscal analysis of the model, also below, mostly related to what we believe is an underestimate of the potential administrative savings and savings from effective cost-containment with single payer budgeting, and an overestimate of the potential savings from ACO's.  Overall we believe that the projected savings from single payer are in the right range (25 percent of projected health spending 2015-2024), however.

Strengthening the Single Payer, Strengthening Cost Control

1. Medicare and Medicaid should be fully incorporated into the single payer to maximize administrative savings, strengthen cost control, and provide seniors and low-income residents with the superior benefits package of the single payer as well as seamless, continuous coverage.  Additional Medicaid benefits (e.g. transportation costs) may continue to be provided separately.

2. With Medicare and Medicaid fully incorporated into the single payer, it will be possible to globally budget hospitals, nursing homes, and other delivery facilities, a measure we strongly recommend both to slash administrative costs at the hospital level and to vastly strengthen cost control.  In order to contain costs, it is important to do health planning, particularly with new technology, which is expanding in Vermont more rapidly than hospitals' physical plant.  Thus we recommend that hospitals and other institutions have separate capital and operating budgets.

3. In order to effectively control costs Vermont needs to prohibit participation in the program by investor-owned, for-profit delivery systems.  There is solid evidence that investor ownership raises costs and lowers quality of care in nursing homes, hospitals, dialysis clinics, and other facilities.

4. Long-term care is an essential benefit for an aging population.  The additional cost of coverage for nursing home care may be reduced by charging an income-based fee for the housing portion of nursing home care, but not for the clinical portion.

5. Other benefit improvements we suggest are:
  - use of the "comprehensive" benefit package as the starting point
  - coverage of all residents of Vermont (subject to a residency requirement, not citizenship status)
  - elimination of all co-pays and cost-sharing (reduces administrative costs and is not necessary for cost control under single payer system with enforceable budgets)

6. While we appreciate the need for time to prepare for a new way of financing care, we suggest that the program be implemented sooner, in 2012, rather than wait until 2015.  We believe that the evidence from Taiwan shows that faster implementation, if there is the political will, is possible.

Comments on the fiscal analysis:  Single Payer “Bends the Cost Curve”

1. The evidence from savings from administrative waste is very strong and savings from this category are a minimum of 10 percent if the single payer is correctly structured (that is, Medicare and Medicaid are included and hospitals are globally budgeted) and as high as 15 percent or more of total health expenditures. 

2. The evidence of savings from using a non-profit delivery system is also very strong; for-profit hospitals are an average of 19 percent more costly than non-profits.  There is a large body of evidence showing that investor-owned, for-profit facilities such as dialysis clinics are more costly and have lower quality than non-profits that should be added to the report and fiscal modeling (see references at

3. In addition to the one-time savings from slashing administrative waste, if the single payer is strengthened it is able to "bend the cost curve" and reduce the rate of health inflation in Vermont going forward (e.g. with enforceable global budgets for physician care and hospitals as well as total health spending; bulk purchasing of drugs and supplies; and negotiated fees).  This is the real source of the majority of savings over time from a single payer plan, and projections of future health spending should reflect this.  This finding is well supported by the international evidence from Taiwan and elsewhere.

4. In contrast, we believe that the evidence for ACOs saving money is weak (much of it has not been published in peer-reviewed journals; even CMS does not agree on what an ACO looks like and is only pursuing pilot projects) and there is just as much reason to believe that the consolidation of providers and increased management costs necessitated by the ACO requirement will raise costs as lower them.  In fact, dramatically raising administrative costs is precisely what has happened in the British NHS as it has tried ACO-like schemes.

5. We thus strongly recommend a more critical evaluation of the literature on ACOs in the report and reducing the estimate of the potential savings from ACOs.  We believe that the savings from effective cost-control as a result of the single payer will more than make up for the savings currently attributed to ACOs. 

6. While outsourcing claims processing to the lowest bidder may be more appealing politically and to insurers, we are skeptical of the claim that it will save any more money.

7. Finally, while we understand the justification for the payroll tax on the employer side, we believe that the payroll tax on the employee side should be replaced with a small income tax or surtax on very wealthy families (top 5 percent) or a small tax on unearned income.  Income inequality is a major contributor to ill health in its own right, and income inequality has increased dramatically in the U.S. over the past 30 years.  A small tax on unearned income (or surtax on those with very high unearned incomes) would be a small step towards reducing this disparity.

We would be happy to review these points with your team or to arrange meetings with PNHP policy experts.

Thank you again for your outstanding contribution to fundamental health care reform in Vermont. 

Sincerely yours,

Deborah Richter, MD
Chair, Vermont chapter, PNHP

Ida Hellander, MD
Executive Director, PNHP