Note: The author is deeply grateful to many Vermonters who, while working on reforming our healthcare system, generously shared time and knowledge for this report, and fielded tough questions with thoughtfulness and insight: Dr. Allan Ramsay, Con Hogan, Michael Donofrio, and Sam Lacy of the Green Mountain Care Board; Catherine Hamilton, of Blue Cross Blue Shield of Vermont; Mike Noble, Jason Williams, Meg O'Donnell, Don Gilbert, Dr. Steve Leffler, and Dr. John Brumsted of FAHC.

Three healthcare professionals, who agreed to be sources, spoke frankly to Vermont Woman, but only under the condition of confidentiality; patients who shared bills also asked to remain anonymous.

Vermont is the healthiest state in the union. For six years running, it has been ranked so by United Health Foundation, which analyzes data in 24 categories. Yet despite this track record, Vermonters paid an average of $7,500 per person for health care and insurance, with the state's total healthcare expenses projected to hit $10 billion by 2020.

There is no relief in sight. Vermont's largest hospital, Fletcher Allen Health Care (FAHC), both a "primary" care center for Chittenden County and a "tertiary" care center for the region, is loaded with specialists and medical technology, and serves as a referral center--the tertiary level--for severe cases. It is the major driver of costs in the state.

FAHC strategist (and yes, that's actually his job title), Jason Williams, spoke frankly about the problem: "Revenues into FAHC will not drop from $1 billion to $900,000. We will probably never see a real reduction in costs."

The present goal is to slow the rate of increase, or, as Fletcher Allen CEO, John Brumsted, says, "bend the cost curve."

Rocks and Hard Places

Anya Rader Wallack, who is chair of Vermont's Green Mountain Care Board (GMCB), the body charged with reforming health care, calls the cost of health care "unsustainable." (See Vermont Woman's profile of Wallack in this issue.)
Vermont's healthcare costs keep rising, even as its population is shrinking. Even as its wage scale continues to fall well below the national average. Vermont median "family income" is $68,500 and often this represents more than one earner. Many find healthcare costs them as much as their mortgage payments, says GMCB member Con Hogan, and some Vermonters pay as much as a quarter of their income.

Meanwhile, Vermont's hospitals capture enormous revenue streams, expand facilities, buy up practices, pay out huge executive salaries—and call for more. The first article in this series traced the history of health care in the 1980s, when the practice of medicine became the "healthcare industry," and hospitals went into full expansion mode. A cultural shift occurred, in which patients were no longer a population to be served, but a market to be tapped.
Hogan, in his book, Gridlock: The Unhealthy Politics of Health Care in Vermont, says that one reason for high costs is that health care is no longer considered a public good. Profit and revenue have taken over. But many are saying there are places where we can begin to look to help curb costs to sustain and improve our already good healthcare system.

Unsustainable Corporate Structures

The Institute of Medicine, the health arm of the non-profit, non-governmental National Academy of Sciences, estimates that in 2009, the U.S. wasted $190 billion on administrative costs, including salaries. FAHC's quarterly reports show salaries as the largest segment of operating costs—more than $400 million. The hospital employs around 7,000 people, including nearly 1,000 doctors and doctors-in-training.

Fletcher Allen, Fletcher Allen Partners, Vermont Managed Care and their affiliates pay executive-class wages for dozens of vice presidents, revenue managers and marketing specialists whose work has little relation to patient care. A Vermont woman who works for an affiliated insurer said, "These organizations are all top-heavy."
FAHC CEO John Brumsted's salary is $750,000. That is less than the $1.5 million salary paid to his predecessor, but it is still far beyond Vermont's public-service realm. Brumsted mentioned compensation: "We recruit physician leaders at a national pay scale—minus about 10 percent, because this is Vermont."

Yet FAHC's IRS filings show that hospital executives also receive "incentive bonuses" totaling millions—for increasing the quality of patient care? No, for increasing growth and revenues.

Don Gilbert, chair of FAHC Board of Trustees' Compensation Committee, said in a meeting of that committee, "This level of compensation is justified by the complexity of the work. The CEO is responsible for four main campuses, 30 patient-care centers, and 7,000 employees in Vermont and New York—and also oversees transportation, food service and a myriad of other duties."

The governor of Vermont, Peter Shumlin, oversees commerce, transportation, education, housing, the food supply and health care for the entire state. His salary is $142,000 per year.
Voters in California have moved to tie hospital executives' salaries to that of their governor. Excessive executive pay is on the reform radar in New Hampshire and Connecticut, where Governor Dannell Malloy described the problem as a "national epidemic." In Vermont, no attempt has been made to regulate executive salaries; they are regarded as "fixed costs" on hospital balance sheets.

Good Jobs, But…

Vermont hospitals are among the state's top employers, with more than 14,000 workers. About one in nine Vermont workers is employed in health-related fields. So while health care may cost an arm and a leg, it is also employing many a Dick, Jane, and Sally.

It's an attractive field. It is growing, and reasonably-paid. Fletcher Allen spokesperson Mike Noble said that the hospital does not pay minimum wage, but has a $10.61 wage floor, and, in partnership with United Way, FAHC offers an on-site resource coordinator, educational and training programs, and rewards for completing a GED (high-school graduate equivalency diploma).

"We hire people with such a wide range of skills," Noble said. "Some require college and technical education, others don't. We also have various types of entry-level positions: environmental service workers, food service workers and patient attendants, for example.

"Skill sets very widely; we have administrative assistants and radiation physicists—and everything in between, reflecting the complexity of this organization."

That's the good news. The bad news is Vermont's recession and wage disparity: VTDigger.org reports that since 2005, the number of Vermonters receiving food stamps has doubled. So while healthcare employment is expected to grow, the hard question is whether more healthcare jobs alone can improve Vermont's economy, unaided by equivalent wages elsewhere. Without synchronous growth between the general economy and health care's economy, good-paying jobs at hospitals may only add healthcare costs that many Vermonters cannot afford.

Overcharging for Drugs and Supplies

A neglected issue in Vermont's reform debate is the profit-rich supply side. Manufacturers and distributors of medical equipment, drugs and medical supplies operate in a culture of lavish lifestyles and top-dog competition. A Vermont woman who worked as an executive in Cardinal Health, a large medical-supply corporation, said frankly in an email: "In this business, revenue equals penis size." Patient cost is of little concern in such a culture.

In any other market, consumers will compare prices and shop for good deals. In health care, patients are never given prices, or different options for prices, up front. Hospitals like FAHC claim that they negotiate reduced prices from their suppliers—but then they inflate those costs in patient charges.

As an example, for a recent ten-minute visit to a Fletcher Allen specialist for a child with tendonitis, a Vermont parent was charged $333. After the insurance adjustment, or the discount negotiated between the insurance company and FAHC, the bill was reduced to $198. Sounds good.

But the child had been given a gel insert for her shoe during that visit. FAHC billed the parents $135 for the device. The child's parent found a similar product in a local pharmacy for $19.95. The parent, calling to object, was told, "The doctor has no idea what those things cost."

That visit had first required a referral from the child's primary care provider—another ten-minute visit, charged at $281, for which the patient was billed $147. The total bill was nearly $500 for about 20 minutes of doctor-time and a bit of plastic. (The charge for the insert was eventually dropped.)

Each hospital sets its patient charges—for facility use, equipment, medications and medical supplies from alcohol wipes to gloves to sutures—by using a program known as the Chargemaster.

If patients (or doctors) cared to know more about Chargemaster billings, they could easily, as I recently did, request one by phone or fax from any hospital billing office. However, it may take someone with a medical degree to read the charges and actually understand them. For a recent outpatient surgery at FACH, the Chargemaster lists an "endocatch 10mm." I'm a physician, so I knew that this is a small plastic specimen-collection bag on a metal scissors handle. For it, I was charged $505, a price that seems unrelated to any real value of the device.

Steven Brill, writing in Time Magazine on the exorbitant costs of health care (see "Bitter Pill," in the Feb. 20, 2013 issue), noted that the Chargemaster program is used by hospitals nationwide, and yet charges are not at all uniform, varying from hospital to hospital. He says this about the Chargemaster: "There seems to be no process, no rationale, behind the core document that is the basis for billions of dollars in healthcare bills."

At FAHC, my bill for a 6-hour emergency room visit to diagnose a case of gallstones, plus a 1-hour outpatient procedure to remove them, was more than $14,000. That is $2,000 per hour.

Drug companies also do well in slurping revenue from patients. A local pharmacy charges $139.42 for a thimble-sized container of Ciprodex ear drops. That's for a customer with insurance. For the uninsured, the cost is $178.45.
A half-ounce tube of topical eye ointment, Tobradex, cost another patient $401, and was payable in full, out-of-pocket. To the insured patient's surprise, it was classified by her insurance company as a Level IV drug; she hadn't known until then that her policy had additional deductibles for different levels. She doubted her prescribing doctor knew the cost.
What might help? Revenue restriction with realistic fee structures such as a sliding-scale fee, is one cost-cutting method. Rate-setting is a fact of life in Europe. In the U.S., Maryland is the only state to control healthcare costs through rate-setting, which seems the only way to lower costs of everything from Tylenol to breast-cancer drugs.

Monster Facilities

Hospitals have high operating costs, from heat to housekeeping. FAHC spokesperson Mike Noble says, "We have to keep the lights on 24/7." A complex tertiary care center costs more to run than a small community hospital. The question is whether our tertiary-care hospitals have grown overlarge.

Hospital expansions drive up costs, and so do consolidation and mergers. Executives justify these practices as a way to lower their costs through better buying power. But studies from both government and the private sector show that patient charges increase as the parent company's debts and expenses are pushed onto new affiliates.

Meanwhile, FAHC plans to build a $1.2 million new family practice center and a $300 million 8-story inpatient ward.
"Provider supply," meaning more physicians and hospitals, also raises costs. A 2010 report by Arrowhead Health Analytics, a health policy consulting firm used by many states, showed that Vermont has 40 percent more hospitals per capita than the national average, and nearly 50 percent more primary-care physicians. The Kaiser Foundation compares Vermont's per capita healthcare cost of $7,635 last year to a national average of $6815.

Overuse of Medical Technology

A 2009 Institute of Medicine report estimated that $210 billion is wasted on unnecessary care. Much of this comes from screening. Breast x-rays alone—mammography—have produced 1.3 million misdiagnoses of "early stage" cancer nationwide over the last 30 years.

Radiation exposure from screening is a concern. Dr. Eric Topol, faculty of the Kellogg School of Science and Technology at the Scripps Institute, a nonprofit bioscience research institution, writes, "We know from all the data we have today that 2 to 3 percent of cancers in this country are related to use of medical imaging and ionized radiation."
But imaging is revenue. A recent CT scan (x-ray computed topography) at Fletcher Allen was billed at $2,354. Routine

CT scans and x-rays help account for why a visit to the emergency department can run up to $100 per minute.
Mega-hospitals like FAHC advertise "state of the art, national-quality, cutting-edge technology." But over-investment in expensive devices results in debt—and in overuse to pay for the new equipment. The result is higher patient bills.

Insurance Costs

Medscape is part of the WebMD network, a subscribed news source providing the latest information to specialists, primary care physicians and other health professionals. In 2009, a Medscape report titled, "The Ponzi Scheme That Is Health Insurance," called insurance "one of the most wasteful sectors of health care." Doctors sounded off about the problem:

"The single most important factor in the atrociously high cost of health care in the United States is the rapacious, money-hungry insurance companies and their fat cat CEOs.

"The damage that insurance companies do is not limited to the salaries of the CEOs. They waste the time and resources of healthcare workers, institutions, and patients. They are clearly a negative, wasteful element in health care today that needs to be heavily regulated, changed, or eliminated.

"The insurance companies make billions of dollars in profits each year, and they do it by limiting care, denying claims, limiting contracts, and limiting reimbursements."

Vermont's upcoming health insurance exchange, part of our healthcare reform, will include government programs such as Catamount, as well as the state's major insurers: Cigna, MVP and Blue Cross Blue Shield of Vermont (BCBSVT), the dominant carrier.

In 2010, BCBSVT was ordered by Vermont's insurance commissioner to repay $3 million to subscribers for excessive compensation of its CEO.

Meanwhile, BCBSVT has just submitted a rate increase request of 23 percent to the Green Mountain Care Board. Public comments are welcome at the GMCB site (see link below).

Catherine Hamilton, a vice-president of BCBSVT, said in a recent email to Vermont Woman that premiums are rising because "Vermonters are using more healthcare services and those services cost more."
But the Arrowhead report to the state says that Vermont is actually a low user of services, and Vermont has been ranked the healthiest state for several years in a row.

Hamilton also said that the company's frequent customer mailings "reinforce the importance of healthy lifestyles, and reduce the prevalence of chronic conditions, which are the primary drivers of healthcare cost increases." The U.S. Centers for Disease Control (CDC) lists chronic diseases such as heart disease, stroke, cancer, diabetes and arthritis among the most costly health problems.

The CDC also says these conditions are among the most preventable. Meanwhile, BCBSVT's 2011 Annual Statement lists multimillion-dollar investments of its holdings, Vermont premiums, in Pepsi Co., Dr. Pepper, Snapple, La-Z-Boyand Corn Products International. It also holds robust stakes in for-profit healthcare corporations, and in Big Pharma companies Merck and Amgen. The welfare of insurance corporations' investments and bottom line appear, in this case, to conflict with a concern for the welfare of the insured.

Even in Vermont's upcoming insurance exchange, new entities—such as independent insurance cooperatives, backed by financial planning companies (such as Fleischer Jacobs Group www.fjgfinancial.com/)—are springing up to make money in the program. Costs will remain high for the sake of supporting a multitude of insurance middlemen.

Electronic Health Records

Electronic health records (EHR) in Vermont have cost millions to install, and millions more in upgrades and training. Despite huge marketing efforts, EHR have been disappointing to patients and providers alike. Dr. Steve Leffler, medical director at FAHC, at a recent forum on health care, cited incompatibility between different EHR systems as an ongoing problem: For example, after spending millions on computerized records, doctors still snail-mail patient records to colleagues with different EHR that don't interact.

There is also concern that the quick ease of computer ordering labs and tests encourages overuse. Another complaint is that providers spend more time looking at the screen than at the patient.

Perfection of any innovation will take time. A functional electronic record—one that would allow swift communication among providers, and help collect and sort clinical data—is worth striving for. But cost-to-benefit analysis must be applied rigorously to medicine's documented obsession with technology.

The Closed Circle

Vermonters know the benefits of community midwives, trained psychologists, naturopaths and massage therapists: Some cost less, spend more time with clients, enhance preventive practices and improve outcomes. But the healthcare system in Vermont remains dominated by mainstream medicine, which resists including other licensed practitioners and models in the Vermont Blueprint for Health's so-called "patient-centered medical home," despite patient preference.

A Vermont physician who does health plan medical management said: "As far as healthcare costs go, use rates and unit cost are the determinants. Of course, we the people (as represented by the Vermont legislature) want our healthcare dollar to cover naturopaths, athletic trainers, midwives, home births, alternative medicine, developmental disorders up through adulthood, etc., all the while refusing to tackle issues like tort reform so providers don't overuse resources for defensive medicine purposes. Guess what? This all costs money, and you (and I) get to pay for it."

Meg O'Donnell, director of Government Relations and assistant general counsel at Fletcher Allen, added, "If we covered all those providers, people would complain about having to pay for stuff they don't believe in."

But plenty of people pay exorbitant premiums to cover things like obstetrics and invasive cardiology that they may not believe in. A Vermont woman who is a primary-care doctor said this about the exclusion and mainstream culture:
"Vermont Managed Care could afford to employ all sorts of naturopaths, midwives, and massage therapists in exchange for not covering useless medical procedures like TAVI (trans-catheter aortic valve implantation) and other crazy shit done to people in the last months of life—which are ordered out of a dangerous trend in medicine where more time is spent looking at the numbers on a chart than talking to the patient. And where no one knows how to do a decent physical exam any more, or to practice any sort of wait and see, or let the body heal itself, because they are ordering tests every second."

A patient-centered system would allow patients, not boards and corporations, to choose a wider range of providers.

The Cure

Current belief holds that healthcare costs cannot be lowered. We can only slow the rate of increase, keeping hospital and insurance budgets creeping upward by 3 or 4 percent each year. But a critical look at areas of excess named here shows plenty of room to cut.

The essence of health care is the best of human effort: taking care of one another. We—patients and providers—are all in this together for the hard work ahead.

Read More

• CEO salaries in Maine and California
  
• Hospital monopolies
  
• FAHC Master Facilities Plan
  
• FAHC Hinesburg site
  
• Information Technology critique reprinted from Wall St. Journal
  
• Rate Setting in Washington Post