Cornelius Hogan - Testimony Outline for Joint Health Committee

Testimony Outline for Joint Health Committee - January 22

January 22 Testimony Outline for Joint Health Committee




Talking Points

Handouts and References



Review testimony agenda

Why Global Budget

·        We're just three people, who are not compensated by the health care system (Dr. Richter is a physician and is paid for her services as a physician) who decided some years ago to learn as much as we could about health care.  And if we can learn what we've learned, with no staff or other support, the Legislature certainly has the capability of learning 20 times more than we have. 

·        There are 6 bills on the table...all have global budgets for hospitals included.

·        A point of perspective that is driving these bills.  When I chaired Gov Dean's bipartisan Commission on Health Care Access and Affordability in 2001, less than a decade ago, we were spending 2.4 billion.  Today we've more than doubled up to 5.2 billion.

·        Global budget bills for hospitals has 74 sponsors, with some but not much overlap.

·        Hospital spending which represents 42% of Vermont health care spending is growing at rate faster than other components of health care, 9% - 7%.

·        We fear for the future of health care in Vermont if costs are not brought under control

·        This is why the time for global budgets for hospitals has come


Appendix B Spreadsheet


H100 - 18


H510 -30



H491 -5



H372 – 4 Fisher


H512 – 1 MCFaun


S181 – 1 Bartlett


S88 -15





Defining Key  Terms




What We Predicted in 2005

·        When we published our first book in 2005, a mere 5 years ago,

·        We were spending about 3.4 billion: we predicted we would spend 5.1 billion in 2010.  In fact, we are now spending 5.2 billion.

·        We also said then that if we would control the growth of administrative expenses by a mere 1% and care costs by 2 - 3% that we would spend almost 1 billion less in 2010. ..even while covering every Vermonter for hospital care. Over the last 5 years, we didn't try to do either. It's a classic case of lost opportunity.


Show Appendix B in ‘Crossroads'


General Assessment of bills on the table

Several Rough and General Conclusions when reading the bills

·        All of the bills accept the fact that hospital cost growth CAN BE DEALT with.

·        All of the bills are more similar than they are different in their approach to global budgets

·        None of the bills call for new kinds of crucial information. Such as broader based economic analysis. More about that later.

·        All of the bills call for, in one way or another for prospective payments, rather than reimbursed payments.

·        Global budgets get directly to controlling the costs that have nothing to do with care, the transaction costs of chasing the money.

·        A couple of the bills introduced some interesting ideas, like prohibiting advertising, and regional population based planning.

·        Almost all of the bills have good ideas regarding the machinery of global budgets, in other words, how you do it.  In Vermont's case there is ‘machinery in waiting'.

·        A couple of the bills suggest new organizations. We can do this with no new beaurocracy

·        All of the bills have provision for using the health resource plan, budgets acting as spending caps, some kind of Certificate of Need, provisions for providing and paying for out of state care,

·        Most have provision for budget amendment 

·        Individual bills have procedures for malpractice arbitration, health professional loan payments, and transparency of negotiated fee schedules. 

·        The bills are similar enough so that many of the decisions are a matter of legislative preference.

·        There is a hierarchy to these bills in terms of scope and effect.  And all numbers I cite are probably wrong on preciseness, but in the right order of magnitude.

·         Working from lowest global budget impact to highest leverage bills, and depending on gaining waivers to include Medicare and Medicaid in the fund flow, projections of administrative savings could run from about 70 million to about 130 million.

·        These are not small numbers. A good start.  Other projections add as much as 50% additional savings, when admin costs are assumed to be 15% and not 10%. As a matter of perspective, we spend 13 million a day in Vermont on health care. And this is only the hospital part of the admin costs.

·        This brings me to one of our biggest concerns, namely the lack of credible information and numbers on both sides.  On January 8, I constructed a memo to the leadership and both of you regarding the need to accelerate the construction of important information that can help this process, and believing that the Legislature itself is the best place to develop the information with its historically a partisan Joint Fiscal Committee of the Ledislative Council.  Following are some of the examples of information needed to be developed. 

·        A full single payer approach would avoid about half a billion dollars a year. In my mind (and Dr. Richter might well disagree with me) that kind of change is not in the cards today. Dr. Richter will probably not agree with me on this point. DEB

The CVH advertising package. Wash World circ = 28M; TA= 25K ?


36 page 4 color, inserted into 50M papers, plus


My est: 75M
















Tot 08 4.6

Hosp   1.6

%        .35

Medicare 410


Private 716


Medicaid 157



All 3 = 1.3






Read from Jan 8 memo.


A Review of the Evidence: common threads & departures






Need for Legislative Leadership in providing needed information

Summarize the memo quickly

The Leadership memo


How to do it

Robert Dredge – 2004: The following is abridged rom the Abstract:

·        A practitioners guide to the introduction of a global budget into a hospital setting based on real World Bank projects around the world.

·        Global Budgets  are based, where possible, on the health needs of the population served by the hospital.

·         It considers how a global budget can be established and managed to generate local ownership and commitment to its delivery. 

·        It deals with incentives for both efficiency and performance.  Examples of different contracting regimes, and how they fit into a global budget framework.

·         Mechanisms for the periodic revision of the budget for issues such as inflation are given.

·         There are separate notes on how a global budget can fit into a policy regime, how to cost services, and how to arrange contract for individual services. 

·        There are also suggestions on how to fund special payments that may vary from year to year, such as capital, research and development and Training and Education.

·        We haven't reviewed the paper in detail, but it is an example of information and resources out there than can help.

World Bank handout, hard copy and flash drive


What is a Realistic expected impact

·        If mandates are used, the evidence tells us that it is unlikely to control cost.

·        We can get some clues from some work done about 4 years ago on a bill similar to the current ‘McFaun' bill.  We learned:

-         State employees & retirees, 40% reduction in premiums = (40m)

-         VT teachers (52Mil)

-         Municipal employees (23M)

-         Workers comp (84 M)

-         Hospital workers (43M)

-         Equals 243M put into play

Deb does financing section

Deb covers financing


Reminder: If we do nothing

It's pretty basic arithmetic.  Health care spending from 2005 to 2010, a mere 5 years, increased by 1.8 billion dollars.  If continued to be uncontrolled, in 5 years, by 2015 we are looking at another 53% increase in total spending to an astounding 8 billion dollars; and average family premiums for Vermont will increase from $13,000 per year to $18,000 per year., which is rising at 3 ½ times wage growth.  And to be fair, we are doing better on that front than all of the other New England states, with Massachusetts rising at 6 ½ times wage growth, to the most expensive percapita health care cost in the world.


At that level, I think we can all safely say that the system as we know it will have collapsed.  And what do you think the human and fiscal consequences of that might be?


We must get on with doing something about this.


3.4 in 2005

5.2 in 2010

1.8 +53% in 5 yrs

8 billion by 2015.


Human Resources Available to Help in this process

Deb has list.



Wrap Up


·        There is a direct connection between controlling health care costs and solving our awful budgetary problems. Health care represents about 25% of the State's budget;

·        There is a business competitive and growth case for this kind of cost control.  But the Legislature has side stepped this kind of analysis for years.

·        The last time the idea of global budget got this kind of attention was in 1982, when then Gov. Richard Snelling proposed his ‘maxi-cap' on hospital budgets, only to see it pass the House, and then scuttled by the Hospital Assoc in the Senate.





·        All this depends on the ability of the State to shift financing from premiums to broad based taxes, but that is a separate discussion















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