Vermont witnesses describe Medicaid’s decade of reference-based pricing as Legislature weighs S.126

Lawmakers continued review of S.126 on Oct. 12 with testimony from Agency of Human Services officials and independent clinicians about reference-based pricing and how it is already used in Vermont Medicaid.

Alicia Cooper, director of managed care operations at the Department of Vermont Health Access, told the committee that Vermont Medicaid has benchmarked many fees to Medicare for more than a decade and uses Medicare-based schedules as an “underlying architecture” on which to build payment reforms. “We think of it as the underlying architecture, and then we can build on top of that with innovative payment models,” Cooper said.

The issue matters because S.126 would task the Green Mountain Care Board with designing reference-based pricing for commercial payers, while Vermont Medicaid already uses similar methods. Sarah Rosenblum, deputy director of health care reform at the Agency of Human Services, said she expected the bill’s commercial provisions to affect commercial insurers rather than change Medicaid’s rates. “I don't think anything would change specifically for Medicaid because we would expect that we would continue to use these reference-based pricing approaches and that we would still be constrained by our appropriation,” Rosenblum said.

Witnesses described how the Medicaid program maps many fee schedules to Medicare at different percentages and with some state-specific adjustments. Cooper summarized examples the agency provided to the committee: ambulance payments benchmarked to 100% of Medicare calendar-year 2023 rates (with one code at the 2024 rate); anesthesia at 94% of Medicare; clinical laboratory services at 97.5%; durable medical equipment, prosthetics, orthotics and supplies at 87.5%; dental at 75% of the Northeast Delta Dental 2023 schedule (Medicare generally does not cover dental); physician-administered drugs at 98.5%; hospital outpatient peer groups that pay in-state critical access hospitals at about 104.6% of Medicare while an in-state academic medical center receives about 80.5%; primary care professional services at 115% of Medicare and other professional services at 89.5%. Cooper also said Medicaid pays a standard home health fee-for-service schedule at 100% of Medicare but a more comprehensive home-health payment methodology at roughly 67% of Medicare.

Cooper and Rosenblum told legislators that the percentages the state pays are constrained by available appropriations. “If you don't have the dollars to go along with it… then it can mean that we're not using the reference-based pricing approach to infuse more funds into the system,” Cooper said.

Independent clinicians’ representatives urged clearer, faster action and attention to nonhospital providers. Susan Ritzen, executive director of Vermont Health First, which represents independent physician-owned practices, said independent clinicians often earn lower professional fees than hospital-employed physicians for the same services, and that many independent practices lack access to other revenue sources available to hospitals and federally qualified health centers. “The professional fee paid to a hospital-employed cardiologist was two and a half times more than that paid to an independent cardiologist,” Ritzen said, describing a past example. She recommended directing resources to primary care, mental health and home health and adding price transparency as an explicit goal.

Legislators pressed witnesses on operational details, peer-group classifications for hospitals, cost-settlement practices for critical access hospitals and whether the state’s Medicaid experience could be transferred to commercial payers. Rosenblum and Cooper said Vermont’s Medicaid program has done substantial operational work—claims-processing logic and state-specific DRG weights—over many years, which helps make reference-based pricing operational for Medicaid but could pose replication challenges for other payers.

Committee members raised concerns about timeline and scope. Several legislators said they would prefer a faster implementation and clearer definitions of which services would be subject to reference-based pricing. Witnesses suggested phased approaches could be workable and that the bill’s language might be used to promote information-sharing between AHS, Medicaid and the Green Mountain Care Board about lessons learned.

No formal committee votes were recorded during the hearing. Witnesses and committee members agreed the topic requires additional technical work and follow-up testimony, particularly on how commercial payers would implement the approach and how to protect independent practices if payment shifts occur.

For now, Rosenblum and Cooper said Medicaid will continue its reference-based approach within the limits of its appropriation, while the committee continues drafting S.126 language for commercial markets.