Expert warns reference-based pricing could entrench fee-for-service; urges total-cost-of-care and global budgets

Jessica Michella, senior vice president of high value care for the University of Vermont Health Network, told the Health & Welfare Committee on March 12 that Vermont should avoid treating reference‑based pricing as a final solution and should instead accelerate the shift to total‑cost‑of‑care contracts and hospital global budgets.

Michella said reference‑based pricing “is fee for service. It’s not value based care,” and that while it “caps prices and brings the prices down immediately,” it also keeps the system anchored to per‑service billing and the incentives that have driven fragmentation and high cost. She called for an “immediate transition to total cost of care contracts, with a transition to global budgets,” and said those models better align payer and provider incentives around quality and coordinated care.

Why it matters: Committee members are drafting a bill that contemplates reference‑based pricing pilots alongside broader delivery‑system reforms. Michella and others told the committee that short‑term price reductions could be achieved by capping prices, but that capping without simultaneous delivery‑system reform risks higher utilization, cuts to non‑billable care coordination and pressure on workforce compensation.

Michella walked the committee through payment models commonly discussed by policymakers — fee‑for‑service, bundled payments, shared‑savings/total‑cost‑of‑care arrangements and capitation — and urged the state to use a mix of tools to move away from fee‑for‑service. She said global hospital budgets can make it “attractive to payers” because they manage the tension between volume and utilization and free resources to invest in community‑based services. She also emphasized the need for claims data to operate these models: “claims data provide a longitudinal record of patient encounters across the healthcare system” and are “invaluable” for population management.

Concerns and tradeoffs highlighted in the hearing: - Risk adjustment and quality: Michella warned that a single reference price without careful risk adjustment and quality‑based incentives could penalize providers that care for sicker, more complex patients. She said reference prices should “reflect the quality of services for the outcome delivered.” - Workforce and access: She cautioned that steep price cuts could force provider organizations to reduce programs such as chronic disease or care‑management teams, and could jeopardize competitive wages for nurses and clinicians in a national labor market. - Short‑term vs long‑term goals: Witnesses including Michella and later speakers from the Vermont Medical Society and the Vermont NEA suggested using reference‑based approaches only as a transitional tool while building the infrastructure for total‑cost‑of‑care contracts and global budgets.

Other testimony and follow‑up: Owen Foster, chair of the Green Mountain Care Board, and representatives of public‑employee health pools discussed pilot approaches for limited populations (for example, state and public‑school employee pools) as a way to test reference‑based pricing while protecting broader market stability. Colin Robinson of the Vermont NEA said a December analysis of state and school pools showed material savings from reference‑based approaches and urged piloting the pools as a near‑term step.

The committee did not take any votes. Members asked witnesses and staff to provide draft statutory language and written testimony and signaled interest in preserving guardrails — for example, staged implementation, utilization benchmarks, and consultation with providers — if reference‑based pricing is included in the bill.

The hearing closed with committee leaders asking staff to produce language that balances short‑term affordability for payers with durable delivery‑system changes that incent the “right care in the right place at the right time.”

Ending: Committee members asked for written testimony and follow‑up analyses on sequencing (price reduction vs. service redesign), risk adjustment methods and measures of access and workforce impact. The hearing will resume with additional witnesses and written materials.