The state auditor has released a report floating two suggestions he says would save Vermont taxpayers money on state employee health care costs.

The report was released Friday, Vermont State Auditor Doug Hoffer said. He hopes the Legislature, administration and other decision makers will consider it.

Hoffer said the cost of medical procedures varies substantially between providers. A procedure at one hospital can cost thousands more dollars at another, despite the service being the same. His report contends that there is no correlation between the added costs and quality of care. Furthermore, with the way insurance works, patients don’t see much of the disparity, however, with the state plans, taxpayers do.

“Our research finds that the highest priced provider for a given service was paid an average of 3.5 times more than the lowest priced provider for the exact same service,” Hoffer stated in a release. “For an echocardiogram, the gap was an astonishing 9.3 times. When State employees and their families receive care from the most expensive health care providers, often without knowing it, it increases the cost of health care for patients, the State and taxpayers.”

According to Hoffer, the state spends over $100 million a year on the state health care plan.

One way he thinks costs could be lowered is with “reference-based pricing.” This would see the state setting a maximum price that it’s willing to pay for a service. Hoffer’s report cites Montana as an example, saying it saved $47.8 million throughout three years by doing this. Were Vermont to follow suit, it could see between $2.3 million and $16.3 million in annual savings depending on how many procedures it set a maximum for.

“And that has advantages, as you can imagine, because it doesn’t require any change in behavior by state employees,” said Hoffer. “You don’t want to force state employees to do stuff, they have a great health care plan, and nobody wants to say, you can only see the following eight doctors, you can’t see the other three that you’ve always seen. So the reference pricing has tremendous advantages, no question.”

While much of the cost disparity between providers isn’t explained, Hoffer’s report says some basic economic factors are likely involved.

“It may have to do with the frequency of providing those services. If you provide a lot of them then maybe you get economies of scale, so it could be more expensive at smaller hospitals where they don’t do as many of them,” he said. “It could be more expensive at some hospitals like the University of Vermont Medical Center where they have enormous overhead because they’re a teaching hospital, they’re a tertiary facility where they do everything, and they have to be able to respond to any situation under the sun, whereas the smaller guys don’t.”

The second measure he proposes is to offer patients more information on the cost of procedures between providers and offer financial incentives for choosing the lower-costing options.

Savings through this method would be far less dramatic than what might be seen from reference-based pricing, he said, saving about $202,000 annually.

“Too often, it feels like patients and employers have no control over the prices they pay for health care,” stated Hoffer. “Other states, facing the same pressures as Vermont, have decided to do something about it. I strongly encourage the Scott administration, the Legislature and representatives of the State employees to build off our research and implement a strategy that will benefit State employees, the State budget and taxpayers.”


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