Vermont Pilots a New Healthcare Payment System

Legislators in Vermont are pursuing an ambitious experiment to test the effectiveness of different Medicare payment models.


“Reward doctors and hospitals financially when patients are healthy, not just when they are sick.” This idea has been spurred by the Affordable Care Act, specifically in changes in how Medicare pays for certain types of care. Now the state of Vermont has set a goal to pilot and apply its new alternative payment model to 70 percent of insured residents by 2022. Doctors and physicians will be compensated by keeping their patients healthier, not by the number of operations they conduct. The state also wishes to limit the growth in annual healthcare by 3.5 percent.

So far, 30,000 Medicaid patients have transitioned to this alternative model. The new system uses software to “flag” people with chronic health conditions and complex medical needs. Treatment and support will then be prioritized for people deemed as “high-risk.” From the hospitals’ perspective, they would receive upfront payments to manage treatment for each of their patients.

More Freedom or More Middlemen?

By paying hospitals upfront for patients, physicians are no longer tied to a fee-for-service model. This means that hospitals can have more freedom with how the spend the money, allowing them to target some of the issues they think could exacerbate health problems like housing instability and lack of transportation. Proponents think that the freedom to target psychosocial causes rather than just medical symptoms could yield many benefits in cost-savings in the long run.

Critics of this plan, however, believe it will create a strong group of “middlemen” who administer healthcare payments with no supervision. They state it may also burden primary care doctors as they must work to alter some patients’ “deep-rooted habits and behaviors.” One study has even suggested this approach was unlikely to yield net savings for patients. However, as Amy Cooper, executive director of HealthFirst, states in coverage from the Washington Post, this would be a very beneficial model if it is implemented correctly. But the question is “whether it will be implemented the right way.”


Shannon Zhang is an undergraduate student at the University of Maryland College Park where she attends the Robert H. Smith School of Business. She is pursuing a double major in Information Systems and Finance, and is an undergraduate research assistant for the Smith School’s Center for Health Information and Decision Systems (CHIDS).