Gov. Peter Shumlin announced Wednesday that the federal government gave preliminary approval to Vermont’s planned “all-payer” health care system. So, what is “all-payer,” and how does this fit in with everything else we’ve been hearing about health care?

According to Shumlin, the system could transform the health care system in Vermont and make Vermonters healthier while bringing down the overall cost of health care in the state.

What is all-payer?

The new system the state is planning would change the way doctors and other health care providers get paid to do their jobs.

In the current system, providers get paid for each service they give. If a doctor draws blood and runs tests, that patient — or that patient’s health insurance company — has to pay for that appointment and the tests that follow. If it turns out the patient needs surgery, the patient or insurance company has to pay for that.

In the system Shumlin described Wednesday, doctors will be paid monthly based on the health of the people they treat. This is sometimes called a “pay-for-performance” model. That means a doctor might get paid extra if a certain percentage of her patients got blood sugar tests in a given year to screen for problems, or a hospital might get paid based on how many people recover fully from knee surgery without needing to be re-admitted to the hospital.

As VTDigger reported Wednesday, doctors will be paid this way by being part of an “accountable care organization”:

Specifically, doctors would sign up to be part of one giant organization — called an accountable care organization — that would accept those payments from Medicare, Medicaid and commercial insurance companies. The accountable care organization may be OneCare Vermont or the Vermont Care Organization. The accountable care organization would then pay doctors for the quality of their patient’s care, not the number of individual tests and procedures they perform for the patient. The Green Mountain Care Board, which currently approves hospital budgets and insurance prices, would be the primary regulator for the accountable care organization.

“All-payer” sounds like the opposite of single payer. How do the two models compare?

The two models have to do with different parts of the system, so they aren’t the same but they also aren’t opposites. “All-payer” has to do with how health care providers get paid. “Single-payer” has to do with who is paying doctors.

The goal of “single-payer,” as the name implies, is to make it so that there is only one entity (the government) making payments to health care providers. Single-payer doesn’t necessarily mean that doctors will be paid based on patient health outcomes; it would be possible to have a “fee-for-service” model that is also single-payer. It would also be possible to have a pay-for-performance system like the one Vermont is adopting, and also have those outcomes-based payments be made by just a single “payer.”

The major difference between the two systems is that all-payer doesn’t try to do away with private insurance. There aren’t restrictions on who pays doctors or how many “payers” there can be under all-payer. It simply says doctors should be paid in a new way.

Why does Vermont need permission from the federal government to do it?

The short answer: Because the federal government is a major payer.

Because many Vermonters are on Medicaid and Medicare and both of those programs are financed by the federal government, the feds had to agree to change the way they pay health care providers in order to be a part of Vermont’s new system. Without federal approval, Vermont wouldn’t be able to get all of the doctor-payers on level ground, so the all-payer model wouldn’t work.

One lesser-known aspect of the Affordable Care Act (also known as “Obamacare”) is that it created the “Center for Medicare and Medicaid Innovation,” which has flexibility to work with states that are trying new health care models. That’s what allowed for the creation of the draft agreement announced this week.

What does this mean for Vermont Health Connect?

Not necessarily anything. From a consumer standpoint, all-payer doesn’t necessarily change much about the experience of buying health care. People can still go to whichever doctor they choose using whichever insurance they have, and they can buy that insurance in the same way they have been.

The big differences for all-payer come at the receiving end of the money; health care providers get paid based on patient health indicators, not based on how many appointments they have or how many tests they run.

Are other states doing this?

Actually, many states used to use some form of rate regulation for health care costs. According to a 2010 policy brief from the National Conference of State Legislatures, a version of all-payer was all the rage in the 1970s but was slowly phased out as most states decided to use a more free-market approach for health care costs. (That earlier version of all-payer was not a “pay-for-performance” model; it simply required that everyone paying doctors pay the same amount to a given doctor for a given service, no matter who was paying the doctor. That is no longer the case – Medicaid and private insurance companies often pay very different amounts for the same procedures.)

Maryland is the lone hold-out state, and has had a functioning all-payer system since at least 1976. The NCSL brief says that “[b]etween 1976 and 2007, Maryland had the second lowest rate of increase in costs per admission in the country.”

Vermont’s approach is somewhat unique in that it is using a “pay-for-performance” model, which means doctors would be paid based on health indicators and outcomes instead of being paid for a specific test or procedure. The NCSL says that Vermont is the first state to try this model.

What happens when another governor takes over?

That largely depends on what that governor wants to do. Under the agreement with the federal government announced this week, the state can back out of all-payer if it gives notice six months in advance.

That doesn’t mean the next governor – whether it’s Liberty Union candidate Bill Lee, Democrat Sue Minter or Republican Phil Scott – will necessarily back out of the program. The next administration will have that option, but the direction health care policy takes over the next two years is still largely in the hands of the next governor.

How can I weigh in on all of this?

The state is hosting the following public forums to present a draft of the all-payer model: