Editor’s note: This article is a response to questions about why Davis and Shay Totten of Seven Days drew very different conclusions from data provided by the Department of Banking, Insurance, Securities and Health Care Administration.
Read Totten’s column.
There is an Alice-in-Wonderland quality to the responses to the recent post on the Vermont hospital budget submissions for the fiscal year 2012. The primary problem was a story written by Shay Totten in the weekly paper Seven Days, which took the exclusions to the budgets established by the Legislature and added them to the hospital totals rather than subtracting them. Totten turned off-ramps into on-ramps, which then inspired much commentary about how “the fix is in” and “The so-called government takeover is starting to look more like a handover.”
From 2000 to 2009, the total Vermont hospital budgets increased by an average of about 8.5 percent per year. In 2010, the Legislature ordered the state Department of Banking, Insurance, Securities and Health Care Administration to cut that figure to 4.5 percent for 2011 and 4 percent for the year 2012, but they enumerated exemptions for some items like purchase of physician practices and electronic medical record systems and other steps to advance health care reform. These came to be called “off ramps.”
When the budgets came in a week or so ago, the increase in net patient revenue for the whole system increased by 4.6 percent above the budget figures for 2011. Net patient revenue means all the money to be spent by the hospitals. While the total of the exclusions hasn’t been published officially, the total runs to at least $40 million, which when subtracted from net patient revenue comes to a system increase of under 3 percent.
Virtually every budget narrative alludes to the fact that the exclusions bring that particular hospital below the 4 percent target. Fletcher Allen, which represents nearly half the system, says: “More importantly, if the requested exemptions authorized under Act 128—recognizing necessary investments in health care reform among other things—are approved, the growth in total operating revenue for Fletcher Allen is only 2.8 percent.” Porter Hospital, to pick a small one, has an unadjusted increase of 4.9 percent, but if one takes into account the exemptions, the increase comes in at 2 percent. Totten got Porter at 8 percent.
I called Mike Davis at BISHCA just to make sure I hadn’t fallen down the bunny hole. “So Mike, net patient revenue is all the money, and the off ramps get subtracted, right?” I asked.
“Of course,” he said.
A couple of other points on the budget submissions: Two key off ramps are medical record or information technology systems, and the purchase of physician practices by hospitals. These fall short of
being wild extravagances. Pencil-and-paper record keeping hasn’t done much for cost containment over the last 40 years; a shift to electronic records promises savings. And the purchase of physician services can be an important tool in a revamped delivery system. The reason is that vertical integration in the currently highly balkanized system will make it much easier to shift the cost-containment risk to doctors and hospitals, the key to sustainable costs. We’ll deal with this in greater length later.
The narratives from the 14 hospitals contain some interesting hints to the dramatic decrease in hospital spending over the last two years. One of those is the number of hospitals that note that they are holding down salary increases within their organizations. The issue of salary levels and rates of increase are certain to be a major part of the reform discussion going forward.
Steve Kimbell, the BISHCA commissioner, gets rapped implicitly in the Seven Days piece for not being aggressive enough on cost containment. Leaving aside any amusement about Kimbell not being aggressive enough, the fact is that he hasn’t done anything yet. He can accept or turn down the
so-called off-ramp exclusions. And his announced intention to try to encourage the development of a strong, efficient health care delivery system not only is not craven, it is essential to health care reform. It’s true that costs have been unsustainable and they have to come down—and, more importantly, stay down—but doctors and hospitals still have to deliver the care. And cutting edge IT systems are necessary for that.
Finally, a note on journalism: Every reporter has made mistakes, and if we keep working, we’ll keep making them, as hard as we try not to. Totten identifies Kimbell as a former health care insurance lobbyist. Jeanne Keller, by contrast, is identified as a “Burlington-based health policy analyst” and from this Olympian height is allowed to say that insurance companies will be “sent to the gallows first” for failure to control health care costs. Keller is a health policy analyst, and, in fact, an exceptionally good one. But she has been paid in the past to represent insurance company interests in the past, and possibly she still is. Which she has every right to do. But a reporter is obliged to tell his readers
that.
SUBHEADA note about cost shifting
Eric Davis, a retired political scientist from Middlebury College, asks whether shifts in the payment rates by federal payers won’t drive up costs for local payers for the Vermont hospital system. Certainly it could, as it always has. A reduction in federal payment rates would force more cost shifting inside the system, but those shifts are not directly relevant to the money hospitals spend.
So, costs to health care payers will go up in response to the increase in the costs of the system in 2012. The point is that they will reflect a system that is going up at 4.5 percent rather than 8 percent or 9 percent.
