Hospital budget requests come in with 7.1 percent increase

Anya Rader Wallack

Anya Rader Wallack. VTD file photo/Josh Larkin

Vermont’s 14 hospitals have submitted budgets to the state for the coming fiscal year totaling $2.124 billion, an increase of $142 million over the spending in the current year. The fiscal 2013 total is 7.1 percent higher than this year’s figure.

The gross number exceeds the cap established by the Green Mountain Care Board of 3.75 percent, but the cap permits exceptions for budget elements the board considered desirable, including bringing local physicians into community hospitals and new services that have already been approved. If all the requested exemptions, which total about $80 million, were to be granted by the board, the system increase in the coming year would be 3.1 percent.

The hospital budgets were submitted to the board around July 1 and have been compiled and vetted by the board’s financial staff. Mike Davis, director of Hospital Regulatory Operations for the state’s Department of Financial Regulation who heads that staff, presented the first overview of the budget picture to the board members on Thursday. The board will hold hearings on the budgets in August and will issue its decision to each hospital by Oct. 1, the start of the 2013 fiscal year.

The 3.75 percent cap established by the board is meant to apply both to the whole hospital system and to each individual budget, but the board has broad authority to make judgements about each submission.

Anya Rader Wallack, chair of the Green Mountain Care Board, said that she and the other members would examine each exemption request to see whether it fits the board’s intent to control cost and bring maximum efficiency to the system.

“We want to ensure that cost growth is constrained, but we also want to allow for spending that results in health system improvement and we have to recognize that some new costs are beyond the control of hospital management,” she said.

The current budget cycle is the third since the state embarked on health care reform in 2010. The state has had the authority to establish hospital budgets since the mid 1990s, but system costs nonetheless soared from that time through the first decade of the millenium. The inflation rate for hospital costs rose by 10 percent annually from 2000 to 2009. Every hospital at least doubled its budget over that period.

In 2010, however, the Legislature imposed a 4.5 percent cap on increases in the fiscal 2011 budgets and a 4.0 percent limit for fiscal 2012. Each of those caps had exemptions — or “off ramps” — for certain budget elements. The targets were achieved in both years, once the exemptions were taken into account.

The current submissions appear to indicate that the cost pressures within the system are increasing. Six of the 14 hospitals exceeded the 3.75 percent cap, even if all their requested exemptions were to be approved. Copley Hospital, Grace Cottage, Mount Ascutney, Northwestern Medical Center, Porter Medical Center and Rutland Regional Medical Center all broke through the barrier.

One of the reasons why the total system cost came in under the cap is that Fletcher Allen Health Care, which comprises nearly half the care delivered in the state, increased at 2.8 percent, a significantly lower rate than many of the smaller hospitals, assuming that its exemptions are granted by the board. With the exception of Rutland Regional Medical Center, all the outlier facilities are relatively small community hospitals.

One exemption that can be granted to hospitals involves bringing local physicians under their wing. Doctors already practicing in the community who accept employment by the hospital increase a facility’s budget, but they reduce the spending on non-hospital providers. About 60 percent of the state’s physicians work for hospitals now, but the remaining 40 percent represent a meaningful piece of overall health costs.

That reasoning doesn’t apply, however, to physicians that hospitals acquire from outside the state, which has often happened in the past. According to Davis, detailed examinations of the physician transfer component in last year’s budget showed that most turned out in fact to be the kind of local transfer the board is looking for.

Davis emphasized that his team has not completed its review, but he said their preliminary assessment shows that getting physicians into the state’s management system could account for about $32 million of the requested exemptions. The total tab for all the requested exemptions came to $80,570,940.

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