That’s well below the average annual increase for the past 15 years of 6.8 percent, but it represents a significant increase from the low point of 1.5 percent two years ago.
“The absolute reality is a doubling (in patient revenue growth) over the last three years,” said board member Dr. Allan Ramsay. Hospitals and regulators have worked diligently to reduce the growth rate, but it remains to be seen if they can keep it in line with the cost growth in the wider economy, Ramsay said.
Patient revenue is what hospitals collect from direct patient services and does not include revenue from a cafeteria, parking or philanthropy. Non-patient revenue is not regulated by the board, and is expected to increase $10.8 million next year. The board attempts to curb the growth in health care costs by overseeing the amount hospitals can receive for all of their patient services.
Hospitals anticipate the $80.2 million in new patient revenue will come from $45 million in new payments from commercial insurers, $24.2 million in new Medicare payments and $14.1 million in Medicaid payments. They’re also budgeting for a $3.1 million decrease in Disproportionate Share Payments, government subsidies for treating a proportionally larger share of low-income residents.
The costs shifted from government programs — Medicare and Medicaid — to commercial insurance is expected to increase by $31.4 million. That occurs because the government programs pay at rates below the amount providers and state regulators say medical services cost. That shift is ultimately borne by consumers through higher commercial health insurance premiums.
Reducing the cost-shift by increasing Medicaid rates was a top priority for Gov. Peter Shumlin during the last legislative session, but lawmakers rejected his payroll tax proposal to cover the increase in Medicaid spending. Medicare rates are set federally.
Typically the cost shift is exacerbated by a hospital’s bad debt, accounts they can’t collect, and free or reduced-cost care for patients who can’t afford medical services. However, this year the state’s hospitals project a combined $9 million reduction in bad debt and charity care.
Some observers say the reduction is a sign the 2010 Affordable Care Act is working, because with fewer people uninsured, hospitals are seeing less bad debt and providing less free care. Davis said that’s possible, but the reductions are only slightly below the five-year averages and he wants more time to scrub the numbers before drawing any conclusions.
Vermont’s uninsured rate has dropped from 6.8 percent before the ACA to 3.7 percent, second-lowest of any state in the U.S.
Hospitals are also seeking an overall 4.3 percent increase in their charge rates, which must also be approved by the board — the lowest requested increase in 15 years, according to the board. Charge rates are not actually paid by patients, except in rare cases. Davis described them as hospitals’ “negotiating number” for insurance companies.
Government programs set their own payment rates, and individuals without insurance are typically given an income-based discount off the charge rate.
Not all of the $80.2 million in patient revenue is represented by new costs to the state’s health care system. That’s because hospitals continue to absorb private practices. This year, 38 physicians are expected to join hospitals. Once a doctor goes to work for a hospital they are more expensive to the system as a whole. That’s because hospitals are able to bill for overhead that independent doctors cannot.
There is debate in the medical community about whether independent doctors are a better value for consumers. However, the trend has been consistently toward hospital employment because the market favors consolidation, which offers economies of scale.
About half of the $80.2 million increase in patient revenue, $39 million, is being requested by the UVM Medical Center, the state’s largest hospital and only academic medical center. Dartmouth Hitchcock Medical Center treats many Vermont patients, but is located in Lebanon, New Hampshire, placing it beyond the board’s purview.
Virtually all of the spending on capital projects large enough to require regulatory approval during the next five years is expected to come from the UVM Medical Center, which just received conditional approval from the board to build a $187 million inpatient facility at its Burlington facility.
Hospitals are projected to spend more than $100 million on major capital projects during 2015. Roughly 80 percent of that is slated for the UVM Medical Center. Over the next five years, the UVM Medical Center is expected to account for 70 percent of all spending on major capital projects as it brings the new inpatient building to fruition.
The revenue and rate increases are preliminary figures based on hospital submissions, said Mike Davis who leads the board’s hospital review process, but they appear to be in line with guidance from the board that advised hospitals to keep their revenue requests below 3.6 percent increases.
Davis and his team will spend the next month vetting those submissions. Board members may also submit questions to the hospitals before a set of hearings are held Aug. 25-27 in Montpelier.
Before then, Davis and his team will examine physician transfers, changes in the use of services, new or curtailed programs and adjustments that need to be made to how hospitals reported their budgets. That information, along with narratives accompanying each hospital’s budget, is expected to give regulators the information necessary to adjust or approve a hospital’s request in September.
The board will make those narratives public next week, Davis said.
Gov. Peter Shumlin applauded hospital rate requests for being below the historical average for a third year in a row.
“What’s happening in Vermont is happening nowhere else in America,” Shumlin said in a statement, “This is not a blip; this is a trend, and it is thanks to the hard work of the Green Mountain Care Board and Vermont hospitals to bend the cost curve on health care spending. Continuing our work to control health care costs is one of the most important steps we can take to increase affordability and make Vermont’s economy work for every single Vermonter.”
The Vermont Association of Hospitals and Health Systems also welcomed the submissions.
“Responsible budgeting is a central part of reducing costs and maintaining access to quality care for Vermonters,” said VAHHS CEO Bea Grause in a statement. “We will continue to work with the Green Mountain Care Board, state of Vermont, federal government and other key partners to make the changes necessary to guarantee quality, affordable care for every Vermonter.”
If approved, overall patient revenue at the 14 hospitals would be $2,309,247,206 in 2016, up from $2,229,060,632. The UVM Medical Center accounts for $1.1 billion of the $2.3 billion requested.
