Health Care

Hospitals ordered to lower future growth in prices by $15 million

Robin Lunge Jessica Holmes
​Robin Lunge and Jessica Holmes, members of the Green Mountain Care Board, speak to representatives of the UVM Health Network earlier this month. File photo by Erin Mansfield/VTDigger
Health care regulators ordered five hospitals to reduce the rate of growth in the prices they charge insurance companies in the upcoming fiscal year.

All three current members of the five-seat Green Mountain Care Board voted to have hospitals use half of any unexpected profits they made in fiscal 2016 to offset price increases in fiscal 2018.

The hospital system as a whole took in $60.3 million more from patient care than expected in fiscal 2016. The board disregarded about half of that money as expenses, and ordered action to offset future price increases by roughly $15 million.

The methodology is a shift from years past, when the board has ordered such rate adjustments based on overages in patient care revenue — money from Medicare, Medicaid and insurance companies, before accounting for expenses.

The board has told the University of Vermont Medical Center and Central Vermont Medical Center — which increased their prices 2.45 percent in fiscal year 2017 — not to put together a 2018 budget with a price increase of more than 0.72 percent.

Northeastern Vermont Regional Hospital in St. Johnsbury will be limited to a 3.2 percent price increase, and Southwestern Vermont Medical Center in Bennington will be kept to a 2.85 percent increase.

Northwestern Medical Center in St. Albans will need to reduce prices 1.1 percent.

Leaders of Rutland Regional Medical Center already said at a hearing earlier this month they wanted to reduce prices by $1.1 million starting May 1. The Green Mountain Care Board accepted that proposal and did not use the same methodology as it used with the other five hospitals.

Jessica Holmes, a Green Mountain Care Board member, said requiring the five hospitals to return 50 percent of the unexpected portion of their profit margins sends “a very clear signal” that hospitals should not request to raise their prices by a higher percentage than last year.

“The message is also we have to live within our budgets, and Vermonters cannot afford year after year to have premium increases that are outpacing inflation, and they can’t afford to pay more taxes, so we have to figure out different ways to cut costs and make health care affordable in the state,” Holmes said.

Robin Lunge, another board member, said using half of each hospital’s unexpected profits is a way to account for the individual circumstances at each hospital.

Con Hogan, the third board member, said it might sound reasonable to take 100 percent of the unexpected profit margin, “but that creates a complete disincentive to lower costs.”

Jeff Tieman, the CEO of the Vermont Association of Hospitals and Health Systems, said the board recognized some of the challenges hospitals are facing, such as potential cuts to charity care money the Legislature has been considering, and investments they need to make in health care reform.

“I think the board did a couple of good things here, and acknowledging that it’s most appropriate to look at operating margin” — often called profit — “as opposed to net patient revenue,” Tieman said. “We thought that was good.”

“The board also seemed to acknowledge that hospitals face a series of uncertain and difficult factors that make budgeting a real challenge, and we appreciate that the board understands those various factors and is willing to be in dialogue with our hospitals about them,” he said.

He said hospital budgeting “is sometimes more of an art than a science.”

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  • Elise Eaton

    “Con Hogan, the third board member, said it might sound reasonable to take 100 percent of the unexpected profit margin, “but that creates a complete disincentive to lower costs.” And there lies the glaring issue, that our hospitals think they are entitled to keep their profits. Other ideas: Cap compensation for top administrators and require a percentage of profit be set aside in a fund regulated by the Green Mountain Care Board.

  • James Rude

    “I think the board did a couple of good things here, and acknowledging that it’s most appropriate to look at operating margin” — often called profit — “as opposed to net patient revenue,” Tieman said. “We thought that was good.” Possible a good start. However, since the largest expense of any healthcare organization is labor. Why not use productivity measures to assess whether a hospital is efficient with resources. https://www.healthcatalyst.com/improving-hospital-labor-productivity-5-keys

  • Jay Eshelman

    So the GMCB wants to allocate hospital profits to a specific use. What happens if spending that money elsewhere, for example, investing in methods and equipment improving services and outcomes at costs that benefit patients even more than returning the money to the patient, is prohibited?

    Perhaps the GMCB should manage just one of its hospitals, leading the others by its own ‘artful’ example. Then we can see which management structure better meets the needs of patients at lower costs.

  • Not to break anyone’s spirit but, it’s easy to decrease operating margins. Increase the cost of service by giving providers raises or other monetary benefits (expenses).

    • Neil Johnson

      You should have 600,000 thumbs up for this.

      But people seriously do not understand the difference (or lack of difference) between an non-profit and for profit company. Non- profits are SOOOO misused in Vermont. I believe we have more non-profits than any other state.

      And non-profits can get money from all sorts of avenues that people can’t easily follow.

      And there is NO incentive to keep costs down for consumers, us!….

      We didn’t make a profit, but your healthcare costs rose 15%.

      People think it’s ok because they didn’t make profit. But a) they hired way more staff and yet the have no more patients this year than last. b)the drug dealers all raised their prices because they have monopolies and no competition c) We all go raises d) We paid massive overtime. e) the did tests they didn’t need to do

      None of these would have even been considered on for profit company. They would have tried to solve the problem (if they had to compete with others).