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.”