[F]or the past month, there’s been a tug of war over millions of dollars of hospital revenue in Vermont.
On one side, Green Mountain Care Board members have been weighing their options after discovering that three University of Vermont Health Network hospitals exceeded their patient-revenue budgets by a combined $43.8 million in fiscal year 2017.
On the other, UVM hospital administrators have lobbied against the regulatory body making any “overcorrections,” citing factors including increased demand for health care, an aging population and rising expenses.
The care board on Wednesday came up with a novel compromise: UVM Medical Center faces a 3 percent rate cut in fiscal year 2019, but that penalty could be decreased if the hospital will agree to undertake a project improving mental health services, substance abuse treatment or accountable care organizations.
The board wants “to figure out if there is another way to actually have a return on investment to ratepayers in Vermont,” said Kevin Mullin, its chairman.
Dr. John Brumsted, the hospital’s chief executive officer, said he is “certainly willing to engage in dialog” with the care board. But he warned that the board’s proposed rate decrease might “have a devastating effect on our ability to address (health care) access concerns.”
The Green Mountain Care Board’s regulatory duties include annual review and approval of hospital budgets. The board also examines each hospital’s financial performance after a fiscal year concludes, using “net patient revenue” as a measurement.
Net patient revenue is not profit, it’s a kind of surplus. It represents the amount of money a hospital received for patient care before expenses are figured in.
The board allows a 0.5 percent variance from a hospital’s budgeted net patient revenue. In February, the care board learned that four hospitals exceeded that threshold in fiscal 2017 – Central Vermont Medical Center, Mt. Ascutney Hospital and Health Center, Porter Medical Center and UVM Medical Center.
Mt. Ascutney’s overage was characterized as too small to worry about. But the three other hospitals are part of UVM Health Network, and care board members have been scrutinizing those budgets.
They’ve been particularly interested in the fact that UVM Medical Center, by far the state’s largest hospital, exceeded its net patient revenue budget by $38.3 million.
Brumsted since has made several appearances before the board, arguing that last fiscal year’s increased revenue is attributable to a jump in patient numbers. He pointed to an increasing population in his hospital’s service area, along with an aging population that requires more services.
“These demographic shifts and these use rates are not just going to magically and mystically go away,” Brumsted told the board last month.
But the care board is tasked with controlling health care costs, and members have been considering ways to bring UVM hospitals more in line with state-approved budgets. The board’s tools include reducing rates, which are the prices that a hospital charges insurers.
On Wednesday, the board considered several options.
One was requiring that UVM Medical Center hold $20 million in reserve, with board authorization required before the hospital could spend any of that money. That figure is roughly equivalent to the amount the hospital’s net operational income was over budget in fiscal 2017.
Board member Tom Pelham said reserving $20 million is a “transparent” way to segregate hospital revenue that should be returned to ratepayers. But board member Robin Lunge compared the concept amounted to “micromanagement,” adding that, “I just don’t get how the money gets out of the reserve back to the ratepayer.”
The board rejected the reserve idea.
Mullin argued in favor of cutting UVM Medical Center’s rates within the current fiscal year. That idea has backing from Vermont’s commercial insurers, who have warned that increased hospital utilization is costing them additional money and could lead to insurance rate hikes in the near future.
“I would hope that we do something (about hospital rates) sooner rather than later, as we’re impacting ratepayers in Vermont if we don’t do it at a sooner juncture,” Mullin said.
But the majority of the board voted to not change any rates until Oct. 1, which is the start of the fiscal year for hospital budgets.
After that vote, the main question was how big UVM Medical Center’s rate reduction should be. Some said 3 percent was too much, leading board member Jessica Holmes to suggest a combination of a rate cut and hospital investment in a project to increase the state’s inpatient psychiatric treatment capacity.
“I think UVM is in a very, very unique position to make some inroads in our state mental health crisis at this point,” Holmes said.
The care board endorsed the idea, expanding the hospital’s suggested investments to also include substance abuse treatment or accountable care organizations.
It’s not clear how much the hospital would have to commit to spending in order to ease the board’s suggested rate cut. The care board will make final decisions after discussions between board staff and hospital administrators.
In an interview later Wednesday, Brumsted said the care board is taking a “unique approach” to budget regulation. He said he hadn’t had time to fully consider the board’s recommendations.
He cautioned, though, that UVM might have difficulty managing a 3 percent rate cut given the impact of inflation as well as the hospital’s spending on new physical infrastructure, a massive electronic health records project and the state’s shift to the all-payer model.
“Something would have to give,” Brumsted said.
Separately on Wednesday, the care board considered rate actions for the other two UVM Health Network hospitals — Central Vermont and Porter.
The board voted to not pursue a rate reduction for Porter. Members briefly considered ordering a 1 percent rate cut for Central Vermont, but they delayed that vote to give UVM Health Network time to respond.
Brumsted cautioned that Central Vermont Medical Center is in a state of transition.
“In 2017, they were significantly in the red,” Brumsted said. “We just hired a new president for that organization who started in the summer. She’s reshaping the organization.”