[V]ermont hospitals are expected to collect $2.6 billion in patient revenues in fiscal year 2019, according to new budget orders issued by the Green Mountain Care Board.
The board, in making its annual determinations on hospital budgets, slightly decreased the total amount of patient revenue that had been requested by the state’s 14 hospitals.
The care board also cut hospitals’ requested rates – the amounts they charge insurers – by 0.4 percent overall. That will mean millions of dollars less in hospital revenue, as board members argued that some hospitals were leaning too heavily on big rate hikes.
“I think that we rightfully were looking at rates and what the impact is on Vermonters,” board Chair Kevin Mullin said. “That’s not anything new. That’s something that is threaded throughout everything we do at the Green Mountain Care Board.”
The state hospital association is “concerned” about the board’s actions. But some say the regulatory body didn’t go far enough.
Health care costs “continue to grow at an unsustainable rate, and that means people are getting priced out of the care they need,” said Mike Fisher, Vermont’s chief health care advocate.
The care board regulates hospital revenues in two ways: It approves budgets and also reviews the previous fiscal year’s financial performance, with the option of taking regulatory action if hospitals have diverged too far from their state-approved financial plan.
The budget decisions issued this week by the board are for the hospital fiscal year that starts Oct. 1.
A key measurement used by the board is net patient revenue, which is revenue from patient care before expenses are figured in. For fiscal 2019, the care board has approved a 2.1 percent growth rate in net patient revenue systemwide. That represents about $52.66 million more in hospital revenues than the current year.
Prior to the budget-review process, the board set a 3.2 percent growth target for patient revenue in fiscal 2019. But regulators approved some growth rates that exceed that target, including a 5.2 percent hike for Mount Ascutney Hospital and Health Center and a 5 percent increase at Central Vermont Medical Center
The lowest patient-revenue growth rates approved by the board were 1.1 percent for University of Vermont Medical Center and 1 percent for Springfield Hospital.
One hospital – Gifford Medical Center – was approved at a 6.1 percent reduction in patient revenue for next fiscal year. The Randolph hospital is trying to work its way back from financial shortfalls largely caused by physician vacancies.
Rate hike proposals
The care board’s decisions on hospital rates also varied, but members took more aggressive action on that front: They reduced rate-hike proposals for eight hospitals, and the average 2.7 percent rate increase is down from 3.1 percent in hospital requests.
At a meeting earlier this month, care board member Maureen Usifer said hospitals must react to economic pressures by cutting costs where possible.
“I understand a lot of these hospitals are struggling financially,” Usifer said. “But that’s not going to change unless they change the service mix, become more efficient or reduce waste. It can’t be fixed by just continuing to increase rates year after year.”
The biggest rate hikes approved by the board were for Springfield Hospital (5 percent), Copley Hospital (4.5 percent) and Brattleboro Memorial Hospital (3.9 percent). Each of those hospitals are having financial issues.
But Copley also represented the biggest cut the board made to any rate request: Copley administrators had asked for a 7.9 percent hike.
Even small rate changes can mean big money, especially for large hospitals.
For example, care board members sliced UVM Medical Center’s proposed rate hike from 4 percent to 2.5 percent. Based on care board statistics, that represents about $6.75 million in reduced revenue.
Care board member Tom Pelham had argued for an even larger reduction in UVM’s rate given the hospital’s healthy margins. UVM Medical administrators last month presented the care board with a $1.3 billion budget that includes an operating margin of 2.8 percent, or $39.2 million.
UVM Medical’s rate hike for fiscal 2019 “is a large – even with the reduction – hit on commercial ratepayers, which as we know, in the end, falls to those who pay premiums,” Pelham said.
There’s debate about whether hospital rate-hike reductions – and the resulting savings by insurers – ultimately reduce costs for consumers. Mullin said he believes they do, given that the care board also has jurisdiction over insurance rates.
But Fisher said the connection is murky given the differences between hospital budgets and insurance rates. “It’s really hard to follow the dollar directly because of the substantial mismatch in each regulatory (process),” he said, adding that “there’s a substantial health care spend that’s outside the hospital budget process.”
Last week, Fisher sent the care board a letter acknowledging that hospitals and insurers “point fingers at each other and say that they are not at fault for skyrocketing health care costs.”
“We understand and recognize that no single entity is responsible for all health care cost increases,” Fisher wrote. “However, each sector must take responsibility for the role it plays in this fragmented and unsustainable system.”
The care board, Fisher said, must “do more to to improve efficiency in Vermont’s health care system, to slow health care cost growth and to ensure that savings are passed on to consumers.”
VAHHS reaction
On the other side of the coin, the Vermont Association of Hospitals and Health Systems would rather the care board take less regulatory action.
The association has argued that hospitals must be allowed to keep up with the rate of medical inflation, especially since they’re also expected to take financial risks associated with the switch to a new “all-payer” model of health care payment.
On Thursday, association President Jeff Tieman issued a statement saying the state’s hospitals had “developed budgets that make health care more affordable while maintaining high quality care.”
The association “is concerned that the (care board’s) FY2019 budget decisions create uncertainty about whether hospitals have the resources necessary to provide patient services, advance health care reform and address community need,” Tieman said.
Absent from the care board’s budget decisions is the issue of hospital executive pay, which has become a flash point in the health care cost debate. Some have argued that the board should examine and even freeze some administrative salaries, but Mullin has said the board won’t “micromanage” hospital budgets in that manner.
In his letter last week to the care board, Fisher cited “clearly exorbitant” executive pay as one reason the board should not allow UVM Medical Center to raise its rates at all in fiscal 2019.
The care board did not heed that request. But in an interview Thursday, Fisher said the compensation issue remains important.
“While it’s true that executive pay represents a very small percentage of hospital budgets, it tells us a little bit about the (corporate) culture and it provides for some really bad optics,” he said.
