[U]niversity of Vermont Medical Center’s top executive has “deep concern” about state regulators cutting his hospital’s revenues during a budget-review process that he maintains was “unpredictable, at best.”

In a letter to the Green Mountain Care Board, UVM Medical Center Chief Executive Officer John Brumsted says the hospital’s fiscal year 2019 rates were set at an “artificial level” that undermines investments in health care payment reform.

Brumsted also says the care board “repeatedly failed to judge hospital budgets by standards it had previously articulated.”

Such an approach “risks far more than bad outcomes,” Brumsted wrote. “It undermines the strength and transparency of our regulatory process, transforming it from one based on principles to one based on politics.”

Care board Chair Kevin Mullin said there is “room for improvement” in hospital budget deliberations, but he defended the integrity of the board’s actions.

“I stand by what the board did in the hospital budget process, and I don’t agree with the assertions that it wasn’t a proper regulatory process,” Mullin said.

As part of its mission to address health care costs, quality and access, the care board regulates Vermont hospitals’ finances. That happens through a budget review process that concluded last month, in advance of the new hospital fiscal year that began Monday.

The board’s hospital budget orders, which were issued Sept. 28, are subject to a 30-day appeal period. Hospital administrators said Brumsted’s letter is not a formal appeal.

The board took action on net patient revenues and rates – the amounts charged to insurers – for 14 hospitals. But UVM Medical Center is by far the largest piece of that puzzle: Board documents show that the Burlington hospital accounts for almost 49 percent of patient revenue statewide.

The care board made no change to UVM Medical’s proposed $1.27 billion in net patient revenue for fiscal 2019. That represents a 1.1 percent increase in patient revenue from the hospital’s 2018 budget.

But board members decided to cut the hospital’s requested 4 percent rate hike to 2.5 percent. That’s not insignificant, given the size of the hospital’s budget: Based on care board statistics, that represents about $6.75 million in reduced revenue.

Board members, in their unanimous budget order, cited UVM Medical Center’s financial health as a rationale for the rate cut.

“The hospital has relatively healthy margins and days cash on hand, as well as expense trends that could potentially be tempered by additional expense reductions and operational efficiencies,” members wrote.

Overall, the board cut rates for eight of Vermont’s 14 hospitals. But Brumsted is taking issue with the care board’s budget order “as well as the process that led to that decision.”

First, he argues that the state’s transition to an “all-payer” model of health care payment is dependent on “significant investments” from hospitals – along with a willingness “to assume the enormous new financial risk” associated with the system.

UVM Medical Center has been “all in” with the all-payer model, Brumsted said. And he says the hospital’s fiscal 2019 budget “was carefully calibrated” to sustain continued investment in that model.

But Brumsted said the care board’s rate decision “undermines the foundational infrastructure” of the all-payer model. “By weakening the UVM Medical Center’s financial health, the board’s decision makes it far less likely that the medical center can responsibly assume risk under (all payer), either now or in future years,” Brumsted wrote.

Furthermore, Brumsted contends that the board’s rate cut will do nothing to reduce health care costs for Vermonters. That’s because there is not enough connection and coordination between the care board’s review of budgets and rates for hospitals, accountable care organizations and insurers, he said.

“At best, those processes currently do not communicate with one another; they are ships passing in the night,” Brumsted wrote. “At worst, they work at cross purposes to one another … (because) decisions made in one process affirmatively harm the stated goals of another.”

Brumsted saved his harshest words for the board’s budget-review deliberations.

“Until this year, when a hospital submitted a budget in line with the (care board’s) guidance, the hospital could be confident that its budget would be approved without major adjustments,” he wrote. But this year, “even hospitals that followed all of the rules had their budgets adjusted downward.”

Brumsted cited the fact that UVM Medical’s patient revenue growth was only 1.1 percent – far below the 3.2 percent target the board set earlier this year. “Through simple math, that patient revenue produced a 4 percent commercial rate increase,” he wrote.

In choosing to reduce that rate, the care board cited factors that had one commonality: “None of them was previously identified by the board as governing the budget process,” Brumsted wrote.

In an interview Monday, Mullin said he had to limit his response given that the board’s hospital budget orders still are subject to a 30-day appeal period. But he denied that the board had engaged in arbitrary decision-making or had taken any actions that hinder payment reform.

“I don’t believe that anything that the board did jeopardizes the move toward the all-payer model,” Mullin said. “If the board felt that, we never would have done it.”

Mullin also reiterated his belief that the board’s actions lead to lower costs for consumers. He pointed to the fact that hospital revenues are growing at much slower rates in recent years. Also, the board regularly reduces insurers’ rate requests.

“I think the regulatory system is working,” Mullin said.

He also noted that some observers “think that we didn’t go far enough” on hospital rates. For example, the state’s chief health care advocate had argued that UVM Medical Center shouldn’t be allowed to raise its rates at all in fiscal 2019.

Mullin added that the regulatory process still is “evolving.” For example, care board officials are seeking a consistent way for hospitals to account financially for their all-payer programs.

“We’re going to sit down with the hospitals after the appeal process expires, just as we did last year, trying to improve the process,” Mullin said.