When Dr. Paul Reiss refers his patients for an MRI, the easiest option for the Williston doctor would be to send them to the University of Vermont Medical Center 15 minutes away. Instead, he’s referring them out of state.
Cheaper prices are worth the drive, Reiss explained. He often sends his patients to Glens Falls, New York, for the medical imaging scans.
The sticker price at Glens Falls Hospital for a brain MRI, according to BlueCross BlueShield of Vermont is $988; at UVM Medical Center’s affiliated Champlain Valley Physicians Hospital in Plattsburgh, New York, it costs nearly $3,964.
Despite his efforts to save patients money, Reiss, a partner at Evergreen Family Health, regularly sees Vermonters who decide not to seek care at all.
“People cannot afford their care,” he said.
That may increasingly be the case. UVM Medical Center, the state’s largest health care provider, has absorbed dozens of hospitals and medical practices over the past nine years. And while proponents of the consolidation say it promotes efficiencies and better care, it has also coincided with rising health care costs in Vermont. This year, the state’s two major insurance companies instituted double-digit rate increases.
Kevin Schulman, a professor at the Stanford University School of Medicine, told a Vermont legislative panel in November that hospital consolidation could be driving up health care costs.
That’s because when hospitals control more of the medical care market they have more leverage in negotiations with insurance companies, Schulman explained. Insurers agree to pay the hospitals a higher price per procedure, fearing that if they negotiate too aggressively hospitals won’t accept their insurance.
The higher prices trickle down to patients in the form of higher deductibles, copays, and higher insurance rates, he said.
Schulman described the challenges of health care consolidation nationally. Here in Vermont, the elephant in the room is the UVM Health Network. Beside UVM Medical Center proper, the Health Network has five additional hospitals, including three in New York. It also owns 49 outpatient primary care and specialty clinics, including 37 in Vermont. In all, UVM Health Network accounts for more than 50% of hospital discharges in the state.
It’s difficult to tease out all of the factors that lead to increases in health care costs. But statistics show Vermont has the fifth-highest per capita health care costs of any state. And the U.S. has the highest medical costs in the world.
“Are the rate increases and the consolidation sustainable through time? Probably not,” said Sen. Ginny Lyons, D-Chittenden, chair of the Senate Committee on Health and Welfare.
The network has expanded over the past eight years unimpeded by regulatory hurdles. The Green Mountain Care Board, which regulates health care access and costs, has no authority to review hospital mergers or consolidation of physician practices.
Experts suggest that UVM Health Network’s systemwide consolidation has resulted in longer wait times for patients seeking diagnosis and treatment, and down the road, could lead to higher health care costs for all Vermonters. Hospital mergers “have essentially banished competition and raised prices for hospital admissions in most cases,” the New York Times reported in a 2018 investigation.
Wait times have led some patients to avoid UVM Medical Center altogether.
Tony Redington of Burlington travels to Canada for his routine dermatology appointments, rather than face a six-month wait and a $600 total bill at UVM Medical Center. He said he schedules an appointment in Montreal less than a week in advance and then pays his doctor $70 in cash for the visit. Another patient, who asked to remain anonymous, said he goes to see medical specialists in New York City because of the long wait times in Vermont.
It can take more than three months for a routine dermatology appointment. The hospital is now booking sleep studies a year out, according to documents provided to VTDigger.
Consolidation also puts pressure on private practices not affiliated with UVM Health Network. Doctors outside the system are reimbursed at lower rates and have difficulty recruiting patients. Several independent doctors said UVM Medical Center won’t send them referrals.
UVM Health Network officials counter that consolidation of providers and hospitals benefits patients. They contend consolidation can allow smaller hospitals to access more expensive services like hospice or neonatal care. And in several cases, UVM Health Network has stepped in to salvage smaller financially troubled hospitals and medical practices.
Stephen Leffler, president of UVM Medical Center, downplayed the idea that UVM Health Network is “about big businesses coming together to basically dominate a market.” The network’s objective is instead to keep small hospitals in business and help rural patients access medical care, Leffler said.
“We’re coming together to make sure that people can get the care they need close to home,” Leffler said. “And it’s good for every part of the system.”
Hospital on a hill
In a Venn diagram of opinion with very little overlap, the medical community holds nearly diametrically opposing views of the Burlington hospital.
Depending on whom you ask, UVM Medical Center is the grand philanthropist, educating young doctors, handing out money for housing and other community initiatives, and offering a helping hand — and an injection of cash — to beleaguered providers at practices and small cash-strapped hospitals.
Others say the medical center is a monopolistic bully, putting small family practices out of business, raising prices, buying up new buildings and investing in glossy upgrades at the expense of independent doctors and patients.
While opinions vary, there is no question that UVM Medical Center, formerly Fletcher Allen, which was once one of two medical centers in Burlington, has rapidly expanded through its network umbrella in a spree of consolidation over the past nine years.
Fletcher Allen Health Care affiliated with Central Vermont Medical Center in Berlin in 2011. Two New York hospitals, Champlain Valley Physicians Hospital and Elizabethtown Medical Center, voted to join the following year.
In 2014, Fletcher Allen changed its name to UVM Medical Center and established the UVM Health Network, a holding company under which the hospitals operate. Alice Hyde Medical Center in Malone, New York, and Porter Medical Center in Middlebury joined the network in 2016 and 2017, respectively. In 2017, UVM also took over the Visiting Nurse Association of Chittenden and Grand Isle Counties, including the McClure Miller VNA Respite House.
Now, UVM-affiliated hospitals serve roughly half of the state’s patients. The three Vermont hospitals in the UVM Health Network include 52% of the hospital discharges for 2018, and 53% of the total 961 staffed hospital beds in Vermont. That’s excluding the three New York hospitals, which are licensed for a total of 460 beds.
UVM Medical Center has 85% of the market share in the Burlington metropolitan service area.
A common measure of market concentration known as the Herfindahl-Herschman Index gives the hospital a 7,225 score. Any rating over 2,500 is considered “highly concentrated,” according to Brent Fulton, a health economist for the University of California, Berkeley.
By another metric, RAND Corporation researchers compared prices for private insurers to the amount charged to Medicare. They found that between 2015 and 2017, UVM Medical Center charged 231% of the Medicare price for inpatient stays — the highest rate for that care in Vermont. That data did not include all patients, the researchers noted.
Consolidation of the market has worked to the financial benefit of UVM Medical Center.
Between 2015 and 2018, UVM Medical Center took in $264 million more than it spent, according to Green Mountain Care Board member Tom Pelham. That’s an operating margin of 5.6% of the hospital’s total revenue. By comparison, BlueCross BlueShield of Vermont had an operating margin of $3.4 million over that same period — 0.1% of the $2.6 billion collected in premiums, according to Pelham.
Meanwhile seven of the state’s 14 hospitals lost money in 2018, with a combined $28.6 million in operating losses. At least two of UVM’s New York hospitals have also lost money in the past.
In all, the UVM Health Network has full or partial ownership and affiliations with more than 25 entities, including hospitals, nursing homes and groups that control salaries for doctors and nurses, according to an organizational chart provided to the Green Mountain Care Board in 2017.
The nonprofit corporation has consolidated physician practices, physical therapy companies and now owns a product retailer. In many cases, that means a patient can stay inside the network for every aspect of care.
In 2017, UVM Health Network bought Yankee Medical, a medical equipment store that had formerly been independently owned. Now, patients are referred by a network primary care doctor to UVM Medical Center for surgery at the hospital (performed by a staff surgeon), buy pharmaceuticals and a wheelchair or crutches from network companies, and receive physical therapy from a network clinician.
It was once illegal under federal law to make self-referrals inside one health care entity. That changed in 2011.
“It’s all now kept in the family,” said David Barlow, a partner at the RehabGYM, which offers physical therapy and athletic training. “It’s not just for hospital services. It’s everything.”
Barlow and three independent doctors interviewed by VTDigger said that the number of referrals by UVM Medical Center physicians has declined as the network has expanded — even when the cost is lower and the wait time is significantly less.
A hidden system
There’s no clear way to track whether there is a direct connection between hospital revenues and high health care costs for Vermonters. The agreements between insurers and hospitals are confidential, and the price data isn’t available for patients who want to compare costs between hospitals.
Comparative data isn’t even provided to the Green Mountain Care Board, which regulates health care pricing in Vermont.
Researchers say the complicated billing system obscures costs.
Hospitals issue “charges,” the sticker price for a procedure, which vary widely by facility. For instance, it’s $5,408 for a CT scan of the abdomen at UVM Medical Center and $1,339 for the same procedure at Copley Hospital. Those figures come from massive spreadsheets published by each hospital.
However, those retail rates are different from the actual amounts hospitals receive.
Each hospital negotiates a fee with Vermont’s three insurance companies, BlueCross BlueShield, MVP Health Care, and Cigna. Hospitals also receive a set amount, determined by the federal government, for Medicare and Medicaid patients.
The contracts between hospitals and insurance companies are private — hidden from even the Green Mountain Care Board, which regulates health costs.
Patients are, for the most part, insulated from the full cost of care. They are charged a price set by insurance. And most people don’t pay anywhere near the full amount. Commercially insured patients pay a co-pay, the set fee that insurance charges regardless of the actual price of the procedure.
When they do have information, patients rarely try to compare health care prices. Patients are often motivated less by cost than going to a facility that specializes in the procedure they need. In many cases, people simply want to go to the nearest doctor.
The 3% of Vermonters without insurance may be forced to pay full price for health care, but many hospitals offer some financial aid to those who can’t afford it.
Stanford economist Schulman says UVM’s size gives it power over insurance companies, but Kevin Mullin, chair of the Green Mountain Care Board, says BlueCross BlueShield could use its leverage to negotiate with UVM Health Network. BlueCross has about 70% of the market share of commercial insurers across the state. MVP Health Care and Cigna make up the remaining 30%.
“I just don’t get why insurers haven’t used the leverage they have,” said Mullin. Insurers want to assure companies that their employees have access to a wide network of providers, he said. If an insurer has a limited range of hospitals and doctors, employers are less likely to purchase insurance with that company.
“What I’m seeing is the insurers have a fear of losing an area of coverage in the state,” he added. “Insurers have taken the practice that they don’t want to play hardball.”
BlueCross BlueShield of Vermont representative Sara Teachout declined to discuss the negotiation process, saying that it was confidential. The insurer reviews the fees it will pay for procedures annually, “considers provider feedback” and also takes into account “premium affordability concerns” by Vermonters, she said. Representatives from MVP Health Care also declined to comment.
No regulation
Part of the problem, according to Schulman, is that there’s little regulation of health care consolidation.
Hospitals are technically subject to antitrust laws, but those are rarely enforced.
The Attorney General’s Office has purview over hospitals, according to Charity Clark, the chief of staff for Attorney General TJ Donovan.
But there are no public cases in which the Vermont attorney general has investigated antitrust practices for UVM Medical Center, according to Clark. She would not say whether the Attorney General had ever investigated hospitals for antitrust violations, or if they would ever consider prosecution.
Donovan would have to prove not only that UVM Medical Center had a monopoly, but that it had pursued one intentionally, according to Clark.
The Green Mountain Care Board does not have authority to regulate affiliations or mergers — the board’s purview only extends to hospital purchases of new MRI machines or construction of new primary care clinics as well as their overall budgets.
“When you think about how we’re approving MRIs, the purchase of things like that, how can the outright merger, takeover of another hospital not require approval. But here it doesn’t,” Mullin said.
Wading into a private company’s business dealings is a tricky business, he said. “At this point, I don’t think our legal team would say we’re on firm ground if [hospitals] have to come to us prior to a merger,” Mullin said.
Any change to the regulatory agency’s powers would have to be granted by the Legislature, Mullin added. Even if they did win that authority in Vermont, the Care Board wouldn’t necessarily have power over mergers or affiliations in New York, or elsewhere outside the state.
Improving access?
According to UVM Medical Center CEO John Brumsted, the Medical Center is not seeking out new hospitals to buy. “I’ve never gone as CEO on a sales call,” he said.
Instead, he describes the UVM Medical Center’s intervention as hand up for a small hospital with financial woes.
UVM Health Network doesn’t technically merge with the hospitals. The term used by Brumsted and others is “affiliate.”
That means the hospital retains its local board and handles its own day-to-day operations. The doctors become salaried through the network, and UVM executives review major expenses and annual budgets. It’s less financially driven than a full merger, according to Brumsted.
“We’re bringing together in a collaborative model, these organizations that have been there forever and ever,” he said.
The network also helps pay for some expenses for partner hospitals such as Porter’s new outpatient facility and the electronic health records system Epic.
Affiliation was about “improving the breadth and depth of access to care for patients,” said Fred Kniffin, interim CEO of the Middlebury hospital.
“From our really limited experience, affiliation has allowed us to really improve improve access,” Kniffin said. The board of directors voted unanimously to merge in 2016. Access rather than cost was the driver behind the decision to join UVM Health Network, he said. For instance, it allowed Porter to provide more expensive services such as end-of-life and palliative care. But overall, Kniffin added, “it’s actually helping us hold the line on cost.”
There are benefits to consolidation, Mullin said. Porter’s budget hasn’t increased in three years — and the hospital is no longer on rocky financial footing.
UVM Medical Center representatives made similar arguments — the cost per patient is lower than the state average, said Brumsted. The medical center has a lower total cost of care per patient — but that may be because it has economies of scale and serves a younger, healthy population than other hospitals.
“Astute” hospitals have “read the tea leaves,” Brumsted said. “I can’t envision the business model that allows those organizations to survive — and particularly to be able to recruit and retain the kind of professionals they need to provide the services.”
Leffler and Brumsted say Schulman’s analysis doesn’t apply to the UVM Health Network because the company is a nonprofit. In “the not-for-profit, academic space… systems are coming together basically, to preserve access and to survive,” Brumsted said — not to put money in shareholders’ pockets.
Vermont and New York “are both highly regulated states,” said Brumsted. While for-profit hospital consolidations drive up costs, he said that’s not the case for nonprofit academic institutions. Hospitals like UVM Medical Center consolidate “to preserve access and to survive.”
Not so, according to Schulman. Most of the hospitals analyzed in his study are nonprofits, he said. The federal rules for nonprofits are less strict, so they’re at least as likely to be offenders as their for-profit counterparts, he said.
Regulatory boards such as Vermont’s Green Mountain Care Board only partly address the problem, according to Schulman.
“A regulatory group to approve rate increases is helpful, but the question is their charge,” Schulman told VTDigger. “If they are tasked to ensure that rates are x percent above costs, and there is no restriction on investments in property, plant and equipment, then the rate regulation won’t do much about costs over time, unfortunately.”
The Care Board does have to approve new buildings, but hasn’t historically limited the scale of the projects or pushed the hospital to use its excess cash to cut costs. And, in the past, UVM Medical Center has been able to keep its excess revenue by promising to invest it in infrastructure, like a new psychiatric care hospital in Berlin.
“What we’re talking about is a fundamental market failure,” Schulman said.
And sure enough, this year, UVM Medical Center got approval for $2.9 million in MRI machines and renovations for the space, and an $8.6 million primary care facility in Essex. When they had surpluses in 2015, they poured $15 million into the community health initiatives. In 2017, when the hospital had a $21 million surplus, officials pitched a plan to build a psychiatric facility in Berlin.
That’s in addition to $151 million for a new health records system, a new radiology suite, and $22 million for new office buildings in the past couple years.
None of the money was used to directly reduce costs for patients.
In other regulated industries, such as the electric industry, regulators will force a company to share savings with ratepayers.
UVM Medical Center says they had an influx of cash because more people than expected came to the hospital for care, according to Brumsted and Leffler.
All in the family
Legislators offered a tepid response about whether they should intervene in issues related to consolidation.
Lyons, the chair of the Senate committee, said it’s “absolutely possible” that the Legislature could take some kind of action, but added that they’d have to tread carefully. “Two private entities is not something we’ve inserted regulation into generally,” she said, referring to the hospital affiliation process. “We have to be very careful.”
Rep. Anne Donahue, R-Northfield, vice chair of the House Health Care Committee, also offered few specifics. “It’s definitely something worth looking into,” she said.
In the meantime, it’s patients who pay the price for the lack of competition.
Without competition, there is less need to innovate or to make care cheaper and more efficient. “The natural laws of economics take over,” Barlow said. “As competition becomes less and less, you then end up with just one choice.”
According to South Burlington opthamologist Greg McCormick, consolidation shortchanges patients and limits their options.
“The fundamental question is ‘have we benefited from this huge transition in care from an independent market to a hospital-run one?'” McCormick queried. So far, he hasn’t seen evidence: “outcomes haven’t improved in any demonstrable way and costs have gone up as a result of it,” he said.
The real question regulators should be asking, he added, is: “Why would we deny patients access to competition for care?”
Correction: A previous version of the story mischaracterized the frequency of referrals from UVMMC to other practices.
