As predicted, 2022 was a challenging fiscal year for Vermont’s 14 community hospitals, which as a group registered almost $62 million operating loss. Hospitals have said that those losses, already creating instability, will only deepen unless regulators change their oversight methods.
That didn’t happen Wednesday as Green Mountain Care Board members voted to set their overall revenue growth target for fiscal year 2024 at 8.6% over the patient revenue recorded in 2022, or 4.3% per year.
For half of the state’s hospitals, that growth target equals less revenue than the board approved last year for their 2023 budgets. That is in part by design since the board voted last year to allow up to an 8.6% increase in the last budget cycle intended to cover the combined upcoming two years.
Staying within the rate growth cap would require a reduction in costs or almost no growth for some hospitals. “There’s no denying that, from where the hospitals are today, that will be difficult for many to achieve,” acknowledged board Chair Owen Foster.
In the meeting, both he and other care board members emphasized the need to change the annual hospital guideposts by 2025.
By law, the board can only regulate hospitals’ growth in patient revenue and what hospitals can charge for their services, which then impacts the hospitals’ negotiation of commercial insurance rates and the premiums charged to businesses and households.
This year, the board voted to add national cost-growth benchmarks that staff will use to evaluate hospital budgets that exceed the growth target.
Some administrators and legislators hope to move to some kind of “global budget” structure, a method that considers costs as well as revenues and is used to regulate hospitals in Maryland and Pennsylvania.
Michael Del Trecco, president of the Vermont Association of Hospitals and Health Systems, warned in a letter that such a low growth rate for 2024 would result in operating losses for the system of between $39 million and $120 million, depending on the rate of cost inflation.
“This is the first time I have ever seen a regulatory target that would require hospitals to submit budgets with negative operating margins,” Del Trecco said in an interview. “It’s scary and troubling.”
Part of the reason for allowing such large rate increases last year was because of the increasing costs and operating losses that hospitals faced in 2022.
Sarah Lindberg, director of health systems finance for the Green Mountain Care Board, called the fiscal year 2022 numbers “very concerning” in her summary presentation to board members on Wednesday.
As people began seeking care again after the early phases of the Covid-19 pandemic, revenue from patient services at the hospitals as a group was up almost $272 million over 2021, reaching a record $3 billion, according to a Green Mountain Care Board staff analysis of hospital financial statements.
However, sharply increased labor costs and inflation in the price of drugs and other supplies meant that together hospitals spent more than $3.5 billion providing those services. Non-patient care-related revenue, including federal pandemic relief funds, made up the difference between expenses and the operating losses.
“As you just saw, Vermont’s hospitals are in really rough shape, by and large, and that’s not unique to Vermont,” Lindberg said.
The board noted in a press release that a recent study found about half of U.S. hospitals ended 2022 with a loss due to growth in expenses exceeding the growth in revenue.
In Vermont, the size of the operating losses varied among hospitals as a percentage of their budgets from around 10% at North Country and Grace Cottage hospitals, in Newport and Townshend, respectively, to less than 1% at Copley Hospital and Southwestern Vermont Medical Center, in Morrisville and Bennington.
The losses at the largest hospitals were $22.7 million (1.2% of expenses) at University of Vermont Medical Center in Burlington, $21 million (6.5%) at Central Vermont Medical Center in Barre and $12.6 million (3.8%) at Rutland Regional Medical Center.
Gifford Medical Center in Randolph, Mt. Ascutney Hospital in Windsor, Northeastern Vermont Regional Hospital in St. Johnsbury, Porter Medical Center in Middlebury and Springfield Hospital were in the black, though Porter’s revenues were less than budgeted.
Overall operating expenses increased in 2022 over 2021 for all hospitals combined by almost 14%. Hospital advocates say that ongoing growth in costs has to be taken into account in a way that doesn’t require hospitals to guess at what will be an acceptable revenue growth rate.
“We need transparency around what the board is thinking,” Del Trecco said. “And we need to move to a system that recognizes what it actually costs to deliver this care. Anything short of that won’t help us achieve our goals of preserving rural health care in Vermont.”
Meanwhile, advocates for independent primary care and specialty physicians’ offices noted in public comments that some hospital revenues come from care that could be provided less expensively by them outside the hospital setting.
In a letter, the board of directors of Health First, an alliance of 62 independent practices, said that regulators’ focus needed to go beyond just hospital sustainability.
“As regulated and dominant entities command more system dollars, there is little left to pay sustainable rates to community-based providers who face many of the same headwinds,” they wrote.