A tense exchange between health care leaders on Monday punctuated the annual, multiday marathon hospital budget hearings before the Green Mountain Care Board.
The discourse focused on a letter from an independent health care liaison that described a “simmering and ongoing adversarial relationship” between the state’s largest hospital network and its largest health insurer.
The letter conveys Blue Cross Blue Shield Vermont’s claim that University of Vermont Health Network leaders allegedly threatened to drop patients on the carrier’s insurance plans to pressure the insurer to accept higher network charges in previous years. Network representatives disputed this characterization at the hearing.
Regulators also asked health network executives about revenue overages and profit margins at the University of Vermont Medical Center, the state’s only academic medical center and the only one certified for the highest level of trauma care.
Health care regulators hold extensive hearings annually on the budgets proposed by Vermont’s hospitals for the next fiscal year, but one day of meetings typically impacts Vermonters’ health care costs more than the rest. This year, that was Monday, when all day was spent reviewing the proposals by the University of Vermont Health Network’s three hospitals in the state.
That’s because a big share of what is spent on Vermonters’ health care goes to the state’s hospitals, almost half the money spent in 2022, according to one dataset analyzed by board staff. And the three network hospitals — University of Vermont Medical Center in the Burlington area, Central Vermont Medical Center in Berlin and Porter Medical Center in Middlebury — together earn almost two thirds of the money spent on behalf of patients at the 14 hospitals under board review.
This year, for the first time in recent memory, two network hospitals submitted proposed reductions to commercial insurance rates in the coming fiscal year for the board’s approval.
Also, for the first time, the board dug deeply into the budget and finances of the overall University of Vermont Health Network.
The Green Mountain Care Board set benchmarks for Vermont hospitals this coming fiscal year, which begins Oct. 1, to not exceed a 3.5% increase for net patient revenue, which the regulatory board defines as earnings from patient services after certain deductions such as uncompensated care. Other benchmarks set by the regulator are a 3% increase both for hospital operating expenses and for charges to commercial health insurance companies.
University of Vermont Medical Center is seeking a 2.2% increase to its net patient revenue. The center also expects to increase operating expenses by 3% and decrease what it charges commercial insurers by 7.9%.
Central Vermont Medical Center requested a 3.5% increase to net patient revenue, a 2.8% increase for operating expenses and a 3.6% decrease to commercial rates.
The reduction in commercial insurance charges put forth by the two medical centers comes after the Green Mountain Care Board entered a settlement in April with their parent health network related to those two hospitals exceeding the patient revenue caps set by the board through this process in the 2024 and 2023 fiscal years.
A new law capping pharmaceutical drugs costs accounts for the majority of the two hospitals’ commercial rate reductions, alongside compliance with the enforcement settlement.
Health network officials projected last week that the University of Vermont Medical Center will exceed budget caps for the current fiscal year as well, also part of the hospital’s proposed 2026 rate reduction.
Porter Medical Center, a federally-designated critical access hospital — one of eight in the state — asked for a 3.5% increase to net patient revenue, a 2.4% increase to operating expenses and 3% increase to commercial rates. The designation, intended for hospitals that provide care in rural, underserved areas, requires higher reimbursements tied to costs from Medicare.
Late last month, just prior to the start of hospital budget review hearings, the University of Vermont Health Network announced cost saving measures, including layoffs and workforce reductions, particularly in network-wide administrative services, in order to meet the 2026 fiscal year hospital budget proposals.
‘Lingering animosity’
Board chair Owen Foster, a former federal prosecutor, asked University of Vermont Health Network executives to respond to the letter the board had received last week from Mike Smith, who the board had appointed as an independent liaison to a new working group required by the legal settlement.
The letter dated Thursday gave an update on private negotiations between leaders at the network and Blue Cross Blue Shield of Vermont, which were convened with the goal of finding “common ground on cost reductions to lower commercial health insurance rates for 2026, and hopefully beyond.” The update, which included the liaison team’s own recommendations for the Green Mountain Care Board, was also sent to the Department of Financial Regulation, the state’s main insurance regulator.
The discussion between the UVM Health Network and Blue Cross Blue Shield had broken down due to what Smith described in the letter as “lingering animosity” between the health network and insurance carrier.
Despite the insurer being on the brink of insolvency, Blue Cross Blue Shield Vermont officials said they have not negotiated assertively over rates in past years because the Health Network had threatened to cease serving Blue Cross patients if the insurer did not cede to their demands, according to Smith’s letter.
At the board meeting Monday, Kelly Champney, a health network vice president, denied that the University of Vermont Medical Center threatened to not serve Blue Cross patients in negotiations in recent years.
“I know we have gotten to very tough conversations before,” Champney said. “To my knowledge, there’s not been a termination conversation.”
Smith’s liaison team offered their own recommendations to further lower commercial health insurance rates for the next fiscal year. They included capping reimbursement of health services at 500% of the Medicare payment rate to prevent “excessive cost,” a version of so-called reference-based pricing incorporated into a law signed earlier this summer.
Smith also said the leaders of the Health Network and Blue Cross Blue Shield Vermont should meet regularly to develop a “healthy working relationship.”
Over revenue cap again this year
Amid hearings about the next fiscal year, the UVM Medical Center and Central Vermont Medical Center leaders met with the board last Wednesday to discuss how to address projected overages to hospital patient revenue in the hospitals’ current fiscal year, which ends September 30.
A hospital’s net patient revenue is the result of both the price of the service provided and the number of patients who receive it, a measure often referred to as ‘utilization.’ Health network hospitals attribute their recent revenue overages largely to more patients seeking more services than anticipated.
Hospital leaders told regulators that the University of Vermont Medical Center is looking to reduce commercial insurer revenue by $20 million and Central Vermont Medical Center is looking to reduce revenue by $6 million through targeted rate reductions. A large portion of those reductions would be realized in the coming fiscal year, not the current one, because of the late date.
Rick Vincent, executive vice president of finance and chief financial officer for the health network, said the network would have looked to adjust its rates in early May, but had to assess a price cap on outpatient-administered injection drugs then being considered by the Vermont Legislature and later signed into law.
“The delay was really due to trying to understand exactly what was happening with the drug legislation and how that might impact our budgets going forward,” Vincent said.
Mark Hengstler, staff attorney for the Green Mountain Care Board, said the board only sets commercial health insurance rate upper limits, not rates themselves, so it is within hospital prerogative to lower rates to meet their set patient revenue cap at any time.
After questioning from new board member Sara Teachout — formerly an executive and spokesperson for Blue Cross Blue Shield of Vermont — Vincent said that even with the reductions proposed, the University of Vermont Medical Center is projected to end the year over the revenue cap by around $2 million, and may again be subject to regulatory enforcement action.
At the hearing Monday, Green Mountain Care Board member Thom Walsh asked how the board should view the University of Vermont Medical Center’s budget projections for the coming 2026 fiscal year given the hospital’s underestimation of service utilization that in the recent past has led to revenue overages, regulatory enforcements and mid-year commercial health insurance rate adjustments.
Judy Peek-Lee, chief financial officer for the University of Vermont Medical Center, said their methods for making projections have not changed, but staff have developed better communication between departments to more quickly recognize any upticks in how patients are using services.
Peek-Lee said that the academic medical center’s focus on special services and advancements in the medical field make it more difficult to project out costs for the coming fiscal year compared to community hospitals, but that staff will continue to assess budget projections throughout the coming year.
While past overages in net patient revenue are high in dollar amounts, as a percentage of the medical center’s overall budget, the number is relatively small, she said.
Network ‘centralization and consolidation’
During a new afternoon session on Monday, the board delved into the expenses of the parent organization, University of Vermont Health Network, itself.
Green Mountain Care Board member Jessica Holmes expressed concern with the increased “centralization and consolidation” of shared services to improve quality care measures and population health outcomes among network hospitals — three in Vermont and three in New York — represented in the increased size of the network’s budget.
Holmes noted that while the network spent more on these services in recent years, federal Center for Medicare and Medicaid Services quality ratings for their hospitals diminished between fiscal years 2022 and 2026.
The University of Vermont Medical and Porter Medical Center is currently at a three star federal rating and Central Vermont Medical Center is at two stars, with similar ratings at the New York hospitals, Holmes said. That means that “half of your hospitals are in the bottom third of all hospitals in the country, and none are in the top third,” she said.
Stephen Leffler, president and chief operating officer of University of Vermont Medical Center, said that the hospital’s leadership and staff lost focus on maintaining high quality care ratings during the pandemic, but recent data shows that the academic medical center is making progress to improve ratings.
“We’ve started that climb,” Leffler said. “We have to sustain that and make it better. I am confident that the network has heard what we’re asking for and that we will do better, but we’re not where we need to be.”
Board chair Foster asked network executives about how funds flow from hospitals to the network, particularly from University of Vermont Medical Center and the New York hospitals.
Sunny Eappen, president and CEO of the University of Vermont Health Network, conceded upon questioning that the New York hospitals’ contributions to network operations are currently not sufficient. He said the network will be looking for higher commercial rates for the New York hospitals.
“The commercial negotiations in New York have looked very, very different than they have in Vermont the last few years. The increases that we’re seeking are much larger. They’re going to be much larger again this year,” Eappen said. “We do the same thing in terms of advocating at the state for additional funding, so the same things that we’re doing in Vermont, we’re doing in New York.”
Maintaining affiliations with the New York hospitals is still a net positive for Vermont, Eappen said, because it increases capacity and access to special services. It also keeps patients from eastern New York seeking care from overwhelming Vermont hospitals, because “patients don’t follow borders.”
Foster probed further, asking why the Board should grant the network hospitals’ budget requests given “competing interests,” such as the state’s cash-strapped, largest health insurer and Vermonters facing a health care affordability crisis. This suggests that the board might consider lowering the patient revenue caps or further lowering the commercial rate reduction proposed by the larger hospitals.
Eappen responded that the health network would have to continue deferring maintenance on capital projects, and would not be able to maintain the same level of care and services to the region if hospitals’ rate requests were not met.
Reflecting on what he had heard on Monday, board Member David Murman, who is an emergency room doctor at Central Vermont Medical Center, noted that the University of Vermont Medical Center’s profits swamp that of all other hospitals in the state, and alone represent about half of all hospital revenue this year.
Green Mountain Care Board staff calculated the profit margin expected by the 14 Vermont hospitals in fiscal year 2025 based on their end-of-year projections, some of which are negative, meaning they’ve experienced operating losses. The analysis highlighted that because of its size, the University of Vermont Medical Center’s 3% positive margin, around $72 million, accounted for almost 95% of all the profit likely across the entire system, estimated at $76.1 million.
Murman, who is not participating in decisions related to his direct employer, also said that the University of Vermont Health Network as a whole is a large player in the state’s healthcare landscape and many Vermonters rely on network hospitals for their care and livelihoods.
But operations at the University of Vermont Medical Center in particular have an outsized impact on commercial insurance rates, Murman said. That’s because the academic medical center sees a larger proportion of commercially insured patients than other hospitals in the state, 26% compared to less than 20% on average, according to board staff. The other patients at all hospitals are largely covered by the federal and state insurance programs Medicare and Medicaid, which generally pay much lower rates for services than commercial health insurance.
“While you enjoy massive market power, very high commercial prices, and a remarkably strong payer mix compared to the region that you live in, you also hold the responsibility to not take too much advantage of that,” Murman said.
