Regulators tell hospitals to reduce budget growth

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Vermont hospitals will have a little less wiggle room when designing their budgets for next fiscal year.

The Green Mountain Care Board on Wednesday approved a 3.2 percent growth target for hospitals' net patient revenues in fiscal year 2019. That's down from the 3.4 percent rate the board set for the current fiscal year.

While that might not sound like much difference, any change is significant given the amount of money in play: In fiscal year 2017, Vermont hospitals reported nearly $2.45 billion in net patient revenues.

"It's a movement in the right direction for cost control," care board Chairman Kevin Mullin said.

The 3.2 percent growth guideline was slightly lower than had been requested by the hospitals. But it's also higher than what the care board initially proposed.

"We believe that the Green Mountain Care Board took into consideration our concerns about the implications of setting an artificially low (patient revenue) target," said Jeff Tieman, president and chief executive officer of the Vermont Association of Hospitals and Health Systems.

The Green Mountain Care Board's regulatory responsibilities include annual oversight of hospital budgets and financial performance. This summer, hospital administrators will submit budget proposals to the board for their next fiscal year, which begins Oct. 1.

If a hospital strays too far from its state-approved budget, the board can take actions including cutting rates, which are the prices a hospital charges insurers.

For fiscal year 2017, several hospitals exceeded the board's allowable growth in net patient revenues — a term defined as revenues from patient care before expenses are factored in. As a result, the care board is considering rate cuts for two of those hospitals — University of Vermont Medical Center and Central Vermont Medical Center.

At Wednesday's meeting, board members looked ahead to fiscal 2019 hospital revenues.

Last month, an initial care board proposal called for a 2.86 percent growth rate target for next fiscal year. That rate consisted of 2.36 percent growth in net patient revenues and an additional 0.5 percent for investments in health care reforms like primary care and prevention.

That proposal prompted a quick response from the hospital association, which expressed "serious concerns" about a rate that "jeopardizes the long-term financial stability of all Vermont's hospitals."

In subsequent appearances before the care board, association administrators and hospital executives made their case for a 3.4 percent target. They pointed to substantial, recent decreases in the growth of hospital revenues. Tieman said that's due to hospitals working within the care board's guidelines.

From 2011 — the year the board was created — to 2017, hospitals' net patient revenues "would have been nearly $600 million higher if we did not have the regulatory framework to help us achieve better results," Tieman told the board earlier this month.

Hospital leaders also cited increasing costs for mental health care, staff salaries and investments in Vermont's transition to the all-payer health care model.

With the rate of health care inflation outpacing hospitals' allowable revenue growth, "hospitals are deciding now, as we look at our budgeting, what services we're not going to provide," said Jill Berry Bowen, chief executive officer of Northwestern Medical Center.

The board on Wednesday unanimously settled on a 3.2 percent growth rate target for fiscal 2019. That includes a 2.8 percent allowance for net patient revenues and up to 0.4 percent for health care reform investments.

In a later interview, Mullin said he believed hospital revenues should increase less than 3 percent annually when he first took the care board position last year. But he said he has come to believe that more of an allowance is needed as the state moves toward a new model for health care payments.

"I had to reconcile myself to the fact that, if there aren't the resources for hospitals to make the investment into a shift towards population health and away from fee-for-service, that it probably would never happen," Mullin said.

The board took one other action on Wednesday related to fiscal 2019 hospital budgets — a complex move called "rebasing."

The term comes from the fact that hospitals normally would use their budget for the current year in progress — in this case, fiscal year 2018 — as a "base" for building next year's budget.

Board members instead decided that University of Vermont Medical Center and Porter Medical Center, the two hospitals with the highest-percentage revenue overages in fiscal 2017, should instead use that year's fiscal performance as a base for 2019.

The idea is that those hospitals' 2018 budgets were out of step with reality, given the amounts by which both facilities overshot their revenue targets. So the rebasing vote is an attempt to tie future budget expectations to actual financial results the hospitals saw in fiscal 2017.

"I think what we're trying to say here is, 'Build your budget based on the reality that you're experiencing,'" board member Jessica Holmes said.

Board member Tom Pelham was the sole vote against the plan. He argued that it could be "problematic" to simply build UVM Medical Center's and Porter's excess revenues into future budget planning.

"These two hospitals exceeded their budgets by substantial amounts," Pelham said later. "By rebasing them off their 2017 actuals, you've baked in those revenue overages."

But UVM Medical executives have said increased hospital usage caused by a larger population base led to last year's jump in revenue. And Mullin said that argument played a role in his support for rebasing.

"It's an acknowledgement of the fact that the demographics have shifted," Mullin said. "There's been population decline in much of the state. (But) there's been a population increase in Chittenden County."

UVM Medical Center spokesman Michael Carrese lauded the care board's rebasing move.

"The board is recognizing a trend there and the reality that we're in, in terms of increased demand and how we're trying to manage that," Carrese said.

The hospital association also applauded the financial adjustment.

"Each hospital has a unique story to tell and a budget narrative to match," Tieman said. "We are glad to know of the board's interest in hearing those individual stories and making important budgeting decisions

accordingly."

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