Analysis: Hospital Budget Increase Lowest In Modern Era

Jul 26, 2013

Vermont’s 13 hospitals have submitted budgets to the Green Mountain Care Board for the coming fiscal year that call for a spending increase of just 3.0% the lowest annual inflation rate in the modern era and one which amounts to a solid step forward toward controlling costs, a cornerstone of health care reform.

In dollar terms, the hospitals are asking for $62.8 million in new money, compared to the current year in which they are in the process of spending $141 million of new money. Budgeted costs for the current fiscal year are $2.124 billion; the budget requests for Fiscal Year 2014, which starts Oct. 1, total $2.187 billion.

The board got the numbers Thursday afternoon and they sounded extremely gratified by them. They had been ready to consider a higher number, based on the way they designed the targets for the coming year.

The board had set a base target of 3.0 percent, but was prepared to add a full percent for any hospital that spent what the board considered a good investment in the cause of health care reform.

Getting what they need for health care reform within the baseline target has to be considered a bonus for the board, which let costs get away somewhat in the current fiscal year.

That first look covers the system as a whole, and is just an initial pass at the cost issue. The board will consider each budget in detail in the next several weeks, and then hold three days of hearings in late August where each hospital will testify in detail. The board will render its decision on each budget by Sept. 16.

Despite the lack of detail in Thursday’s board meeting, it is possible to see some interesting patterns in the early numbers. The most striking one is that Fletcher Allen Health Care, the state's only tertiary medical center and the system that delivers nearly half the care in Vermont, was an outlier on the high side.

Fletcher Allen’s budget amounts to $1.1 billion, an increase of $48 million over this year’s figure; that would have to be cut by roughly $8 million in order to meet the 4.0% cap.

The budget contains a little over $20 million for health care reform; much of that figure going to build the infrastructure for One Care, the major vehicle for the reorganization of the state’s delivery system that is needed to get to sustainable spending out into the future.

Fletcher Allen Health Care, the states only tertiary medical center and the system that delivers nearly half the care in Vermont, was an outlier on the high side

According to John Brumsted, the CEO of Fletcher Allen, any cut in his budget would have to come out of the reform spending because the rest of the budget increase amounts to just 2.7 percent, which is right at about the inflation rate in the overall economy.

“We couldn’t go below that level without cutting services,” Brumsted told me. “But we are totally committed to the reform process,” he continued. “We’ve devoted a lot of money and a huge amount of management time over the last two years to make this thing work because if we don’t then our doctors would have trouble delivering the care Vermonters need.”

The Green Mountain Care Board is counting on Fletcher Allen doing just that. They’ll drill down aggressively into the Fletcher budget to make sure that there aren’t soft spots in the medical side of the budget, but if they don’t find any, then they are likely to endorse the Fletcher Allen spending level on reform.

Fletcher Allen was not the only cost outlier among the 13 hospitals.

Brattleboro Memorial Hospital came in at a 6.2 percent increase, but at $70 million the budget is not large, and the increase may be explained in part by Brattleboro’s effort affiliate somehow with tiny Grace Cottage Hospital in Townshend.

Another outlier was Northwestern Medical Center in St. Albans, whose inflation rate 5.0 percent.

Perhaps the most striking pattern of all, however, was the performance of many of the community hospitals in the state. Copley, Gifford, Mt. Ascutney, North Country, and Porter came in under the three percent target. One of the largest community hospitals—Southwestern Vermont Medical Center in Bennington—actually cut its budget by 6.4 percent.

Another very strong performance came from Rutland Regional Medical Center, which came in at three percent.

In the last year, Tom Huebner, the Rutland CEO, shut down a rehab center, and his current submission calls for cutting a total of 113 full time equivalent positions in the new year. 

The State of Vermont began tracking hospital budgets almost 40 years ago, and it has never seen this degree of spending discipline in the delivery system.

It’s too early to tell whether that discipline will last or whether it is sufficient to claim that we’ve reached sustainability. But it is clear that without it, Governor Shumlin’s single payer initiative, or something close to it, would have no chance at all.