VT hospital budgets show dramatic drop

Budgets totaling $2.059 billion for Vermont’s 14 hospitals were approved Thursday. The Springfield Hospital budget grew by only $1.6 million, or 3 percent.

http://vtdigger.org/2011/09/16/vermont%E2%80%99s-2012-hospital-budgets-show-dramatic-drop-in-cost-trajectory/

Vermont’s 2012 hospital budgets show dramatic drop in cost trajectory

by Hamilton Davis | September 16, 2011
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Steve Kimbell

Steve Kimbell. VTD/Josh Larkin

Budgets totaling $2.059 billion for Vermont’s 14 hospitals were approved Thursday by Steve Kimbell, commissioner of the Department of Banking, Insurance, Securities and Health Care Administration (BISHCA). That figure amounted to a 4.6 percent increase over the 2011 budgets, but the increase dropped to 3.8 percent if you didn’t count the roughly $16 million in provider taxes assessed against the hospitals.

The system cost thereby came in just under the 4.0 percent figure mandated by the Legislature in 2010; the 2010 law containing the 4.0 percent cap allowed for several deductions, the so-called off-ramps, including the provider tax, the cost to hospitals for buying nearby physician practices and other assets such as modern information systems that the Legislature wanted to encourage.

Figures provided by BISHCA showed that the cost to the system from buying physician practices came to $22.3 million. If that off-ramp is also deducted from the total, the system increase would total 2.7 percent. BISHCA did not break out the other off-ramps, such as the cost of preparing for health care reform, but if it had, the 2.7 percent would have dropped a bit more.

The 2012 budgets represent a dramatic decrease in the long-term trajectory of hospital costs in Vermont. In the decade from 2000 to 2009, the budgets increased by 8.4 percent — every hospital budget more than doubled over that period. The increase over the past five years was 7.2 percent.

Kimbell welcomed the hospital performance on costs, saying that they were “moving in the right direction.”

He also stated that the rate of increase in the cost shift of medical care costs to private payers because of shortfalls in federal and state reimbursements would drop because of the movement of independent physicians into the corporate structure of hospitals. The cost shift grew by $37.8 million between 2010 and 2011. The increase in the cost shift from 2011 to 2012 will fall to $28.9 million, according to BISHCA.

As far as individual hospitals were concerned, only Grace Cottage and Copley hospitals exceeded the Legislature’s 4.0 cap. The cap was a system guideline, not an individual mandate, but it is noteworthy how broadly-based the cost discipline was. Grace Cottage, at 7.1 percent, is a tiny hospital, so that its numbers are not as significant as the rest of the system. The Copley increase after stripping out the provider tax and the physician purchases was 4.8 percent, and might have been slightly lower if it had other allowables.

The most important piece of the picture was the Fletcher Allen Health Care system in Burlington, whose budget increase, after the provider tax and physician purchases are taken out, was 3.2 percent. FAHC is the major driver of the system because it delivers roughly half the total care in the state. The increases at Central Vermont, Springfield, Rutland, Porter in Middlebury, Northeast in St. Johnsbury, Gifford in Randolph, Brattleboro and Mt. Ascutney were all under 3.0 percent.

An important footnote in the BISHCA documents states that none of the physician purchases allowed as deductions to the budget implied that new levels of services would be delivered in that hospital service area. All such deductions involved physicians already operating independently in the vicinity of the local hospital. Bringing in new doctors to deliver more sophisticated levels of service could increase costs in the system.

The budgets and the discipline they exhibit are unusually important because they set the stage for the health care reform effort initiated early this year by the administration of Gov. Peter Shumlin. Control of the hospital budgets has rested with BISHCA since the mid-1990s but will shift after Oct. 1 to the newly-appointed Green Mountain Board. The Legislature’s role will also expire on Oct. 1 of this year. The Legislature set system caps only for the 2011 and 2012 fiscal years.