State Board Sets 4 Percent Inflation Rate For Hospital Budgets

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The Green Mountain Care Board has set forth a tentative target inflation rate of 4 percent for Vermont’s 14 hospitals for the coming fiscal year, a target that would add about $85 million to the current statewide spending level of $2.136 billion. The final system increase will depend on the board’s decisions on the individual hospitals’ requests.

The board, which began working in December toward an inflation target, will continue to take comments from the hospitals and the public until Feb. 19 and will make a final decision on the details of the targets at its meeting on February 21. It was clear from the discussion, however, that the final framework will follow closely the structure that the board laid out Thursday.

That structure is considerably more complex than any of its earlier versions. The first proposal was for an increase of 3.1 percent for the 2014 budget year, with essentially no exemptions, which have featured prominently in the last three budgets. That drew very strong opposition from the hospitals.

The revised plan calls for a three-year target, based on an increase of 3 percent per year, plus an increment for "credible health reform proposals" amounting to 1 percent in the first year, for a total of 4 percent, 0.8 percent in the second year, for a total of 3.8 percent, and 0.6 percent in the third year, for a total of 3.6 percent. That inflation trajectory would add a total of $253 million in new money into the system over the next three years.

The new formula, outlined by Al Gobeille in a discussion memo to the board, represents a modest move to accommodate some of the objections that have been raised by the Vermont hospitals, but it is unlikely to eliminate the opposition completely, if at all. The hospitals have argued that the board should move toward payment reform and system reorganization before cracking down hard on costs.

Bea Grouse, president of the Vermont hospital group, in her written comments on the original 3.1 percent target, said that it was the board was taking an axe to the budgets and that if carried out might make it impossible for the hospitals to "carry out their missions." Grouse was in the audience Thursday, and she said that cuts in one area of a hospital budget would just cause other areas of the budget to rise.

As if there weren’t enough complexity in the budget maneuvering, the board opened up a second front on the question of hospitals bringing outside physicians into the hospital. In the last three budget deliberations, these physician transfers were allowed as exemptions from the budget targets, but they turned out to be a major factor in a surprisingly large jump in the current year’s budgets over the 2012 figure.

The reasoning behind the physician transfer issue is that while the associated costs would boost a given hospital’s budget over its limit, an equivalent amount would be subtracted from the total payments to independent physicians, who are not regulated, but which Vermonters have to pay for in the same way they pay the hospitals’ costs.

The board discussion on this issue, however, made it clear that it will be difficult or impossible to be sure about the extent to which that offsetting reduction can be achieved. In any event, the board resolved to treat the physician transfer entirely separately from the budget process; the members will try to set that process in place this spring.

In its original deliberations, the board told the hospitals that they would not accommodate any exemptions from the budget targets this year, but the addition of an increment for health care reform, which while not guaranteed is close to an exemption, and the removal of the physician transfer questions from the deliberations should take much of the heat out of that aspect of the process, at least.

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