Vermont’s three largest hospitals are projecting tens of millions of dollars in losses this year amid rising labor costs and record inflation. They want help covering their budget gaps and have asked state regulators for permission to demand higher payments from commercial insurance companies.
Their requests, if approved, could substantially increase the cost of health care in Vermont.
“Please remember the Vermonters who are paying these staggering bills,” Sara Teachout, director of government affairs at Blue Cross and Blue Shield of Vermont, told regulators at a hearing on Thursday.
Hospitals have no say over what Medicare and Medicaid reimburse them each year, which is why the rate that they can charge commercial insurance companies is so important: It's one of the only levers they can pull to bring in more money.
Hospitals have relied more and more on these commercial insurers over the years as payments from government-sponsored plans fail to keep pace with inflation. Those insurers have in turn been forced to raise prices on their policyholders, and the spending spiral goes on.
The Green Mountain Care Board tries to tamp down costs by capping what Vermont hospitals can charge private insurers through its annual budget approval process. But hospitals can ask for new rates in the middle of a fiscal year in the event of “exceptional or unforeseen circumstances," such as, say, a pandemic. The hospitals' fiscal year starts October 1.
Of the three mid-year budget adjustments filed with the board this month, two come from hospitals under the University of Vermont Health Network umbrella: the UVM Medical Center in Burlington and the Central Vermont Medical Center in Berlin.
These hospitals already have authority to charge commercial insurers 6 percent more this year than last. But in a letter to regulators on Friday, UVM Health Network president and CEO John Brumsted said the increase has paled in comparison to the rate of inflation. That's left a nearly $45 million hole in the hospitals' budgets, he said. The bulk of that — almost $40 million — is attributed to the Burlington hospital.
Charging commercial insurers 10 percent more over the next six months would yield the hospitals an extra $30 million. “We are simply trying to stabilize,” Brumsted said in a press release.
The request came a week after the Rutland Regional Medical Center asked for permission to hike its commercial insurance rates 9 percent higher than the 3.6 percent regulators authorized them to charge. Rutland CEO and president Claudio Fort warned the board that his hospital may have to cut services should the board deny its request.
“We currently do not have a contingency plan,” he wrote.
Green Mountain Care Board members say they cannot publicly discuss pending requests. The board will issue a decision in coming weeks.
The three hospitals blame their shortfalls in part on exorbitant labor costs spurred by pandemic-related staffing shortages. They say they are employing more travel nurses and other temporary staff than ever before in attempts to simply keep their doors open, and that these contracted workers are commanding salaries two to three times greater than pre-pandemic averages.
Hospitals have also felt the effects of the nation’s skyrocketing inflation. Medical supply and pharmaceutical companies are dealing with their own labor shortages and supply chain issues and are charging far more than they previously did for the same goods and services.
The three Vermont hospitals say they built their budgets with an assumption that inflation would raise costs less than 3 percent. The actual rate has been closer to 9 percent, according to Rick Vincent, chief financial officer of the UVM Health Network.
“We're in a very different place than where we were last year,” he said Friday.
The UVM Health Network went out of its way on Friday to note that inflation and labor costs aren’t the only reason for its predicament. In a press release, the network took aim at regulators themselves, implying that the Green Mountain Care Board has prevented the hospitals from taking in all the money they need.
“This is basic math,” the press release said. “To function, Vermont’s not-for-profit hospitals must take in enough revenue to cover the costs of patient care, which increase every year.”
In vetting the rate increase requests, state regulators will be forced to weigh the financial health of the hospitals against the potential impacts on Vermonters with private health insurance.
Vermont hospitals received tens of millions of dollars in state and federal COVID relief funding over the last two years, and a review of budget documents shows all three of those projecting shortfalls have more than enough in their reserves to cover this year's losses.
The UVM Medical Center, for example, entered the fiscal year with a $1.2 billion fund balance that would allow it to remain open for about 184 days without taking in a single dollar. That marker of financial stability, known as "cash on hand," has since fallen to about 154 days but still represents many multitudes more than the looming budget deficit.
Still, Vincent said, draining the reserve any further would not be financially prudent as it would jeopardize the hospital's credit rating. "We're just looking for a little bit of relief to buy us some time to see exactly where inflation will continue to go," he said.
But Vermonters need relief, too, insurers say. In her testimony to the care board on Thursday, Teachout called on the board to hold hospitals accountable to their original budgets.
"No one is emerging from the pandemic unscathed," the Blue Cross Blue Shield executive said, adding that people don't have the option to ask their employers for such a substantial wage increase. "Hospitals should not have that ability either."