The University of Vermont Health Network wants to charge commercial insurance companies an extra $140 million next fiscal year to help cover rising inflation and labor costs at its three in-state hospitals.

The requests represent double-digit percent increases over what the hospitals now charge and could have major implications for the cost of health care in Vermont, where many privately insured people are already struggling to keep up with inflation — at the gas pump, in the grocery store — and have long said they can’t afford to pay higher premium rates.

The network says it has no choice. Blaming high inflation, unrelenting workforce shortages, years of unfavorable regulatory decisions and a rash of pandemic service reductions, UVM leaders say their hospitals have been burning through their reserves at an unsustainable rate and desperately need a lifeline. 



"We're at a point now where, any further deterioration, and the years it will take to dig out of this hole will be extraordinary," said Rick Vincent, UVM Health Network's chief financial officer.

The network's request comes as part of the Green Mountain Care Board's annual summer budget cycle, during which the powerful regulatory board reviews spending plans for all 14 of Vermont's nonprofit hospitals. The deadline for budget submissions is end of day Friday, and the care board won't begin reviewing the proposals for another few weeks.
State regulators have been bracing for a big ask from the UVM Health Network ever since denying most of a mid-year budget request in April that would have allowed two of the network's hospitals to demand higher payments from commercial insurers partway through the fiscal year. (Hospital fiscal years run from October 1 to September 30.)

UVM leaders said the request came in response to more than $100 million in unanticipated costs that wiped out their operating margins and created a nearly $45 million budget hole. Regulators were sympathetic but were reluctant to sign off on the midyear requests given that most businesses had already budgeted their health care costs.

Not long after, the health network announced that it was shelving plans to build new inpatient psychiatric beds because it could no longer afford the project. Network leaders said the decision wouldn't have changed even if they received their full midyear request.
While the UVM hospitals have managed to save about $50 million since then, network officials say it's not enough to cover their still-rising costs, let alone generate enough revenue to end the next fiscal year in the black.

The hospitals have responded by dipping further into their reserves: In May, the UVM Medical Center had enough cash on hand to remain open for about 131 days without taking in a single dollar. That marker of financial stability was about 184 days when the fiscal year began. Officials warn that the network's credit rating could soon be in jeopardy if that figure continues on its downward trajectory. 

The network says it has developed a two-tiered plan in its quest for financial stability.

The first part relies on the Green Mountain Care Board signing off on the requested commercial rate increases. The network wants an 11.5 percent increase at Porter Hospital in Middlebury, a 14.5 percent increase at Central Vermont Medical Center in Berlin, and a 20 percent increase at the UVM Medical Center in Burlington. Those, combined with smaller expected increases from government-payer plans, would generate about $165 million in additional revenue, according to the network.

But the network says that it is not solely relying on insurance companies. The budgets have been built on the aspirational assumption that the hospitals will be able to save nearly $190 million through various belt-tightening measures. They include a reduced reliance on expensive travel workers, a more efficient surgical unit, an expanded pharmacy service and a continued embrace of remote working, which the network says will provide opportunities to consolidate space and reduce real estate costs.
If both of the network's strategies pan out, the three hospitals project that they could end next fiscal year with a "modest" $46 million operating margin, which officials say is vital for making future investments.

That's a big if, though, considering the still-lingering pandemic, the long-standing workforce crisis and the federal government's struggle to rein in inflation. Not to mention the uncertainty of whether regulators will be able to stomach such a large increase in a year when many other Vermont hospitals say they are cash-strapped.

Indeed, while the care board has yet to post any of the proposals on its website, comments from the state hospital trade association suggest it could be a costly budget cycle.
Almost every Vermont hospital is currently losing money, the Vermont Association of Hospitals and Health Systems said in a press release on Friday. That, added interim president and CEO Mike Del Trecco, is why the care board must approve the budget requests in full.

“Only then will we be able to see our way to begin recovering,” Del Trecco said in the release.