How to set the budget for all of Vermont’s hospitals on one easy lesson

by Rob Roper

One of the many tasks the newly minted five member Green Mountain Care Board is charged with is reviewing and approving the recommendations of the commissioner of the Department of Banking, Insurance, Securities, and Health Care Administration (BISHCA) for hospital budgets.

On Wednesday, they got a one hour and fifteen minute course in how to BISCHCA comes to make those budget recommendations from Mike Davis, Director of Cost Containment. Davis ran through a PowerPoint presentation consisting of roughly twenty slides, and answered questions from the Board members to the best of his ability.

In a nutshell, Davis explained the process, “We look at the amount of the rate increase that the hospital might be asking for. At the same time, [we look] at their overall budget growth. In other words, the hospital’s net revenues can grow that is in direct correlation with a rate increase…. Then we look at the responsiveness of the hospital’s budget and the assumptions we provided… Hospitals then have to justify any deviations.”

One telling exchange in response to this information began with a question fro Board member Con Hogan, who asked, “You establish a budget. What does that mean?… What’s the authority behind the budget? How do you hold people to a budget? What happens if they undershoot or overshoot?”

“That’s a great question,” replied Davis, “That’s what the prior period performance budget review tries to do. We do that each year.”

“No, I understand how you get to the numbers,” said Hogan. “A budget is now established. What’s the authority behind the budget?”

Davis was silent for a moment, then repeated quizzically, “The authority behind the budget?”

Al Gobeille, the businessman on the panel, jumped in. “Does the state have any power if [the hospitals] don’t follow the budget?… What do you do if they don’t behave?”

Davis’ answer revealed a lot. “We bring that information in to this decision making process on the next budget. That’s what we do….In this budget process, what we have – we can set the framework, we can set the numbers, but we don’t write the check. So, there’s no enforcement capability of writing the check. The only enforcement you have is to reduce their future rate request. And that’s not very – the budget ended nine months ago, and now you’re trying to adjust for something that happened nine months ago….” He finished his thought with a shrug and a wave of his hand.

This goes directly to the difficulty of a government entity regulating the costs and budgets for hospitals and health care – cost containment being a primary, stated goal of the Board. How can you punish doctors and hospitals who spend too much money without punishing patients as well?

Other questions asked by the Board members touched on a range of subjects from the history of hospitals in Vermont, how to consider in budgeting hospitals like Dartmouth, Albany, etc. that are not under Vermont’s authority, how Medicare reimbursements work, how each of Vermont’s hospitals differs in the way they handle their finances, all the way down to the minutia of how parking fees effect the bottom lines of hospital budgets.

Davis wrapped up is presentation with a question, “How do we determine the appropriate level of growth? There’s different ways to think about that…. Maybe we shouldn’t even say ‘growth.” Maybe it’s the appropriate of change. Maybe ‘change’ is the right word.”

Yeah. What the heck are we talking about anyway?

This meeting, which followed a similar one hour briefing the day before about how to create a benefits package, served to underscore just how complicated the medical system is, how difficult it is for any government regulatory authority to control, and how ill-prepared and uninformed the five members of this panel are to take on this challenge. Nevertheless, they are in charge.