UVMMC requests budget increase of 19.9% just to cover increased costs

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UVMMC requests budget increase of 19.9% just to cover increased costs

Fri, 07/01/2022 - 12:08pm -- tim

Plan outlines needed measures to stabilize finances, protect critical services and continue to address workforce and access to care challenges. File photo of UVMMC main entrance.

Vermont Business Magazine The University of Vermont Health Network is implementing a series of initiatives to help stabilize its financial condition, while continuing work to improve the patient experience and access to care in several service areas across its academic medical center, five community hospitals, children’s hospital, multi-specialty physicians group, and home health and hospice agency. The work is underway as the Network’s Vermont hospitals submit their proposed FY23 budgets to the Green Mountain Care Board, with commercial rate requests reflecting the extraordinary financial challenges being faced by hospitals nationwide. The GMCB has not yet posted the hospital budgets.

“There is no question this is the most challenged financial position we have experienced in my 20 years in health care, and this budget reflects our commitment to do the hard work to stabilize our hospitals and protect critical services,” said Rick Vincent, UVM Health Network Chief Financial Officer. “These steps are meant to prevent our financial situation from deteriorating further, while minimizing the impact to patients and continuing forward progress where we can, largely by leveraging all that we have to offer as a multi-organization Network.”

Current Situation and Challenges

The significant financial challenges the UVM Health Network is experiencing are largely driven by two factors:

  • Extraordinary expense inflation related mainly to the cost of temporary labor and wage increases to support our fulltime workforce, as well as equipment and supplies, and
  • Revenue shortfalls resulting from restrictions imposed by the GMCB, lack of sufficient government payer rate increases (Medicaid and Medicare) and a drop in revenue due to service reductions during the pandemic. 

As a result, the Network has been forced to tap into its cash reserves to stabilize operating expenses. Depleting these reserves any further would be a risky option for the financial and future sustainability of the health system as it would call into question the Network’s obligations to creditors and its ability to meet patient and staff needs by investing in critical infrastructure and projects.

Through a series of accelerated financial improvement measures, the Network has been able to reduce the impact of FY22 cost inflation in the FY23 budget by approximately $50 million.

However, even with additional internal efforts to address the gravity of these challenges, there will still be a gap.

To achieve a modest operating margin for FY23 — which is how nonprofit health care organizations invest in their people, buildings and equipment — a combination of cost reduction through the internal initiatives and the ability to capture additional patient revenue to address operating expenses is essential.

“The simple reality of operating a nonprofit health network means we must take in enough revenue to cover the expenses of providing patient care,” Vincent added.

The submitted FY23 proposed budgets of the Network’s Vermont hospitals are an essential part of the Network’s plan to stabilize finances and the health care delivery system in the region.

The proposed combined FY23 budget contains only the revenue necessary to cover operating expenses and produce a modest financial margin to make sorely needed investments in the health care delivery system and infrastructure to continue providing the highest quality of care that responds to the needs of our patients and supports their staff.

Vermont Affiliate FY23 Proposed Budgets

This past March, the Network submitted a mid-year budget adjustment request for two of its hospitals – Central Vermont Medical Center (CVMC) and UVM Medical Center (UVMMC).

At that time, the Network projected that cost inflation for the year would be almost $123 million above the budgets approved by the Green Mountain Care Board for FY22. The requested budget adjustments would cover only about half of that amount, in the hope that expense inflation would stabilize and the Network could realize some additional revenue from Medicare and Medicaid before the end of the current fiscal year.

The budgets submitted today would allow the Network to cover the remaining need, including both uncovered amounts from FY22 cost inflation of $52.7 million and projected new cost inflation for FY23 of $111.9 million.

The total cost inflation in the FY2023 budget is $164.6 million. Of the $164.6 million, $22.3 million is offset by payment increases from governmental payers and retail pharmacy.

The remainder of $142.3 million, if approved, and without additional Medicare or Medicaid funding, will necessitate commercial rate increases of 19.9% for UVMMC, 14.52% for CVMC and 11.45% for Porter Hospital.

The initiatives announced today are part of an ongoing body of work to leverage the power of the Network in key financial and operational areas within its control to address a substantial portion of its financial challenges.

The proposed FY23 budgets reflect these expense management estimates contained within the Network’s plan.

“The decisions made by the GMCB this year will have a profound impact on the strength and resiliency of the system for years to come. We know the cost of health care is already high, and our Vermont hospitals are submitting their budgets to the GMCB, which reflects our commitment to reduce impacts on patients, protect partnerships within our communities, and maintain ongoing support for providers and staff,” Vincent said. “The proposed budget requests present a realistic picture of what is needed to keep our Network solvent in the current climate – anything short of that will force us to look at the services we provide and their impact on our sustainability.”

Network-led Initiatives

To reduce the impact on patients and communities, Network leaders have completed a comprehensive review of services, expenses, facilities and programs to develop the most effective plan for stabilization. Unlike many health systems across the country, especially those that operate for profit where shareholder returns are prioritized, the Network will not simply cut programs that operate at a loss or that serve communities outside their designated health service area. Instead, the Network has chosen to focus on solutions that will make the best use of talent, skill and capabilities of our people to improve access to care while increasing revenue in the 2023 fiscal year. Some highlighted initiatives include:

  • Innovation in managing the use of patient beds and post-acute and surgical capacity to maximize the number of beds and operating rooms available. These efforts will optimize the use of all patient beds and operating rooms across the health system, furthering progress on the Access Action Plan announced last year. Additionally, we will harness the benefits of connected care now that Network hospitals share a common electronic health record, Epic.
  • Further improvement in employee recruitment and retention efforts to reduce reliance on expensive temporary personnel. This includes ongoing investments in programs to train nurses and other members of the care team within the Network, expanding and enhancing recruiting efforts, and managing the use of temporary personnel. Additionally, the Network is pursuing efforts to increase loan forgiveness and scholarships and is engaging in training collaborations with important partners like The University of Vermont and the Vermont State College System. We have made significant progress this year, but much work remains ahead of us.
  • Organizing and expanding pharmacy services under a common structure to better achieve efficiencies of scale in one of the fastest growing areas of health care services. Demand for the Network’s local outpatient pharmacy services is increasing, both from the Network’s own employees and their families, as well as patients receiving medication through our Health Assistance Program and mail order pharmacy initiative. The Network is responding with efficient centralization and more retail pharmacy space at affiliates to meet this growing demand.
  • Moving toward a contemporary workforce with hybrid and remote work where possible. At the beginning of the pandemic, the Network moved some staff into remote and hybrid roles and will continue with workforce innovations for the long term – which will provide opportunities to consolidate space, reduce real estate costs and, ultimately, improve staff satisfaction. This approach also expands the health system’s recruitment reach beyond the region to attract people who are interested in remote roles.
  • Addressing the backlog in delayed care by reducing wait times caused by the pandemic and made worse by the workforce crisis. Many of the region’s aging and rural population have deferred care since the start of the pandemic in March of 2020, and the population will need more care as they age. The Network will continue to make progress on the efforts outlined in its Access Action Plan to shorten wait times and increase access for patients.

These measures and more represent a significant amount of work by leaders across the Network, all with the singular goal of allowing the UVM Health Network to avoid major service cuts.

Taken together, these and several other initiatives have the potential to have an estimated $245 million impact on the FY23 budget. The financial assumptions as part of these measures are foundational to our proposed FY23 budget and work we must complete to achieve the modest margin targets we have proposed. As the last two years have demonstrated, achieving these outcomes will require continued evaluation and adaptation to an unpredictable health care landscape.

State and Federal Government Support is Critical

While these initiatives reflect actions that the UVM Health Network can take, success will be tied to other factors as well. Network leadership will work vigorously to seek rate increases from government payers (Medicaid and Medicare) to cover expense inflation. New York’s FY23 state budget includes an effective 2.5% rate increase (elimination of a 1.5% rate reduction coupled with a 1% rate increase), and Network leaders will continue to advocate for increases in the State of Vermont’s future budgets.

The federal government recently released its proposed inpatient rate increase; it does not keep pace with extraordinary inflationary cost increases and represents a serious ongoing concern.

Efforts also continue to shine a light on the number of patients who are waiting in the hospital on any given day to be discharged to a more appropriate level of care, such as to skilled nursing facilities for patients who no longer need hospital-level services, or to specialized care and community services for mental health patients isolated in emergency departments.

These bottlenecks in patient flow will require significant action by and investment from the States of New York and Vermont. The UVM Health Network continues to partner with both states on these efforts, but is at the tipping point of jeopardizing the ability to care for many other patient populations seeking care.

“This has been a financial crisis many years in the making - beginning even before the pandemic - and it will likely take years to recover. The first step is to stabilize finances without risking the critical services our region depends on,” Vincent concluded. “With skillful implementation of this plan and increased support from state and federal leaders, we believe we will succeed.”

About The University of Vermont Health Network

The University of Vermont Health Network is an integrated system serving the residents of Vermont and northern New York with a shared mission: working together, we improve people’s lives. UVMHN collectively employs about 15,000 people in Vermont and upstate New York.

The partners are:

7.1.2022. Burlington, Vt. – The University of Vermont Health Network