By KATHRYN FLAGG
MIDDLEBURY — State officials approved the budgets for Vermont’s 14 hospitals earlier this month, green-lighting a statewide average 9.5 percent increase in hospital rates­, which tops last year’s increase by three percentage points.
Middlebury’s Porter Medical Center topped the list for approved percent rate increases with an 11 percent hike. But Porter officials explained that only a portion of its patients will actually feel the full brunt of this double-digit increase in fees.
“There aren’t that many patients that actually pay full rates,” explained Porter Vice President for Finance Duncan Brines, noting that many insurance companies, and certainly Medicaid and Medicare, have negotiated lower rates.
The increase in hospital’s approved spending plan for the 2009 fiscal year represents an 11.5 percent increase. It comes in at just over $57 million, up from a nearly $51 million expense budget for the previous year.
Two other Vermont hospitals had requested bigger rate increases than Porter — Northwestern Vermont Medical Center in St. Albans and Southwestern Vermont Medical Center in Bennington had requested 11.4 and 11.8 percent increases, respectively. Porter itself sought an 11.2 percent rate increase.
But state officials at the Banking, Insurance, Securities and Health Care Administration (BISHCA), the agency that regulates Vermont hospitals, determined the Middlebury health center would need to cut its rate increase by 0.2 percent, and the other hospitals by more.
Fletcher Allen Health Care, the state’s largest hospital, asked for and received a 10 percent rate increase. BISHCA gave its largest cut in a proposed rate increase to Rutland Regional Medical Center, which saw its requested 10.9 percent rate increased dropped to 9.6 percent. 
CRUNCHING THE NUMBERS
According to Porter President James Daily, hospital administrators at the hospital were largely pleased to hear about the approval — given, Daily said, that they expected a tougher decision in an election year.
Porter’s rate increase was driven up this year by several factors, with “cost shifting” proving one of the largest culprits. Brines explained that because so many patients don’t actually pay the full rate, the increase in what the hospital brings in won’t be nearly so large.
“That’s one reason why the rates have to go up so much,” he said. “We’re raising them 11 percent, but we’re not seeing an 11 percent increase in revenue. We’re seeing a three or four percent increase in revenue.”
This happens because only a portion of Porter’s overall revenue comes from patients who pay the full rate. A significant portion comes from those who pay reduced rates. Those who pay a reduced rate shift more of the burden for funding the overall hospital budget onto those who pay the full rate.
Brines said that Medicaid, the program that pays some health care costs for those who can’t afford them, is the “worst offender” when it comes to cost shifting. The proportion of Porter patients whose bill is paid for by Medicaid is going up, but the amount that Medicaid is willing to pay the hospital has plummeted. Currently, Brines said, Medicaid pays the hospital 35 cents for every dollar the hospital charges.
“That difference — that 65 cents they’re not paying — that’s the cost shifting,” Brines said. “Somebody else has to pay that.”
But Medicaid isn’t the only rate payer receiving discounts on hospital rates. Medicare, which covers health care costs for many older people, pays 60 percent of the full hospital rate. Rates paid by individual insurance companies are considered proprietary information, and Brines said that some negotiate more aggressively than others. On average, these companies end up paying around 76 percent of the full rate.
The “somebody” who makes up the difference, Brines said, is likely to be the patient who walks into the hospital without any form of insurance.
Overall, Medicare patients make up 23 percent of Porter patients; Medicaid, 6 percent, and commercial insurance, 39 percent. About 32 percent of Porter patients pay for their care themselves.
Cost shifting is the largest single component behind what hospital administrators predict will be the nearly $31 million difference next year between what the hospital charges for its care and the amount Porter actually receives.
Additional factors driving this year’s spending increases included rising fuel and electricity costs, higher supply costs, consultants’ fees, higher salaries and the inclusion of practices like Bristol Internal Medicine into the overall Porter budget.
Other projects that required budget support included the hiring of a new internist and support staff, the hospital’s transition to new information technology and money to recruit new physicians to the region. (1n 2006, the Middlebury region topped the state with the highest percentage — over 30 percent — of primary care givers older than age 60.)
Daily stressed that this year’s high rate increase is not a sign of inefficiencies at the hospital — and indeed that Porter ranks among the most efficient hospitals in the region.
“It’s easy for some people to see the higher price and assume that it’s a less efficient organization,” Daily said. “The fact of the matter is, with the conservative use rates that Porter has demonstrated over this 20-year period, that (Porter) has saved ratepayers millions of dollars by conservatively using the hospital.”
Though pleased with the final approved rate — which was closer to their requested increase than some other hospitals in the state — both Daily and Brines expressed some bewilderment at how BISHCA arrived at their final numbers. Early last week, Porter had not yet received a reason for why their proposed spending plan was slashed 0.2 percent.
The process, Brines said, is in this sense confusing, as the hospital is left guessing at the exact criteria used to determine final rate increases.
According to Michael Davis, the director of cost containment at BISHCA, the final rate increases approved by the BISHCA commissioner take into account department targets for inflation, reimbursement changes, pressures in the overall economy including fuel oil increases, physician acquisitions, prior budget performance and a laundry list of other criteria.
“It’s not all formula-driven because of the individual circumstances of different hospitals,” Davis said. “We try to weigh that.”
INCREASES DRAW CRITICISM
The Public Oversight Commission (POC), which also sits in on hospital budget presentations made to BISHCA, expressed frustration at the statewide rate increases in the wake of the BISHCA approval earlier. The commission, which serves in an advisory role and does not have the authority to set rates or order hospital to cut costs, claimed that such high budget increases are unsustainable and irresponsible.
POC was created by the Vermont legislature in 1996 to coordinate the oversight and regulation of health insurers and health care systems. Commission members are appointed by the governor.
The POC statement called for the Legislature to cap all hospitals at the same rate increase — inflation plus two percent.
“Right now, it’d be devastating (for Porter),” said Brines of the proposal, though he said he understood the frustrations expressed by members of the commission. But with costs legitimately rising — Brines pointed to new technology, the cost of medicines and, of course, cost shifting — Brines said that capping rate increases would produce problems of its own, namely what he said individuals in the health care circle call the “big ‘R’ word,” or rationing.
“Which patient didn’t you want us to treat?” he asked. “Was that your mother who wanted a hip replacement? Some of it gets into that level of conversation.
“In the end,” he continued, “if we really want to reduce costs in the health care system, significant reductions can only come if we provide less care to patients. No one has figured out a way to do that in this country.”
Daily said that he also sympathized with complaints from POC members who feel health care costs are escalating at an unsustainable rate — but he said that the conversation about fixing these rising costs should fall to elected leaders and not individual hospitals.
“This cost curve is imprudent and unsustainable,” Daily said. “Therefore, we’re looking to people we elect to office, to the governor, to the legislature, to have that discussion with us that needs to take place.
“Our appetite for medical care is starting to outstretch our means to pay for it,” he continued. “We’ll eventually implode. At a certain point we’re not going to be able to pay any more.”