Porter hospital to raise rates to cover mandatory cost, tax hike

MIDDLEBURY — In the complex world of hospital budgets, a 4.4 percent rise in revenue added to a 1 percent decline in expenses, but which yields a $90,000 loss for the year is understandable.
So is a tax increase imposed by the federal government that will add an additional $1 million in expenses in 2011, not to mention an $814,060 expense for a digital record keeping system that is mandated under state law.
Factor in changes in staffing at Porter Medical Center’s 380-worker complex and a volatile payer mix that can change the bottom line by millions and it’s little wonder that creating an annual budget for the hospital is like juggling a half dozen or more balls at once: not all of the balls always fall where you want them to.
Even so, Porter Hospital last week presented to state regulators a 2011 proposed operating budget of $61,135,690, a modest increase of 3.5 percent over the 2010 operating budget. Add a capital expense of $814,060 for a new Health Information System/EMR (which digitalizes the hospital’s and patients’ information to make it more cost-efficient statewide in the long-term) and the budget increases to $62,326,074 — a 5.48 percent increase in spending that requires a rate increase of 6.5 percent to meet the hospital’s projected revenues.
In relative terms, the rate hike is down compared to recent years and about in the middle of the pack among state hospitals, not counting Porter Hospital’s capital expense for the digital record-keeping system.
County residents can also take comfort in the knowledge that Porter Hospital continues to compare well with the other 67 hospitals in Vermont, New Hampshire and Maine concerning inpatient utilization, including: second lowest ranking in CT scans; lowest ranking in utilization of MRIs; sixth lowest rank for inpatient readmission; and fourth overall ranking in per member/per month cost category.
“We’re feeling optimistic about the proposed budget,” said Porter Hospital President Jim Daily after a recent presentation to the state’s Public Oversight Commission, “but it’s a challenging environment.”
Part of that challenge is being able to roll with unexpected changes.
In the current fiscal year, the hospital’s gross revenue is projected to be 4.4 percent above budget with expenses 1 percent below budget — good news for any business in a slow economy. But, rather than reaching their targeted $1 million profit, the mid-year budget was eyeing a loss of $800,000. Some mid-year corrections and variations now have the budget on track to break even — plus or minus $100,000.
What happened? The hospital’s Medicaid and Medicare utilization rates were 2 percent higher than budgeted, while the hospital’s commercial insurance utilization rates were 4 percent lower than budgeted. Because Medicare and Medicaid pay a fraction of the hospital’s full charges (whereas commercial insurance pays most of it), the hospital saw an increase in patient care and dollars billed, but saw a decrease in actual payment — all things beyond the hospital’s control. The financial impact of that cost shift was $3.3 million.
Not surprisingly, Daily says reimbursement reform is an essential element of health care reform. “The current system is not working and is not sustainable,” he said.
Another challenge is working with the state’s new health care reform bill, Act 128, the Blueprint for Health. That legislation caps increases in hospital spending at 5.9 percent, with some caveats that include spending on capital expenses to achieve state-mandated goals — such as Porter’s digital record-keeping system. The cap has forced tough choices on hospitals throughout the state, but with the desired effect. Vermont’s 14 hospitals have proposed budgets this year seeking an average spending increase of 5.7 percent, a slight decrease from the 5.9 percent increase in 2010, but a significant decline from the 9.5 average hike in 2009.
To keep within the cap on spending, Porter has redesigned its employee benefit plan by asking employees to pay a higher percentage and eliminating some benefits for those part-time workers under 20 hours a week, and this year held controllable costs to a budgeted increase of 1.8 percent, which includes salaries and wages, purchase services, supplies and expenses.
Porter has also been instrumental in establishing the Vermont Hospital Shared Services Network among three similarly size hospitals: Porter Hospital, Gifford Hospital in Randolph and Copley Hospital in Morrisville. By pooling resources and purchasing power, the group expects to realize savings of $940,000 over the next three years.
On the revenue side, Porter hopes to start a “hospitalist” program, which has a staff doctor visiting inpatients each day in their rooms. The goal is to provide consistent patient care while freeing up the surgeon or primary care doctor so they can more effectively see patients in their practices. (Porter is one of two hospitals in the state that have yet to incorporate such a program.)
Across Vermont, this year’s hospital spending increase requests ranged from a low of 3.7 percent at Northwest Medical Center in St. Albans to a high of 6.5 percent at Mount Ascutney Hospital in Windsor, which exceeds the 5.9 percent cap (as Porter Hospital’s does) because of spending on capital improvements encouraged by the state. Porter’s spending request is up 5.8 percent, while Fletcher Allen Health Care was up 6 percent and Rutland Regional Medical Center was up 5.5 percent.
The budgets were presented to the Department of Banking, Insurance, Securities and Health Care Administration (BISCA), which has the power to ask hospitals to amend their respective budget proposal if the commission deems certain expenses are too high. Hospitals will receive a preliminary ruling on Sept. 15, followed by written approval on Oct. 1.

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