Rising state tax puts Porter in a bind

MIDDLEBURY — Porter Hospital’s ability to participate in Vermont’s health care reform effort could be severely hampered by state budget proposals that would further erode the Middlebury institution’s fragile bottom line.
That was the message on Tuesday from key Porter Hospital officials who face the perennial challenge of delivering cutting edge medical services to a population that is increasingly unable to afford them.
Porter Hospital’s financial challenge grew even bigger last month when Gov. Peter Shumlin proposed to raise the provider tax on the state’s hospitals from the current 5.5 percent of net revenues to 6 percent as a way of helping to balance the state’s human services budget next year. Shumlin has also pitched a series of cuts — $110 million in all — as part of an effort to erase a $176 million revenue shortfall for fiscal year 2012, which begins July 1.
The provider tax is an assessment currently charged to hospitals and home health agencies. That money is used by the state to leverage additional health care-related dollars from the federal government, which are then redistributed throughout the Vermont health care system.
Trouble is, hospitals aren’t being made whole through the redistributed dollars, noted Ron Hallman, vice president for public relations at Porter.
“They now provide us with less money than we are taxed, so we end up with a deficit in our participation, and the deficit we estimate for next year is going to be roughly $1,271,000,” Hallman said.
Shumlin’s plan calls for the provider tax not only to be raised, but extended to other health care providers — such as dentists.
If the Legislature OK’s the recommended 6-percent provider tax, that would bump Porter’s total liability under the assessment from the current $3.1 million to approximately $3.7 million, according to hospital President Jim Daily. That’s another $600,000 hit for Porter.
“This is the fastest growing element in our expense budget,” Daily said of the provider tax.
“It is sort of ironic,” Hallman added, “that a state-imposed tax is the fastest growing component of our budget in a state that is telling us we need to get our costs under control.”
Compounding Porter’s financial problem is that a growing proportion of its client base is covered by Medicaid, a federal health care subsidy program that does not reimburse health care providers for the actual cost of services.
The Medicaid program, according to Hallman, currently reimburses hospitals at a rate of roughly $34.20 for every $100 in medical services provided there. At the same time, Medicaid patient visits at Porter have grown — from 13.9 percent of total visits in 2007 to almost 17 percent in 2010. That has translated into around $1.5 million in added expense to Porter — and Medicaid reimbursement rates are pegged to go down even further, hospital officials said.
Medicaid client rolls are likely to get larger at Porter and other Vermont hospitals, Hallman noted. The Shumlin administration has recommended rolling the current 12,000 clients of the state’s Catamount Health program for underinsured Vermonters into the Vermont Health Access Program (VHAP), which is an expanded Medicaid program.
The specific financial toll of that program change has been estimated at $10 million statewide, but the exact toll on Porter has yet to be calculated, according to Daily.
“The provider tax creates a hole to begin with; the Medicaid reimbursement goes down; and the percentage of Medicaid patients goes up — all simultaneously,” Hallman said. “We lost $2 million last year and we have lost $100,000 in the first quarter (of this year).”
Porter Hospital has been paring its expenses, Daily noted. He said the hospital made the painful decision just last week to lay off four workers, with the prospect of an additional employee reduction in the months to come. Porter currently has 404 full-time equivalent positions and a state-approved annual expense budget of around $62.3 million.
“Our response (to the revenue shortfall) is going to have to be to find revenue enhancements — which are few and far between — or to reduce expenses,” Daily said.
At the same time that hospitals are being placed in a weaker financial position, they are being asked to immerse themselves in health care reform and the development of a single-payer system, Porter Hospital officials noted.
“These reductions will clearly impair our ability to be an effective partner in the way reform is occurring in this state, in the way that Gov. Shumlin and Gov. Douglas were imagining,” Daily said. “If you are going to sap the hospitals’ financial vitality and they start to reduce the workforce — and a number of the people who can carry out these reform activities — it seems like it’s going to impair reform, or it won’t work,” Daily said.
At the same time, hospital officials said they recognize the need for health care reform.
“We don’t disagree that things have to change; we’re not trying to sit here and say that ‘the status quo needs to be maintained,’” Hallman said.
“Reform is necessary and the current system is unsustainable.”
But Hallman stressed that “paying hospitals less is not reform. There has got to be a more comprehensive approach than simply ratcheting down provider payments, because that’s not health care reform.”
Vermont’s hospitals are collectively backing a new bill that “proposes to support fair and sustainable Medicaid payments to hospitals and home health agencies by creating maximum transparency on the collection of the provider assessment and the distribution of proceeds from such collection.” That bill is to be introduced in the House and had yet to be assigned a number as the Addison Independent went to press.
Addison County has two key players in the health care reform effort in the Legislature: Rep. Mike Fisher, D-Lincoln, who is vice chairman of the House Health Care Committee; and Sen. Claire Ayer, D-Weybridge, who is chairwoman of the Senate Health and Welfare Committee.
Both lawmakers said they sympathize with Porter and all of the other Vermont hospitals and that their ultimate goal is to come up with a new health care system that will not only offer better health care, but a more reasonable way of paying for it.
“This is exactly why we need to do comprehensive health care reform — including payment reform,” Fisher said.
“What we are all hoping to find is a way to reduce the burden for hospitals,” Ayer said.
As the Legislature “passes the pain around” in this year’s budget, Ayer said lawmakers will have to look at “reprioritizing the way we pay for human services”
In the meantime, legislators will have some difficult decisions to make on the proposed provider tax increase and Medicaid cost-shifts. These are among the areas in which Shumlin has proposed to balance the state budget while not boosting broad-based taxes.
“While I am not in favor of (the proposed increases in hospital-related taxes) and am working hard to avoid them, we also have to balance the budget,” Fisher said.
“I do realize that Porter and all the community hospitals need to be financially stable,” he added.
Reporter John Flowers is at [email protected].

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