This week’s writer is James Reardon, who recently retired as commissioner of finance and management under Govs. Jim Douglas and Peter Shumlin.
As a former state budget writer, I read with interest the recent VTDigger story regarding hospital budgets (“Nine hospitals exceeded revenue targets in 2015,” Feb. 23, 2016) and was heartened to see the budget process working as it should.
The Green Mountain Care Board, as many know, is charged with reviewing and ultimately approving hospital budgets. However, not only does the board approve the budgets that hospitals set for the coming fiscal year, it also plays another vital role — reconciling those estimates with what actually happens in reality. Ultimately the board provides an independent mechanism for dealing with the difference (whether a hospital took in more or less net patient revenue than planned).
No matter how well you thought you assembled your budget, a lot can change in a year. In fact, a central assumption of state government is that changes will occur — revenue will go up or down — between when the fiscal year begins in July and when the Legislature meets the following January. Adjusting the budget is critical — and a normal part of the Budget Adjustment Act — for state government to run smoothly.
Similarly, the GMCB reviews, modifies and approves hospital budgets, and then compares those budgets with the actual numbers that come in for that year. The board then works with each hospital to understand what has caused these changes, up or down.
I was not surprised to read that nine hospitals saw revenues exceed the agreed-upon targets for net patient revenue, and that five came in below target. Of all the industries in the United States, the finance of health care is among the most complex, and budget adjustments are common. Given our state’s and nation’s focus on the cost of health care, it can be concerning when one hospital goes over their budget target. But in reality, the true concern is when a hospital comes in under its projected target. That can signal financial strain, and must be examined.
In both cases, the key is for the GMCB to understand what’s driving the increase in revenue or the shortfall, and ensure that the accounting assumptions are reasonable and accurate.
If a hospital has come in over its budgeted net patient revenue, the GMCB must set about the important work of ensuring that Vermonters see the benefit in the form of lower commercial insurance rates or other necessary health care investments. Or in the case of a shortfall, the GMCB works to develop a corrective plan to shore up the organization’s finances.
The fact that there is a need for a “budget adjustment” for these hospitals is not an indication the process is broken or that regulation isn’t tight enough. On the contrary, it is a clear demonstration that the process is working and Vermonters, regardless of how they are insured, will be better off for it.
Budget development is an imperfect science filled with assumptions, estimates and projections. The GMCB is doing the right thing in challenging those budgets in the context of broader health care goals, particularly the long-term goal of bringing down costs for Vermonters. Our state’s economy depends on this important work.