UVM to Board: Reverse This Decision

September 26, 2018

Chair Kevin Mullin
Green Mountain Care Board
144 State Street
Montpelier, VT 05620

Dear Chair Mullin:

I write to express my deep concern regarding the Green Mountain Care Board’s decision to adjust the UVM Medical Center’s FY 2019 budget as well as the process that led to that decision. Simply put, the Board’s decision is at odds with the long-term success of the All-Payer Model (APM) and will ultimately result in higher, rather than lower, health care costs for Vermonters.

The GMCB’s Proposed Order Will Destabilize the APM

On October 27, 2016, the Governor, Chair of the Green Mountain Care Board and Secretary of the Agency of Human Services signed the Vermont All-Payer ACO Model Agreement with the Center for Medicare and Medicaid Innovation. By entering into that binding Agreement, the parties committed to supporting the APM as the primary tool through which the State of Vermont controls the cost and improves the quality of health care for all Vermonters. Since then, The University of Vermont Health Network has been “all in” on the APM, redesigning our entire system of care in order to deliver on the APM’s promise.

The APM will only succeed if Vermont’s hospitals and other providers are able to continue to make the significant investments necessary to support OneCare Vermont and to assume the enormous new financial risk associated with the fixed prospective payment system that is the key to wringing value out of our health care system. Those costs and risks are at their greatest during the formative years of this “bold experiment” because all of the participants are learning how to handle unprecedented, and at times unpredictable, change in both care delivery and payment.

The UVM Health Network’s hospitals have kept their commitment to support the APM, shouldering the bulk of the associated expense and risk. Of course, that commitment is not without cost, and the UVM Medical Center’s budget was carefully calibrated to provide the necessary continued investments in OneCare Vermont and to maintain the financial health required to assume risk on fixed prospective payments of nearly $200 million. I believe these investments will ultimately be seen as among the wisest and most forward-looking our health care system has ever made – reducing the cost of care and improving the health of all Vermonters – but only if our regulators also support the long-term success of the APM.

Unfortunately, the Board’s decision to reduce the UVM Medical Center’s budgeted commercial rate does not demonstrate that support. Nor does it honor the commitment the GMCB made to the federal government or the APM’s other participants. It does the opposite. By reducing the UVM Medical Center’s ability to invest in OneCare, the Board’s decision undermines the foundational infrastructure of the APM. By weakening the UVM Medical Center’s financial health, the Board’s decision makes it far less likely that the Medical Center can responsibly assume risk under the APM, either now or in future years. By setting the UVM Medical Center’s commercial rate at an artificial level, rather than allowing the Medical Center to “solve for” that rate within the Board’s NPR growth benchmarks, as the Board had previously agreed, the GMCB may actually make continuing to pay “fee for service” outside of the ACO an attractive option for insurers, employers and patients. It also appears misaligned with the targeted rate of growth for health care delivery under the APM, which was developed over years of discussion among CMMI, GMCB leadership and provider stakeholders.

In sum, the Board’s proposed order will destabilize both the UVM Medical Center and Vermont’s All-Payer Model just as they, working together, are beginning to bend the cost curve. If that occurs, the Vermont hospitals’ prior investments in the APM will have been for naught.

The Board’s Order Will Not Result in Lower Rates for Commercially Insured Patients

Nor will the Board’s decision do anything to predictably reduce the cost of commercial health insurance for Vermonters in the shorter term. As you know, the UVM Health Network has long been urging a higher level of coordination among the hospital budget review process, the commercial insurance rate-setting process and the ACO budget review process. At best, those processes currently do not communicate with one another; they are ships passing in the night. At worst, they work at cross purposes to one another; as described above, decisions made in one process affirmatively harm the stated goals of another. As a result, Vermonters have no way to understand, and regulators have no way to explain, how changes to hospital budgets affect commercial insurance rates, either inside or outside the APM.

The UVM Health Network remains committed to reforming these regulatory processes so they work together to transparently illuminate and then control the true reasons for rising commercial insurance rates in Vermont. For instance, the regulatory processes should use consistent, per-patient measures of the cost of care. They should all regulate on actual-to-actual bases, rather than budget-to-budget. They should all be designed to build reserves at the entities charged with assuming risk, or facilitate a shift in reserves from those delegating risk to those accepting risk. They should then be sequenced in such a way as to allow the processes to meaningfully inform one another. Only when we make these and other related changes will regulators and hospitals ensure the savings we achieve are passed along to Vermonters.

The FY 2019 Budget Review Process Was Unpredictable At Best

Until this year, when a hospital submitted a budget in line with the GMCB’s guidance, the hospital could be confident that its budget would be approved without major adjustments. This consistent and principled approach by both the hospitals and their regulators has succeeded. Vermont is bending the health care cost curve more effectively than nearly any other state.

In contrast, the budget review process that led to the Board’s decision regarding the UVM Medical Center’s FY 2019 budget was unpredictable, at best. The Board repeatedly failed to judge hospital budgets by standards it had previously articulated. As a result, even hospitals that followed all of the rules had their budgets adjusted downward.

According to the GMCB’s own Rules, the Board may adjust a hospital’s proposed budget if it does not meet the “benchmarks established” by the Board to “guide . . . its decisions whether to adjust a hospital’s proposed budget.” (GMCB Rules 3.303, 3.305, and 3.202.) This year, the Board’s budget guidance limited hospital NPR growth to 3.2%, including 0.4% for health reform investments. (FY 2019 Hospital Budget Guidance and Reporting Requirements at p. 9.) The Board’s guidance did not set a benchmark related to commercial rate increases, hospital operating or total margins, or any other financial metric.

The UVM Medical Center followed all of the rules laid down by the Board. It submitted a budget with a low 1.1% NPR increase, approximately one-third of the growth rate allowed by the Board. Through simple math, that patient revenue produced a 4% commercial rate increase. It is worth noting that the Board’s guidance allowed the Medical Center to propose an additional $19 million in patient revenue, accompanied by an 8.2% increase in commercial rates. Yet, the Medical Center did not propose a budget designed to take advantage of that financial headroom. Instead, it held the line on both revenue and rates, proposing a budget that contained only the patient revenue necessary to meet its obligations to its patients, it community and the APM Agreement, but no more.

Nonetheless, the Board’s decision cuts the UVM Medical Center’s commercial rate increase by 37.5%, from 4.0% to 2.5%. The transcript of the budget hearings reveals that the Board mentioned many and varied factors in support of its decision. The one thing those factors have in common is this: none of them was previously identified by the Board as governing the budget process.

The Board should not rely on new or newly articulated factors to cut hospital budgets. In the short term, that approach risks producing the sort of unintended consequences discussed above. In the long term, it risks far more than bad outcomes. It undermines the strength and transparency of our regulatory process, transforming it from one based on principles to one based on politics.

We look forward to working with you, your fellow Board members and GMCB staff to address these concerns.



John R. Brumsted, MD
President and Chief Executive Officer