Why Vermont’s health care costs are highest in the country

Vermonters don’t always agree with each other on important issues: “Who boasts the best woods skiing?” “Which cheese makers produce the best aged cheddar? “Where to find the best maple creemee?”

There is one trend, however, that has bridged our other cultural differences, and that is the gob smacking cost of health insurance premiums in Vermont. At double the national average, publicly available data show that Vermont is out of line with our peers and our hospitals are spending too much on management and administration. Vermonters find their economic growth stunted, many are under- or uninsured, and business and school budgets must cut personnel and services to absorb double-digit insurance increases.

So, what is driving this unsustainable trend? Almost half of Vermont’s total health care spending (44.5 percent) is hospital costs, so this is where to look for opportunities for reducing costs, increasing efficiencies, and improving quality. Vermont’s 14 hospitals and health systems range from the largest, UVM Medical Center, to the smallest, Grace Cottage. All have financial challenges, but some perform better than others. Because it is the largest, it’s especially important to dig into the data to understand the drivers of UVM’s financial performance.

When benchmarked against Medicare reimbursements, national data show us that three-quarters of the 107 university-based academic medical centers in the U.S. break even or make money when treating Medicare patients. UVM Medical Center, on the other hand, loses $119 million a year treating Medicare patients. The UVM Health Network does not dispute these trends, but it does try to explain them away and claim Vermont’s population is the cause. Vermont’s aging population is still younger than that of Maine, yet the Maine medical system is close to breaking even on Medicare reimbursements. What else might it be?

Another disturbing trend is that within the academic medical center cohort, UVM reports the 14th highest non-patient labor costs. These include custodial services, information technology, food services, human resources, and of course, administration and management. To its credit, UVM’s labor costs for direct patient care are on par with their peers, just one percent above the average. However, overall, its non-patient labor costs are 31 percent above their peers. And when we parse out administration and management labor costs, the average for 106 other academic medical centers would have to increase by 73 percent to be as high as UVM.

We need to understand what is driving this anomaly compared to other academic medical centers. And it’s not simple because UVM Health Network finances are consolidated with those of UVM Medical Center, making it difficult to understand the true carrying costs of the network.

Plus, there’s the significant question of UVM Health Network costs to support the delivery of care at the three New York hospitals owned by the network.

As consumers of healthcare services and Vermont taxpayers, we are literally paying the costs of an inefficient health network. And we should be concerned that quality is slipping too — last year Medicare downgraded UVM Medical Center to four stars, where it previously had five, the highest rating.

We must ask the obvious question: are Vermonters’ health insurance premiums paying for New Yorkers’ health care? And is UVM Health Network leadership tone deaf when forced to reduce spending by the Green Mountain Care Board? After all, the network first sought to eliminate patient services and then handed out $3 million in year-end bonuses. Such a top-heavy, entrenched organization cannot be sustained by Vermonters or the commercial insurance industry.

The coalition members of VT Healthcare 911 support the Green Mountain Care Board in its mission to drive system-wide improvements in access, affordability and quality to improve the health of Vermonters. Currently, there is no audit of hospital budgets that would provide insight into the vagaries of financial reporting by hospitals and health systems. Perhaps it’s time such a thing was standardized in Vermont. Perhaps it’s time for reference-based pricing, which would drive hospitals closer to Medicare reimbursement rates. It is definitely time for Vermonters to raise their voices to call for action in this biennium.

Former Gov. Jim Douglas and Lisa Ventriss, president emerita, Vermont Business Roundtable, are co-chairs of the VT Healthcare 911 Leadership Council.