Hospital budget instructions from the Green Mountain Care Board released this month provide for an increase of 3 percent for Vermont's 14 hospitals -- that equals roughly $66 million.

The instructions allow for an additional 0.8 percent increase for "health care reform investment" - or projects - that dovetail with Vermont's health care reform agenda. That is not included in the $66 million.

The overall increase would mean roughly $2.7 billion in total spending for the hospital system. The Green Mountain Care Board's goal has been to keep hospital budget growth at 3 percent annually.

Nationally, hospital spending grew 4.9 percent in 2012 and 3.5 in 2011, according to figures from the federal Centers for Medicaid and Medicare Services.

Last year, the board approved an overall increase of 2.7 percent, but whether that's what actual spending will reflect won't be known until next year.

The hospital fiscal year ends in September, and the board won't receive an accounting of what was actually spent until January. It will then take several months to determine whether hospitals stayed within spending limits.

Hospitals will submit their budgets for this year (FY 15) to the board by July 1. The board will spend the summer reviewing them, and representatives from the hospitals will testify on their budget requests in August.

The budgets must be approved by Sept. 15 in order to be in place for the start of the next fiscal year Oct. 1.


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In FY 2013, the first year the board was responsible for hospital spending, the hospital system budget was exceeded by roughly $12 million, said Mike Davis, the board's director of health system finances.

Previously, there was no enforcement mechanism for hospitals if they exceeded their budgets, but the board has put in place a set of procedures meant to hold hospitals to account.

The new rules were approved during the FY 14 budgeting process, and will apply next year when the board looks back at what was spent. If a hospital exceeded its budget by 0.5 percent, the board will hold a hearing to examine the reason.

There are no penalties for exceeding the budget, but doing so could result in increased scrutiny and potentially reduced rates for the hospital the following year.

Davis is in charge of the hospital budgeting process for the board and, along with colleagues, he will examine the submissions from the hospitals to see if anything seems off.

"Hospital budgets are very complex by their nature, but that said, this is a very open and transparent exercise to show that the assumptions that go into their budgets are reasonable," Davis said.

The 3 percent increase that the board is asking hospitals to budget for is an increase to what's known as net patient revenue. But in approving an increase, the board will look at net revenues and net expenditures across hospitals and analyze the variation.

Variation may be warranted, Davis said, because hospitals provide different services, have different payer mix - the ratio of commercially insured patients to those covered through public programs - and a wide array of factors impacting their businesses.

Some of the analysis will involve what Davis described as "drill-downs," or deeper analyses of specific areas of a hospital's budget.

"If non-salary expenses has gone up 12 percent at one hospital, that seems high, so we can go look at it," Davis said. The board can then call in the hospitals to account for an anomalistic increase - or decrease for that matter - he added.

However, the board says it does not want to micromanage hospital budgets.

Administrators are in a better position to know how a hospital can best allocate its resources, Davis said, and the primary purpose of the budget review process is to make sure their net spending increases are appropriate.

"There's only so much capacity," Davis added, noting that the board doesn't have the staffing to go through each line item in every department of every hospital.

The discussion of whether to increase or decrease the oversight of a regulatory body should be driven by resources allocated for oversight and the problem facing the industry, Davis said.

For the hospitals and for the board, much of the budgeting process is informed by looking at the previous year's spending and trend data that's collected over time.

The impact of the Affordable Care Act and other policy changes at the state and federal level will impact hospital utilization and therefore revenue in ways that are difficult to anticipate.

That unpredictability could be difficult for hospitals and regulators to reconcile.