Staffing costs drove $90 million loss for UVM Health Network

After a brutal fiscal year, the leaders of Vermont’s largest healthcare provider have a strategy to dig in by 2023. File photo: Glenn Russell/VTDigger

The University of Vermont Health Network ended its fiscal year with a loss of $90 million on September 30, despite receiving $55 million in one-off federal and state funds to cover expenses related to the pandemic.

The network’s operations in Vermont—University of Vermont Medical Center, Central Vermont Medical Center, Porter Medical Center, and UVM Health Network Home Health and Hospice— accounted for approximately 56% of the deficit. The rest came from operating his three hospitals in New York.

The network’s chief financial officer, Rick Vincent, said the main reason for the loss, which he said was 3.3% of the network’s overall budget, was increased staffing costs.

“It’s all labor,” Vincent said. “Temporary staff is also the biggest component of that.”

The organization increased salaries and provided retention bonuses to retain existing staff during a period of high workplace stress and turnover. Vincent said these additional unbudgeted expenses increased the costs of Vermont operations by $44 million.

At the same time, the rates charged by placement agencies for these temporary staff have increased, as those in the UVM network, like hospitals across the country, have to rely more on mobile nurses and other medical support staff to fill staffing gaps. According to Vincent, the combined effect resulted in a $95 million increase in the network’s expenses in Vermont.

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The incremental costs total more than the reported deficit, as the network’s 2022 budget includes an operating margin of $66.5 million to be invested in upgrading buildings, purchasing equipment and training. Vincent said the network has suspended many of these investments or covered it using cash reserves as needed.

Health network finance executives expected significant losses at their two largest hospitals this spring when they sought permission from the Green Mountain Board of Care to raise rates charged to commercial insurance carriers. These increases are ultimately passed on to businesses and individuals in the form of premium increases.

At this point, mid-fiscal year 2022, the network projected a deficit of $39 million at the University of Vermont Medical Center and $4 million at Central Vermont Medical Center. Regulators approved rate increases of 2.5% and 2.75%, respectively.

The increased rates offset some of the losses, especially at the network’s flagship hospital, which closed the year with just $23 million in the red. However, Central Vermont Medical Center closed the year with a deeper-than-expected loss of $17 million. Losses at Porter Medical Center and the UVM Health Network Home Health and Hospice were $2 million and $9 million, respectively.

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“The new rates have certainly helped, but not to the extent that they can offset the increase in damage we have suffered since our spring projection,” Vincent said.

The focus of healthcare network leaders, including new president and CEO Sunil Eappen, is to increase revenue and reduce costs to improve the bottom line in the current fiscal year.

In September, regulators at the Green Mountain Board of Care approved large commercial insurance rate increases for the network’s Vermont hospitals. However, healthcare network leaders say these increases alone will not be enough to generate the $245 million positive return they believe is necessary to offset deferred investments and replenish cash reserves.

Administrators are looking for ways to increase coordination across the network’s hospitals for some of this improvement. “We feel we have a solid plan,” Vincent said. “We believe we will close the gap”

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This plan is defined as a series of related initiatives that network administrators call the Path Forward. Along with other strategies described in the plan, administrators believe electronic medical record sharing between Vermont and New York facilities will help send patients to where beds and diagnostic services are available. Balancing staff across the system should also help reduce reliance on nurses and other temporary medical personnel who travel according to plan and make better use of them.

Mike Fisher, Vermont Legal Aid’s chief health advocate, said he was encouraged by the UVM Health Network’s strategy for next year not to include seeking an additional commercial rate hike.

“I think it’s remarkable and I appreciate them about it,” he said.

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