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Staffing costs drove $90 million loss for UVM Health Network

Published: 11/25/2022 9:45:03 PM
Modified: 11/25/2022 9:45:09 PM

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

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

The primary cause of the loss, which the network said amounted to 3.3% of its overall budget, was ballooning staffing costs, said Rick Vincent, the network’s chief financial officer.

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

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

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

The increased costs total more than the reported deficit because the network’s budget for 2022 also included an operating margin of $66.5 million to be invested in improvements to buildings, the purchase of equipment and training. The network put many of these investments on hold or, where they were necessary, covered them using cash reserves, Vincent said.

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

At that point, halfway through the 2022 fiscal year, the network projected deficits of $39 million at the University of Vermont Medical Center and $4 million at Central Vermont Medical Center. The regulators approved rate increases of 2.5% and 2.75%, respectively.

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

“The new rates definitely helped, but not to the extent to wipe out the increase in loss that we incurred since our projection in the spring,” Vincent said.

The focus now for health network leaders, including incoming president and CEO Sunil Eappen, is increasing revenue and reducing costs to improve the bottom line in the current fiscal year.

Regulators at the Green Mountain Care Board in September approved large commercial insurance rate increases for the network’s Vermont hospitals. However, health network leaders say those increases alone will not be enough to create the $245 million swing to the positive that they believe is required to make up for delayed investments and replenish cash reserves.

Executives are looking to increase coordination across the network’s hospitals for some of that improvement. “We do feel that we have a solid plan in place,” said Vincent. “We are confident we can close the gap.”

That plan is described as a series of related initiatives network managers call the Path Forward. Among other strategies described in the plan, managers believe that electronic medical record sharing between Vermont and New York facilities will help in sending patients to where beds and diagnostic services are available. Balancing staff on a system-wide basis should also assist in reducing reliance on traveling nurses and other temporary medical staff, and to utilize them more effectively, according to the plan.

Mike Fisher, chief health care advocate for Vermont Legal Aid, said he was heartened that UVM Health Network’s strategy in the coming year did not include seeking an additional commercial rate increase.

“I think that is noteworthy and I would commend them on that,” he said.

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