Vermont health care costs more than doubled since 2000. Is consolidation to blame?

Health care costs in Vermont were up 167% from 2000 to 2018, according to the state auditor, more than double the increase for all other goods and services in Vermont during the same period.

Doug Hoffer released a report Tuesday saying that if health care spending in Vermont had increased at the same rate as the U.S. average, Vermonters would have saved roughly $1 billion.

A University of Vermont Health Network critical care team conducts drive-up testing for Covid-19 at the Essex fairgrounds in Essex Junction, Vt., on Monday, March 16, 2020. Patients must be referred by their doctor to undergo testing.

“Vermont’s per person spending on health care rose quicker than rents, utility bills, and State appropriations,” Hoffer wrote. “Even when excluding expenditures for drugs, Vermonters spent 16.7 cents of every dollar on health care services in 2018, compared to 13.2 cents for U.S. residents at large.”

Vermont was second only to Massachusetts, among New England states, in per capita health care expenditures in 2018, according to Hoffer’s report, and led New England in percentage growth in spending this century. 

Hoffer said that if Vermonters had spent the same share of their income on health care services as the average U.S. resident, “they would have had more to spend on housing, groceries, child care and other basic needs.”

Convoluted systems, powerful institutions

The problem with health care spending in Vermont “appears to stem in part from convoluted systems and powerful institutions — not from the people who provide direct health care services,” Hoffer wrote in a cover letter for the report.

Median wages for Vermont health care professionals are regularly lower than other New England states, Hoffer wrote, therefore wages don’t explain why Vermont had the second highest per capita health expenditures in New England in 2018.

Doug Hoffer speaks at the Hilton Hotel in Burlington after being re-elected as Vermont State Auditor on Tuesday, November 8, 2016.

Without naming the University of Vermont Vermont Health Network, Hoffer said “dominant firms” with significantly more market share than their next largest rival can “exploit their market power to charge higher prices.”

“Prices in one-hospital markets (monopolies) are 12% higher than similar hospitals in markets with four or more rival hospitals (competitive markets)…” Hoffer wrote, citing a February 2019 study by The Quarterly Journal of Economics.

The University of Vermont Medical Center by itself accounted for 51% of all new patient revenue at Vermont hospitals between 2008 and 2019, according to Hoffer.

The medical center is part of the UVM Health Network, which also owns Central Vermont Medical Center in Berlin; Porter Medical Center in Middlebury; Alice Hyde Medical Center in Malone, New York; Champlain Valley Physicians Hospital in Plattsburgh, New York; and Elizabethtown Community Hospital in Elizabethtown, New York. 

Fewer providers, greater sway

Hoffer also addressed in his report the perilous position of private practitioners in Vermont.

Citing an analysis conducted last month by the Green Mountain Care Board, Hoffer said 82% of full-time physicians in the state were employed by hospitals in 2018. From 2011 to 2017, Hoffer reported, most new spending on medical services went to hospitals and their physician practices.

Dr. Michael Johnson, managing partner of Evergreen Family Health in Williston, as seen on Aug. 5, 2020. Johnson said the practice is under extreme financial pressure because of the coronavirus pandemic and changes to the way OneCare pays primary care doctors.

“Their annual earnings over this period grew by $671 million,” Hoffer wrote. “For every new dollar spent on health care, $0.55 went to hospitals and their physicians.”

Meanwhile, the revenue generated by independent physicians in Vermont dropped by 10% from 2011 to 2017.

“Health care services are now concentrated in the hands of fewer providers who hold greater sway over the amounts Vermonters pay for health care,” Hoffer wrote.

Is Hoffer’s analysis unrefined?

Responding to a draft of the report, the chairman of the Green Mountain Care Board said in a May 5 letter to Hoffer that when comparing per capita spending across states, there are factors other than “negotiated price” that could account for variations in spending.

“These could include issues which impact utilization, such as services covered (e.g. naturopathic services are not typically covered in other states); the uninsured rate; population demographics; and differences in reimbursement methodologies,” Kevin Mullin wrote. “In order to accurately compare per capita spending, an understanding of these confounding factors is necessary.”

The Green Mountain Care Board was created by the Vermont Legislature in 2011 to oversee all aspects of health care in the state.

Kevin Mullin, chairman of the Green Mountain Care Board, as seen on December 21, 2017.

Mullin said he was concerned Hoffer’s analysis was not “sufficiently refined” to tease out the impact of hospital consolidation in Vermont over time, “separately from other factors.”

“Vermont, like most rural areas, is characterized by limited competition in its hospital system,” Mullin wrote.

Mullin noted that the board is conducting a study on price variation in Vermont that will take 18 months to two years to complete, in order to ensure “that we have validated the data and done a sufficiently nuanced analysis to draw conclusions.”

Hoffer responded that by the time the study is complete, it will be nearly 10 years since the Green Mountain Care Board began exploring the issue of price variation.

Contact Dan D’Ambrosio at 660-1841 or ddambrosio@freepressmedia.com. Follow him on Twitter @DanDambrosioVT. This coverage is only possible with support from our readers. Sign up today for a digital subscription.