Vermont's hospitals have kept their budgets under control and are proposing only modest increases for next year, state health officials said, signaling a step in the right direction for controlling the cost of care.

And yet, the state-approved maximum rates that hospitals can charge for care are rising at a faster pace.

Net-patient revenue — the money that hospitals collect for treating patients, minus certain deductions for things like charity care — is projected to increase 4.6 percent among Vermont's 14 hospitals for the fiscal year that begins on Oct. 1, according to the Banking, Insurance, Securities and Health Care Administration, which oversees hospital finances in Vermont.

Adjusting for the provider tax on hospitals, and the increase comes to just 3.8 percent, far lower than the 7.2 percent average budget increase over the past five years.

Unlike New Hampshire, Vermont regulates hospital finances and must sign off on each hospital's budget, as well as the maximum amount that hospitals are allowed to raise their rates for services.

BISHCA Commissioner Steve Kimbell welcomed the trend as a step toward lowering the cost of health care in the state. He said it reflects the hard work between his department and hospitals to help control costs.

"I think they (hospital officials) heard what we were saying," Kimbell said in an interview this week, "and came in where we wanted them to come in."

Still, the rates that hospitals are allowed to charge for care are going up at a faster pace than their budgets. System-wide, the average rate increase will be 6.5 percent for next year. That's up from a 5.45 percent increase for the current fiscal year and 5.9 percent in 2010.

Among all hospitals, only two — Mount Ascutney Hospital in Windsor and Southwestern Vermont Medical Center in Bennington, Vt. – – asked for a lower rate increase than the previous year. Mount Ascutney was the only hospital that expects net patient revenues to drop in fiscal year 2012.

As health officials talk about the importance of lowering health care costs for patients, the state-approved rate increases often get a lot of attention. But Kimbell said they are of secondary importance.

"The real number of importance to us is the patient revenue number," he said. "If you want to look at the cost of the hospital system, the way to measure it is the green dollars coming in through the door."

In today's complex world of hospital finances, the rate increases are more like a backstop for hospitals, representing the full price increase that a hospital can add for services.

No one willup paying the actual rate hospitals charge unless the patient pays out of pocket, Kimbell said. Commercial insurance payers typically negotiate a lower price than the rate hospitals charge for care. Government payers, such as Medicare and Medicaid, also establish their own reimbursement levels that are lower than full price.

Still, consumers, hospitals and regulators need to take any adjustment in hospital rates seriously, according to consumer advocates.

"Even if people don't pay these exact rates, they influence rates," said Judy Dugan, research director at Consumer Watchdog, a California-based advocacy organization that has been watching health reform efforts around the nation.

Hospital officials say they do, indeed, take seriously any adjustments in the prices they set for care.

"We always try to make sure our rate increases are very modest," said Joe Woodin, chief executive officer at Gifford Medical Center in Randolph. "We're trying as best as we can to control our costs over time."

Gifford's rate increase of 7 percent was just above the system- wide average of 6.5 percent for next year, according to BISHCA. Its net revenue increase, meanwhile, is projected to increase 1.9 percent, which is far less than the average.

Hospital rates typically are set at theof the budget process, when hospitals estimate what their patient volumes are likely to be and then figure out how much of an increase in the rates they'll need — if any — to make up the difference.

Changes in the payer-mix (e.g. more Medicare patients, uninsured, etc.) as well as declining patient volumes have contributed to how hospitals are shaping their budgets and rates for next year.

Mount Ascutney Hospital in Windsor was the only hospital in Vermont for which net patient revenue is expected to decline next year, and was only one of two hospitals to ask for a smaller rate increase than the prior year.

Net patient revenues at Mount Ascutney are expected to drop 3 percent next year, according to the budget it submitted to the state. It was approved for a 3.5 percent rate increase, which is significantly less than the 6.5 percent increase it got for the current year.

"We're trying really hard here to keep our costs down and limit our prices," said Wayne Bennett, chief financial officer at Mount Ascutney. "We don't want to keep raising our prices, so what we chose to do was control our costs."

The hospital has seen rises in the number of Medicare and Medicaid patients, programs that reimburse at lower rates than the actual cost of care. It has also done more charity care. The rise of those underinsured or uninsured patients has thus negatively affected the hospital's bottom line.

Ascutney has reduced staff through attrition and layoffs. This spring, it cut 20 full-time positions, or roughly 6 percent of its workforce, according to the budget proposal submitted to the state.

Additional reductions are expected. It plans to trim its workforce by about four full-time workers through attrition next year, although no layoffs are expected, Bennett said.

Gifford has not needed cut staff, though it has kept careful watch of compensation, benefits and employee overtime, Woodin said.

The hospital has restructured some responsibilities for employees and tried to prepare itself for changes to health care that are coming at the state and federal levels.

"We have to look and say, if our work is going to get fundamentally changed… how can we position ourselves to make sure we're not going to get caught in a disconnect," Woodin said.

This is the last year that BISHCA will oversee the hospital budget process. The newly appointed Green Mountain Care Board will take the reins next year as part of Vermont's new health care reform law. The board is responsible for creating the country's first single-payer health care system.

As Vermont implements the heath reform law passed earlier this year, Dugan of Consumer Watchdog said it would be important to clear up questions over rate setting, budgets and other regulatory issues. Open access to information would be key for consumers to make informed choices about where they seek treatment. "You can't run a single-payer system without full-blown transparency," she said.

Chris Fleisher can be reached at 603-727-3229 or cfleishe [email protected]