Permit reform and Act 60 reform continue to dominate the session. The House and Senate have passed bills aimed at both of these hot button issues. Conference Committees are in the process of hammering out the differences in the House and Senate passed versions of these bills. At this point, it looks as if the conferees will be able to come up with proposals on both of these bills that Governor Douglas can sign.

One large wrinkle in all of this is that the Senate-passed Act 60 reform bill includes a proposal to institute an income tax surcharge of 1.5 percent of Vermont income tax liability in order to fill the $6 million hole in the FY 04 budget. The surcharge would take effect on January 1, 2004, assuming the July 2003 state revenue forecast doesn't significantly improve enough to fill the revenue gap without the income tax surcharge. Governor Douglas is opposed to using the income tax as a revenue source.

It is worth noting that there was some good news regarding the state's fiscal outlook this week. The state's general fund is $15.8 million ahead of its $726 million target. Meanwhile, the transportation fund collected $3 million more than expected and the education fund's non-property tax receipts were $1.4 million higher than earlier targets. It is too early to tell if these increased revenues will continue.

At his weekly State House press conference, Governor Douglas responded to the news that Fletcher Allen Health Care (FAHC) plans to layoff 50 people and reduce salaries for 80. Governor Douglas said the hospital reported losses in its last two quarters and needs to take action now to get the institution back on a sustainable track. The Governor supports the decision acknowledging Fletcher Allen as a very important institution as both a critical health care provider and an employer. Governor Douglas pointed out that a number of other hospitals around the region are also experiencing financial trouble. He said the Banking Insurance Securities and Health Care Administration (BISHCA) is examining both the size and scope of FAHC's controversial renaissance project as part of an amended CON application pending before the agency. Governor Douglas said he plans to leave the final CON decision up to BISHCA Commissioner John Crowley and currently has no plans to inject himself into this regulatory matter.

Issues of interest to VAHHS addressed this week include:

FY04 Budget Bill (H.464)

Medicaid is turning out to be the biggest legislative issue for hospitals this session, possibly more significant than the certificate of need (CON) and hospital regulation issues contained in H.128, the CON bill. This is particularly true in light of the Governor's surprise announcement a few weeks ago to raise the hospital provider tax. The conference committee on the FY04 budget bill spent a great deal of time this week discussing Medicaid, especially the increased hospital provider tax and how the money generated by the tax will be spent. Due to the fact that the state did not receive a $2 million federal waiver involving the State Children's Health Insurance Program (SCHIP) and other pressures on the Medicaid budget, conferees are looking for money to enable the Medicaid program to transition from co-payments and deductibles to premiums. The nearly $22 million in new funds (including the tax plus the federal match) put on the table by the Governor's hospital provider tax proposal are being eyed by the conferees as an attractive source of additional funds. The outcome of this debate regarding the provider tax is still very much in doubt.

As you may recall, Governor Douglas's proposal is to increase the provider tax by one percent to raise a total of $8.6 million in new revenue. Of that total, $4.8 million in increased provider tax receipts (with federal match of $7.5 for a total of $12.1 million) would be distributed to hospitals in the form of increased Medicaid reimbursement rates. Under the Governor's proposal, the remaining approximately $3.8 million (with a federal match of approximately $6.1 for a total of $9.9 million) is to go toward reducing co-payments and deductibles that currently existing in the Medicaid program. A recent memo from the State's Office of Vermont Health Access estimates that eliminating all co-payments and coinsurance for all providers would cost approximately $9.3 million for FY04.

A few proposals that the conference committee considered this week would have reduced the overall amount of funds hospitals would receive under the proposal announced by Gov. Douglas. For example, one proposal was to use $10.3 million of the provider tax funds ($3.9 state funds with $6.4 million federal match) to increase Medicaid reimbursement rates to hospitals. This proposal would require that VAHHS use the the foundation that it set up to distribute DSH payments to "redistribute" the funds so there would no longer be any "winners" and "losers" because each hospital would get 20 percent net above the increased provider tax they paid. VAHHS reviewed this proposal but could not accept it based primarily on federal law requirements related to the provider tax and the foundation.

VAHHS continues to work closely with the conferees and the Douglas Administration to find a solution that is equitable to all hospitals and meets the requirements of federal law.

Fee Bill, Provider Taxes (H.472)

On Friday, May 16, 2003, the Senate gave its preliminary approval to H.472, the miscellaneous fee bill. H.472 contains the language to increase the provider taxes for hospitals, home health agencies and nursing homes.

The provider taxes for hospitals will be increased by one percent above that rate originally proposed in the House, namely from 3.25 to 4.25 percent of net patient revenues, less chronic, skilled and swing bed revenue, for the period July 1, 2003 to July 1, 2004, and from 3.04 to 4.04 for the period July 1, 2004 to July 1, 2005. The extra approximately $8.6 in revenue from these taxes is expected to be used to increase hospital Medicaid payments and replace co-payments and deductibles under Medicaid with premiums as proposed by Governor Douglas. The Brattleboro Retreat will be in a newly created category of "mental hospital or psychiatric facility" and will be taxed at 3.80 percent.

The Senate version of H.472 also increases the provider tax on home health agencies by one percent (from 15 percent of net operating revenues to 16 percent) as compared to the House passed version of the bill.

The Senate proposal makes no changes to the provider tax for nursing homes as proposed by the House ($3,388.25 per bed). However, the Senate added language that directs the Agency of Human Services to communicate with the Center for Medicare and Medicaid Services on the potential of obtaining a waiver that would permit the agency to exempt Wake Robin, Merten's House and The Arbors from paying the nursing home bed tax. These facilities currently pay the tax but do not get any tax back in increased Medicaid reimbursement rates because they do not accept Medicaid.

All these provider taxes will sunset on July 1, 2005. H.472 is on the Senate Calendar for final approval on Monday, May 19th. No further changes to these provider tax rates are expected on the Senate floor.

Hospital Regulation, Certificate of Need (H.128)

H.128, the CON bill, passed the Senate this week. One amendment offered by Sen. John Bloomer, R-Rutland, and Sen. Peter Welch, D-Windsor, proved to be controversial. The amendment would have deleted the requirement that if the commissioner's decision on a CON is contrary to the recommendation of the public oversight commission, that on appeal, the commissioner would have the burden on establishing the grounds for the decision by a preponderance of the evidence. The House-passed version of the bill had an even higher standard for the commissioner to meet -- clear and convincing evidence. This amendment was ultimately withdrawn because the proponents realized they didn't have the votes to pass it on the Senate floor and they would have a better chance of resolving the issue in a conference committee. A conference committee has been requested to work out the differences between the House and Senate versions of the bill. House conferees are Rep. Tom Koch, R-Barre, Rep. Anne Donahue, R-Northfield, and Rep. Bill Keogh, D-Burlington. Senate conferees have not been appointed yet but are likely to include Senate Health and Welfare Committee Chair Sen. Jim Leddy, D-Chittenden. The bill as it passed the Senate.

Anesthesiologist Assistants (S.144)

S.144, the bill that authorizes the Medical Practice Board to certify anesthesiologist assistants in Vermont, is on its way to the Governor's desk. The House passed the bill early in the week then sent it over to the Senate. The Senate decided to accept the House version of the bill rather than ask for a conference committee VAHHS supported the House-passed version of the bill because it made improvements to the Senate-passed version, including on amendment involving licensing of residents at FAHC. By not asking for a conference committee it also ensured the bill would not get caught up in end of session politics. The Governor is expected to sign the bill. The bill as it passed the House and Senate.

Agency of Human Services Reorganization (H.450)

On Friday, May 16, the Senate did an about face on H.450, a bill that authorizes the Secretary of the Agency of Human Services to restructure the agency. The Senate initially voted to ask for a conference committee on this bill, but then reconsidered its action, and is now considering simply sending the bill back to the House with a further proposal of amendment. That amendment involves the membership of a legislative oversight committee that is proposed to oversee the agency reorganization. The bill is on the Senate Calendar for final approval on Monday, May 19th.

Long Term Care Waiver

Patrick Flood, Commissioner of the Department of Aging and Disabilities, testified before the House Health and Welfare Committee on Thursday, May 15, to describe the 10 year long term care plan his department recently released entitled "Shaping the Future of Long Term Care." The Commissioner summarized the plan which calls for bringing the ratio of community waiver slots to nursing home beds to 40/60 in all counties where that ratio has not yet been achieved, including Bennington, Caledonia, Lamoille, Orleans, Rutland, Washington, Windham and Windsor. Bennington's ratio is the furthest from that goal at 10/90. That ratio has already been achieved in Addison, Chittenden, Franklin, and Orange counties. While the plan offers few details on how this ratio will be achieved, the department is currently developing a proposal for an 1115 waiver that they hope to submit in the fall. Overall, Commissioner Flood expects the plan will reduce the need for nursing home beds by 50 a year between now and 2010. The Commissioner stated that the Department would work with each community individually to develop a plan to achieve the 40/60 ratios while ensuring that options are available across the long term care continuum of care. The Commissioner stated that he does not expect any nursing home closures as the result of this plan and that he is working with individual nursing homes to convert unused beds to other purposes.

Based on a model developed by the Lewin Group, the plan projects the need for services for Vermont's elderly to increase as the population ages, but not until the oldest baby boomers (those born in 1946) reach age 75 in 2020, peaking in 2030 after the oldest baby boomers turn 85. The plan will be updated annually, always projecting forward ten years.

The report does not directly address the growing numbers of short-stay nursing home residents, usually covered by Medicare, who are using rehabilitation and other skilled nursing facility services prior to being discharged home, nor does the report address the potential impact on hospitals should skilled nursing facility beds become scarce.

During Commissioner Flood's testimony, members of the House Health and Welfare Committee raised concerns that the plan had neither been shared with them nor with the nursing home and hospital associations prior to its release. Commissioner Flood agreed to be more inclusive as he pursues the 1115 waiver. Some members of the committee, particularly Representative Tom DePoy, R-Rutland City, questioned the assumption that community-based care is less expensive than nursing home care, and asked for a detailed accounting of this comparison that highlights all costs to state government to providing community-based services, not just direct Medicaid costs. The Commissioner agreed to do so. Other members of the committee, including Representatives Tom Koch, R-Barre, and Kinny Connell, D-Waitsfield, appeared more concerned about increasing consumer choices. Rep. Koch, who chairs the committee, said he plans to spend more time next year on long-term care issues.