Porter Hospital, Inc.



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Porter Hospital, Inc. A Subsidiary of Porter Medical Center, Inc. Middlebury, Vermont 05753 (802) 388-4701 July 2,2012 Michael Davis Director of Health System Finances Green Mountain Care Board 89 Main Street - 3 rd Floor Montpelier, Vennont 05620-3101 Dear Mike: In Fiscal Year 2012 Porter Hospital instituted two significant changes that have impacted our inpatient census, charge capture and our Information Technology expense. The first is that we contacted with Apogee, Inc. to establish a Hospitalist Program at Porter Hospital, effective October 1, 2011. This program was approved in our 2012 budget submission. The most significant change in our admission process was a quick response by the Hospitalist to evaluate the patient presenting in the Emergency Department. This resulted in reduced transfers to other facilities and more admissions to Porter Hospital and a more positive experience for our patients and their families. Increases in our admissions, patient days and inpatient Emergency Department revenue are evidence of the success of the Hospitalist Program. The second major change is the installation of the Meditech computer software program for all aspects of our business. The financial areas, as well as patient care areas are implemented. The physician practices are on an implementation schedule and all practices will be on-line by the end of calendar year 2012. This Meditech project, as you know, has a budget overrun of $2.6 million, which, of course, has affected our cash position. However, the implementation of this system has improved our charge capture in many areas and provided many reports that are helping us improve quality, as well as financial perfonnance.

Mike Davis June,2012 Page 2 Porter Hospital's submission of its 2013 Budget includes "exemptions", which are summarized below: CON/EMR Expense: Depreciation Non-salaried expenses Salaries - wages & benefits $2,314,000 709,414 230,620 CON Related Expense - Subtotal $3,254,034 Expansion of Primary Care Network $852,800 Increase in Provider Tax (estimate) $190,662 Outside staff to provide 1 : 1 watch for psychiatric patients in the Emergency Department $62,400 ICD-10 Readiness training $95,000 TOTAL $4.454,896 These exemptions are added to the 3.75% increase over our Budget 2012 NPSR of $2,317,736, which brings our requested increase to $6,772,632 or 5% to our rates. The ability to cost shift is becoming more limited as we move forward. With a smaller base to absorb the required increase, the rates need to increase by a higher ratio. Therefore, the rate increase truly affects a small portion of the payers. The CON related expenses are detailed in Exhibit A. The Expansion of the Primary Care Network consists of3.35 Physicians;.4 Nurse Practitioners and 5.0 support staff. (See Exhibit B). Please note that the addition of 5.0 support staff to 3.75 Physicians is below the average support staff: physician ratio as published by MGMA The investment in the expansion of the Primary Care Network will have a positive effect on the overall health of the community. This expansion is in keeping with the goals of lowering health care costs by providing care in the physician's office not in the Emergency Room or other healthcare settings. These investments in the Primary Care Network are in conformance with the goals of the Blueprint and are necessary to optimize the Blueprint's objectives.

Mike Davis June, 2012 Page 3 The shortage of psychiatric beds since the closure of the Vermont State Hospital in Waterbury has caused a crisis in the Emergency Department. Patients who require admission to a psychiatric bed are often held in the Emergency Department awaiting placement. We are requesting $62,400 for outside staff to provide 1: 1 watch for these patients. As you know, ICD-lO is coming into effect on October 1,2014. In order to prepare for this major change, Porter intends to have its systems reviewed and have a project implementation plan rolled out. The estimated costs are listed as an exception. In addition to these costs, the Community Health Team costs are added to "Outpatient Routine Services" on the enclosed schedules. The corresponding income is reflected in operating income. A brief overview of the schedules is submitted on Exhibit C. If you should have any questions relative to this submission please feel free to call me at 802 388-4752. Thank you. Sincerely, ~~~22f:1 Chief Financial Officer cc: M. Del Trecco (VAHHS)

Exhibit A FY 2013 PORTER HOSPITAL BUDGET CON Expenses Depreciation - See Exhibit A-I $2,314,000 Non-Salaried Expense Meditech maintenance / licensing fees Medhost maintenance / licensing fees LSS fees - 55 Providers @ $750 each Data Center maintenance / licensing fees Fiber optic lease to 4 Physician Practices (Bristol, Little City, Neshobe & Tapestry) Less savings: Service Fees Transcription Fees TOTAL $95,580 $199,284 $41,250 $531,900 $182,400 ($90,000) ($251,000) $709.414 Salary and Wage Expense Salaries: 1.0 FTE Network Engineer.5 FTE Network Informatics 2.0 FTEs Scanning for Physician Offices 3.5 FTEs Total Salaries Benefits TOTAL $90,000 $25,000 $62,400 $177,400 $53,220 $230.620

Exhibit C FY 2013 PORTER HOSPITAL BUDGET Explanation of Large Variances Schedule 8 - Patient Care Revenue Total Patient Care Revenue for FY 2013 increased 12.4% from FY 2012 budget. Inpatient: As stated in Schedule 14, acute care admissions increased by 124 and days increased by 648. As previously stated, this is a direct result of the Hosptialist Program. Inpatient ancillary services increased by 8.2%; acute admissions increase by 8.3% and the acute days increased 14.0%. Outpatient: The overall increase is 12.2%. The significant changes are addressed below: - Operating Room Revenue - The Meditech System is now capturing the revenue that is generated. Previously, the manual system missed many charges. - EKG - This captures all Cardiology Department testing. Increased patient volume plus revenue mapping changes (i.e., Nuclear Medicine decreased 18.4%). - Rehabilitative Services - Budget 2012 was in error. Schedule 11 - Expense Summary It is the intention to grant all employees a 2% increase effective October 1, 2012. General Services: - Fiscal Services - Incorporates the costs incurred from the CON - Exhibit A. - Maintenance of Personnel- Reclass of expense from Fiscal to this category. - Operation of Plant - Maintenance costs and building upkeep have increased significantly. - Nursing Administration - Increase in FTEs assigned to this department. - Medical Records - Transfer of 2.0 FTEs from Fiscal to Medical Records. These individuals were performing Medical Records tasks while working in Patient Financial Services.

Routine Services: - Medical/Surgical - Increase in Physicians due to Hospitalist Program. Budget 2012 was inadequate. - Non-Physician Salaries - Increased staff. New hires brought in at higher rate of pay. - Physician Practices increased due to increased staffing (see Exhibit B). - Community Wellness - The Community Health Team is recorded here and was not budgeted in 2012. Ancillary Services: - Emergency Room - Increased non-salary costs due to maintenance agreements on Medhost software (See Exhibit A). - Radiology - Increased volume/revenue. - Laboratory - Increased volume/revenue. - EKG - Increased volume/revenue. - MRI - Increased volume/revenue. Schedule 16A FTE increase Budget 2012 to Budget 2013 is 28.7. The increase consists of: General Services: - Community Health Team 7.5 - CON Staff Increase (Exhibit A) 3.5 - Security Function - required to meet safety/security regulations 1.0 - Plant Operations - offset against Purchased Services 1.0 - Transfer from Pharmacy to Admin.5 - IT Support in Finance Areas 1.2