Hospitals Need to Trim Administration Fat
Vermont needs to move more quickly to get hospital corporations in the state to eliminate administrative management positions and focus on managing to reduce direct clinical costs.
By Bill Schubart
For The Record
In the technocratic, financial, and political morass that characterizes modern healthcare, it’s vital that society and its authorized regulators find a fair and consistent metric to evaluate the quality and effectiveness of its hospitals and integral healthcare systems.
Of the many indicators currently in use, most are diagnostic rather than prescriptive. For example: Dividing a hospital’s total budget into labor costs spent delivering direct patient care (clinical) and labor costs spent on bureaucracy (administration, management and overhead) provides an analysis of how bloated a system is and demonstrates the need to manage and limit hospital revenue as it relates to operating expenses. But it doesn’t provide a means of setting a corrective goal and functional path to cost-efficiency.
An egregious example of administrative bloat here in Vermont is evident in the University of Vermont Medical Center’s (UVMMC) 60 vice-presidents earning between $300,000 and $600,000 annually, each of whom has between three and 27 staff members reporting to them. It appears that just four of the 60 positions are related to direct patient care. Total current cost of these VP positions now exceeds $23M as shown in the FY 2024 990s filed by the UVMHN/UVMMC/UVM Medical Group. With the addition of $10M in salaries paid to the Medical Group’s board members, the total expenditure for paid administrative leadership reaches $33.4M.
It’s important to note that this data is intrinsic to prior leadership under Dr. Sunny Eappen, who on Jan 5, 2026, was replaced by Dr. Stephen Leffler, a resident of Hinesburg and president of the consolidated UVMHN/UVMMC/UVM Medical Group. As the new head, Leffler has committed to bring operating expenses to the goal of “managing to Medicare” … but within five years.
“Managing to Medicare” is the most promising formula for controlling costs while offering a path to population health – quality, affordability, and access. It simply means that a hospital commits to managing admin and management expenses so they can break even on what Medicare pays for a clinical procedure. It's a way to manage non-clinical expenses. Several systems have used it successfully to manage growth in operating expenses without negatively impacting their mission to provide direct patient care.
Hospitals typically complain that Medicare doesn’t pay enough to cover their costs – the implication being that costs of direct patient care aren’t covered – when, in reality, further analysis shows they’re attributing all costs, including administration, management and overhead to “direct patient care.” This is the underlying cause of budget-bloat.
Medicare payments are determined by the Center for Medicare and Medicaid Services (CMS) in a defined and transparent process that can vary with zip code. The goal is to adequately reimburse cost-efficient hospitals for their work. CMS sets appropriate reimbursement rates for physician services, medical devices, and pharmaceuticals based on regular assessments of actual cost. As a rural state with an aging population, Vermont is paid more than the national average, some $9,396 per case, the ninth highest in the U.S. as reported on page 11 of the Healthcare Resource Allocation Plan (HRAP) report to the Green Mountain Care Board (GMCB).
Based on factual data for FY2023, as reported by Rees Partners, it’s distinctly possible to manage Medicare reimbursements – some 73 of 103 academic medical centers, adjusted for similar discharge rates and acuity, actually either break even or make a modest profit on Medicare reimbursements. The average margin for those 73 hospitals was $5,000 per case. It can be done and, as such, makes the concept of managing to Medicare an appropriate regulatory guideline, as well as an appropriate management tool for hospitals looking to maximize cost-efficiency and deliver on the mission of population health.
Vermont Healthcare 911 recently held a regional webinar on Reference-based Pricing that brought together national experts:
Marilyn Bartlett presented an overview of Montana’s experience
Margaret Smith gave an overview of Oregon’s successful experiment with RFB
Brown University’s Center for Advancing Healthcare Policy Research’s (CAHPR) report commissioned by the Green Mountain Care Board on Reference-Based Pricing
There’s more detail here than the average reader is going to delve into, but the reports above give crystal-clear guidance to healthcare policy professionals on the wisdom of using “managing-to-Medicare” as a goal.
By way of example: If UVM Medical Center Hospital (UVMMC) were to simply begin by managing to 250 percent of Medicare reimbursements, it would save some $278M annually. If it were to be more restrictive and manage to 200 percent of Medicare, it would save $445M in the first year. UVMMC managing to Medicare during FT2024 would have saved $12,943 per Medicare discharge or $273M on 21,056 discharges which accounts for 12 percent of its operating expenses.
If the Green Mountain Care Board (GMCB), The Vermont Agency of Human Services (AHS), the Legislature’s House Committee on Healthcare, and, more broadly, Vermonters align themselves with the idea of managing over time to this simple, transparent metric, we can reach the goal together of achieving a quality, affordable and accessible healthcare system for all Vermonters.
Bill Schubart is retired businessman who lives in Hinesburg and has served as a leader on numerous public boards and commissions during his career. As full disclosure, he currently serves on the board board of VHC911.org