Officials warn Vermont hospitals face widespread financial distress; report and Act 167 set transformation agenda

Representative Jessica Holmes, a member of the legislative committee, told lawmakers that an Oliver Wyman analysis shows most Vermont hospitals will face financial losses if current trends continue and urged an urgent, statewide redesign of how care is delivered and paid for.

The report, and months of community engagement summarized by Holmes and by the Agency of Human Services (AHS), laid out a three-part urgency: immediate short-term steps to preserve access, medium-term planning to reallocate services regionally, and longer-term structural change to make the system financially sustainable and equitable. Holmes said, “We cannot wait to do hospital system transformation. The current system is failing to meet our needs and inaction is an action.”

Why it matters: Committee members and AHS officials said the state’s mix of rising costs, an aging population and a shrinking commercial insurance base make the current portfolio of 14 hospitals financially untenable without change. Holmes summarized Oliver Wyman’s forecast as showing “basically all but 1 hospital, if things continue as they are, will be in the red, some deeply by 2028,” and warned that service-line cuts and closures would disproportionately affect vulnerable, rural communities.

What the report and committee discussion recommended: Oliver Wyman’s executive summary, described during the meeting, urges an “intentional redesign” of the hospital system. Key proposals discussed included: creating regional centers of excellence for specialized services to capture economies of scale; expanding primary care, mental health and long-term care capacity (the report projects a need for up to 4,000 additional long-term care beds over 15 years); investing in emergency medical services and transportation so patients can reach regionalized specialty centers; and developing hospital-at-home and other lower-cost settings to reduce expensive inpatient care. Holmes said the report also calls for work to lower administrative costs and improve clinical productivity at larger specialty hospitals.

Payment and federal negotiations: Agency of Human Services Director of Healthcare Reform Brendan Krause described parallel work on payment reform and implementation planning. Krause said the state is negotiating a federal demonstration known as the AHEAD (all-payer) approach, and that on a recent Friday the state signed an executive agreement committing to participate in cohort 2 of that model. He said the AHEAD model is not a perfect fit for every statutory aim but can pair payment tools (including multi‑payer global hospital budgets) with targeted investments in primary care and behavioral health.

Krause summarized the state’s transformation goals: “Our vision for health reform is that Vermonters will have the right care at the right time, at the right place, at a price they can afford.” He told committee members that the AHEAD agreement would create a flexible Equity, Access and Statewide Transformation Fund (EAST Fund) to support provider stabilization and investments in community‑based services if implementation proceeds.

Numbers and community input: Holmes and AHS staff described an extensive engagement process. Oliver Wyman and the state reported more than 3,000 people contacted across two phases of public meetings, with average attendance around 68 for in‑person meetings, and roughly 120 written public comments informing the analysis. The Oliver Wyman report itself is 144 pages and was developed with analytic support from Mathematica, the presenters said.

Estimates presented to the committee included an early projection that, had the program begun in 2026, the EAST Fund could have added roughly $140 million to Medicare baseline spending in year one; AHS noted year‑to‑year figures for a later start date (for example 2027) are likely to differ and were not finalized at the meeting. Holmes and Krause repeatedly warned that federal policy — including potential changes to ACA premium subsidies and Medicaid funding — could shorten the state’s implementation window and worsen hospital finances.

State actions and technical assistance: AHS said it is already providing technical assistance and planning support to hospitals and community providers. Krause said AHS has contracted with the Rural Health Redesign Center to support transformation planning, and that the state will launch a hospital peer‑to‑peer learning collaborative and a dashboard to track quality, equity and financial indicators. He also said short‑term stabilization funding (including $10 million emergency grants referenced during the meeting) and other state steps are underway to support FQHCs, skilled‑nursing facilities and primary care while transformation planning continues.

Concerns and tradeoffs raised by committee members: Lawmakers asked how to avoid ‘‘stunting’’ care (reducing necessary services) under any capitated or global payment model and how to preserve essential services in rural communities that rely on hospital revenue from high‑margin service lines. Holmes said measurement of access and quality will be essential, and Krause said the state is developing new access and equity measures with contractors to monitor for unintended reductions in care. Multiple members urged immediate short‑term action to prevent closures while the state completes longer planning.

Next steps: AHS said it will continue transformation planning, technical assistance to hospitals, and negotiations with federal partners. The agency expects to develop short‑term, mid‑term and long‑term transformation plans informed by feasibility analyses and community engagement. Krause and Holmes urged lawmakers to read the full Oliver Wyman report and to participate in upcoming technical briefings.

The session produced no formal vote. Several committee members requested follow‑up briefings and more detailed timelines for metrics, funding allocations, and the statewide transformation work that AHS and the Green Mountain Care Board will coordinate.