Administrative Deference & Severability of Ultra-Vires Conditions: The Vermont Supreme Court’s Decision in “In re Rutland Regional Medical Center Fiscal Year 2025”

Introduction

On 14 August 2025, the Vermont Supreme Court handed down 2025 VT 49, In re Rutland Regional Medical Center Fiscal Year 2025. The appeal pitted The Rutland Hospital, Inc. d/b/a Rutland Regional Medical Center (“RRMC”) against the Green Mountain Care Board (“GMCB”), the agency charged with regulating hospital budgets and controlling health-care costs in Vermont. RRMC challenged two aspects of the GMCB’s order approving its Fiscal Year 2025 (“FY25”) budget:

the Board’s decision to grant only a 5.0 % increase in Net Patient Revenue (“NPR”) instead of the requested 6.1 %,
a footnote that effectively cut RRMC’s approved commercial rate increase from 2.8 % to 1.2 %, based solely on a separate FY23 budget-enforcement proceeding.

The Court affirmed the Board’s NPR determination—emphasising broad administrative discretion—yet struck the embedded 1.6 % reduction, holding that a condition derived from a separate enforcement order that was later reversed could not stand. The decision thus cements two complementary principles:

High deference to the GMCB’s fact-intensive rate-setting judgments, so long as the Board articulates a reasoned basis tied to statutory criteria;
Ultra-vires or procedurally defective conditions are severable and unenforceable, even if the substantive budget approval is otherwise valid.

Summary of the Judgment

Chief Justice Reiber, writing for a unanimous Court, delivered four major holdings:

The GMCB did not abuse its discretion in approving a 5.0 % NPR growth cap. The Board’s findings on RRMC’s financial condition, cost-shifting capacity and statewide benchmarks supplied an adequate rationale under 18 V.S.A. § 9456(d).
Reducing the NPR request does not violate statutory mandates to preserve access to care; the Board must balance access with cost containment.
The footnote (No. 27) purporting to lower RRMC’s commercial increase to 1.2 % relied exclusively on a FY23 budget-enforcement order that was later overturned in the Superior Court. Because the enforcement order “is now final” and adverse to the Board, the footnote had no lawful foundation.
Accordingly, Footnote 27 was struck; the remainder of the October 1, 2024 order stands.

Detailed Analysis

A. Precedents Cited & Their Influence

In re MVP Health Insurance Co., 2016 VT 111 – Established that administrative decisions are reviewed for abuse of discretion and must be explained with reference to statutory standards. The Court applied this yardstick to the GMCB’s NPR decision.
In re Northwest Medical Center Fiscal Year 2024, 2024 VT 39 – Provided background on the hospital budget-review process, cited to contextualise statutory duties.
In re Continental Telephone Co., 150 Vt. 76 (1988) – Analogised the imprecision inherent in rate-setting, supporting the Court’s reluctance to second-guess the Board’s “balancing” function.
In re Citizens Utilities Co., 171 Vt. 447 (2000) – Reinforced the “zone of reasonableness” approach; the Supreme Court checks that the Board considered relevant factors but does not reweigh them.
Permian Basin Area Rate Cases, 390 U.S. 747 (1968) – Quoted indirectly to illustrate deferential review of economic regulatory decisions.

These authorities collectively buttressed a doctrine of deference, provided that the agency makes explicit findings mapped to statutory factors.

B. Legal Reasoning of the Court

1. Adequacy of the 5.0 % NPR Cap

RRMC alleged arbitrariness, asserting the Board “picked 5.0 % out of thin air.” The Court disagreed, citing:

RRMC’s relative financial strength (strong days cash on hand, positive asset-to-liability ratio).
A 20-point gap in Medicare payment-to-cost ratio compared to peers, implying room for internal cost reductions.
Persistent operating expense overruns since 2021.
The 5.0 % figure still exceeded the statewide 3.5 % benchmark, evidencing compromise rather than penalty.

Given these findings, the Court found a “reasoned nexus” to § 9456(d)’s mandates of quality, access, and cost containment.

2. Alleged Conflict with Access-to-Care Mandates

RRMC argued that a lower NPR increase would force service cuts contrary to 18 V.S.A. § 9371. The Court read §§ 9371(1), (2), (10) as co-equal objectives—access must be balanced against affordability. The Board remained within its “difficult” discretion.

3. The Fate of Footnote 27

The contested footnote imported a 1.6 % reduction “as explained in this Board’s forthcoming Budget Enforcement Order for RRMC.” Eight days later, that enforcement order was indeed issued—but months later it was invalidated in Superior Court for violating the Vermont Administrative Procedure Act (“VAPA”) contested-case requirements. Because the Board declined to appeal, that judgment became final. Consequently:

“The language of footnote 27 … is based solely on the budget-enforcement order, which has been reversed … we strike that footnote.” — ¶ 16

The Supreme Court therefore restored the 2.8 % commercial cap and emphasised severability: an otherwise lawful budget order can survive once an illegal condition is excised.

C. Impact of the Decision

Clarifies Deference Standard – The ruling reinforces that Vermont courts will not substitute their economic judgment for the GMCB’s if the Board (i) cites statutory criteria and (ii) provides record-based findings.
Signals Procedures for Enforcement Actions – By invalidating a condition resting on a procedurally defective enforcement order, the Court indirectly reaffirms that the GMCB must use VAPA-compliant contested-case processes when imposing retrospective penalties or adjustments.
Practical Effect on Hospitals – Hospitals can expect aggressive scrutiny of NPR growth but may feel empowered to challenge Board actions that fail to follow proper rule-making or contested-case procedures.
Policy Balance – The decision sketches a constitutional balance between cost control and access, guiding future Board orders and legislative refinements.

Complex Concepts Simplified

Net Patient Revenue (NPR): The money a hospital actually collects for patient care after accounting for contractual deductions, bad debt, etc. Think of it as “take-home pay” for hospitals.
Commercial Negotiated Rate Increase: The aggregate percentage raise in prices that a hospital can charge private insurers. It excludes Medicare/Medicaid government rates.
Medicare Payment-to-Cost Ratio: For every dollar RRMC spends treating Medicare patients, how much Medicare pays. A ratio far below peers suggests either inefficient costs or under-coding of services.
Budget Enforcement Order: A separate proceeding where the Board disciplines a hospital for exceeding an approved budget, potentially through future budget offsets or rate reductions.
Vermont Administrative Procedure Act (VAPA) Contested Case: When an agency determination affects specific parties’ rights, it must afford notice, an evidentiary hearing, and written findings—much like a mini-trial.
Severability: A court may excise the unlawful portion of an administrative order while preserving the remainder if the two are independent.

Conclusion

The Vermont Supreme Court’s decision in In re RRMC FY25 is a dual clarion call. First, it accentuates the judiciary’s deference to the Green Mountain Care Board’s cost-containment expertise—so long as the Board engages in transparent, criteria-driven analysis. Second, it draws a bright line against smuggling procedurally defective enforcement measures into otherwise routine budget approvals. By striking Footnote 27 yet leaving the 5.0 % NPR cap intact, the Court vindicates both administrative flexibility and procedural fairness. Future litigants—and the Board itself—must therefore ensure that every condition attached to a hospital budget stands on a solid procedural foundation, or risk surgical removal by the courts.