DENVER — Gov. Jared Polis focused part of his State of the State address on health care costs, saying he has worked in good faith with the industry to lower costs, but that not everyone has held up their end of the bargain.
“Some large hospital systems are making record profits, paying zero taxes and sitting on enormous reserves while overcharging customers. Meanwhile, they are consolidating providers, which drives up costs and leaves fewer options for Coloradans,” Polis said.
The governor went on to say it is time to hold these hospitals accountable, and that nonprofit hospitals need to work with their communities to live up to their promises, along with offering more mental health and other social supports.
Polis then called for legislation to build on some of the work from previous legislative sessions to ensure that nonprofit hospitals actually use community benefit dollars to benefit communities.
The sharp words were quickly followed by the Colorado Department of Health Care Policy and Financing (HCPF) releasing a series of reports outlining the revenues of hospitals in recent years.
“What we've seen is an increase in that patient revenues, a decrease in expenses, with net increase in profits through about mid-2021, creating a further increase in reserves,” said Kim Bimestefer, executive director of HCPF.
The reports, which looked through financial data from 2014 through 2021, found hospital profits, reserves and patient costs were up significantly during those years. Between 2018 and 2020, the report found that Colorado hospitals were ranked among the top 10 nationally in costs, prices and profits metrics it tracked.
The report also concluded that hospital patient revenues had grown faster than its operating expenses.
The HCPF identified opportunities for these hospitals to better invest in communities.
“We're saying to the big systems, do not raise your prices to protect those profits. Keep your prices the same,” Bimestefer said.
What’s a nonprofit hospital?
Most of the hospital systems in the state are not-for-profit. That doesn’t necessarily mean that the hospitals don’t make a profit, simply that they do not pay federal, state or local taxes.
“They are all required to provide community investment in lieu of paying those taxes. There is not, though, a specific requirement. This is a federal requirement, and there is no requirement on what a minimum community investment is,” said Nancy Dolson, special financing division director for HCPF.
She believes the state needs critically examine the value of the community benefit versus what the state would have been making in taxes from the hospitals to see if they are equitable or if change is needed.
Beyond that, Dolson says these hospitals' community investments are not in line with the help their community is calling for.
“UCHealth, for example, we see that nearly half of their community investment is going to support the CU School of Medicine and professional education,” Dolson said.
Dolson says UCHealth's surrounding community, however, has asked for more mental health services as a top priority.
The rosey financial picture the HCPF reports paint of hospital revenue have been met with immediate and sharp criticism from the hospital community.
Jeff Tieman, CEO of the Colorado Hospital Association, says the data does not include more recent financial records, along with the troubles of inflation and staffing many are facing.
“Expenses for Colorado hospitals are 21% higher than they were before the pandemic. Expenses for staffing are up more than 26%. Since the pandemic, medical supply costs are up,” he said.
Beyond inflation and supply prices increasing, Tieman says labor shortages are forcing a lot of hospitals to rely on staffing agencies to find workers. Those staffing agencies charge high prices, which add to the financial burdens hospitals face.
He argues the reports left out important context about the pandemic, and the fact that hospitals have experienced more than $2 billion in losses through August 2022.
“A lot of hospitals in Colorado operate with a low or no operating margin, which means they don't have very much money to put back into their facilities or the community,” Tieman said.
It is important to note that the HCPF data runs through 2021 because that is the most recent financial record the department has. It will not receive the data outlining 2022 hospital revenues for several more months.
For that reason, Dolson says more transparency is needed, and possibly a switch to quarterly reports rather than annual ones.
Tieman also took issue with the picture the governor and HCPF painted of community benefit investments, saying he’s proud of the work hospitals across the state have done.
Over at Denver Health, CEO Donna Lynne says the hospital authority is more unique than most and financially runs more like a rural hospital than a big hospital system.
According to Lynne, Denver Health considers itself a safety net hospital, meaning it will take care of everyone in the community, regardless of their ability to pay.
“It is a hard environment to manage from a financial point of view, very different than most hospitals,” Lynne said.
The hospital authority is a $1.4 billion enterprise. However, half of its patients are on Medicaid, another 20% are on Medicare and 12% are uninsured. As a result, the hospital says it’s under a lot of pressure right now.
“We actually, in 2022, the year that just ended, we will lose money,” Lynne said.
The pandemic only exacerbated the financial problems. Elective surgeries were cancelled, many patients chose not to come in and the workforce began to diminish. All of this has made the hospital’s finances, as Lynne describes, a rollercoaster over the past three years.
She also disagrees with HCPF’s predictions that the labor force will even out.
“I don't think the workforce problem is temporary. I think it's permanent,” Lynne said.
In all, the hospital only has 86 days in reserves, and says it will do its best to keep accommodating patients, but that the financial situation is anything but ideal.
According to the report, UCHealth had a total profit margin of 26.1% and a patient services margin of 8.5% in 2021. During that same year, the University of Colorado Hospital, which is part of UCHealth, experienced an 11.4% patient margin and a 31.3% total profit margin.
“What we look at is total profits. And the reason why we look at total profits is because many of the big systems are sitting on billions in reserves,” Bimestefer said.
UCHealth, however, says the data misrepresents the financial environment hospitals face. Contrary to HCPF data, UCHealth says its 2021 operating margin was 9.9%, a margin that decreased to 5.2% in 2022 and 3.3% in the first several months of fiscal year 2023.
The hospital system accused HCPF of using old data, deliberately picking specific date ranges when investments increase and not following Generally Accepted Accounting Principles (GAAP) in its data reporting.
The system worries that the misleading data could lead to misinformed policies being created by legislators.
A press release from UCHealth went on to say that the nonpartisan group, Lown Institute, recently ranked UCHealth among the nation’s best for social responsibility, community benefit, value and patient outcomes. Officials also said that the hospital has increased its investments by $150 million.
The hospital system did report around $200 million in investment losses, caused largely by a downturn in the stock market.
However, HCPF points out that hospitals in the state were given more than $1.2 billion to help get themselves through the pandemic.
What about the hospital reserves?
Another point of criticism in the HCFP report is excessive hospital rainy day funds. The report found that hospitals have amassed billions in reserve funds, which have come from higher than necessary prices being paid by patients and employers over the years.
On average, Colorado’s urban and system-affiliated hospitals had 245 days worth of reserves saved in 2021, up from 225 days worth of reserves in 2019. HCPF says the larger systems also did not dip into their rainy day funds as much until recently because of federal help.
Bimestefer insists the two biggest factors playing into the current financial situation of hospitals — labor and stock market losses — will level out, so hospitals shouldn’t be raising prices on patients for the sake of profits.
“Don't worry so much about reserves and market share. Worry about taking care of people,” Bimestefer said.
Tieman, however, says all it takes is one cyberattack or another pandemic to completely wipe out those reserves. He disputes the idea that hospitals are keeping too much in their rainy day funds.
“We have a strong hospital system, and we want to keep it that way,” he said.
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