Hospital systems can reduce prices and more responsively direct $965M in community benefits
FOR IMMEDIATE RELEASE
January 18, 2023
Denver, CO - Today the Colorado Department of Health Care Policy & Financing (the Department) released three hospital transparency reports covering fiscal years 2014 through 2021 to help policymakers and communities drive solutions that save Coloradans and employers money on health care. Hospitals represent the largest component of the health care dollar, so advances in hospital affordability is a top priority for the Polis-Primavera administration in Saving People Money on Health Care. These reports also identify opportunities to greatly improve community impact from the $965 million in community investments that Colorado’s not-for-profit hospitals make in lieu of paying taxes. Overall, the reports illuminate Colorado hospital profits, reserves (days cash on hand), the impact of the $1.2 billion in federal stimulus received in 2020, the gap between rural, independent, and mega-system financials and more.
New analyses of Colorado hospital costs, prices and profits show overall hospital patient revenues have grown faster than operating expenses, leading to growing profits and margins. Specifically, from 2018 through 2020, Colorado hospitals were ranked in the Top 10 nationally for each of the costs, prices and profits metrics tracked. While each of the metrics is moving in the right direction overall, the report illustrates that specific hospitals could be making far more impactful strategic decisions to reduce their prices to the betterment of the communities they serve. This total profit margin is buoyed by specific hospitals within Colorado’s larger systems. For example, UCHealth had a total profit margin of 26.1% and a patient services margin of 8.5% in 2021. HealthONE, a Colorado for-profit hospital, reported 18.6% total margins (20.8% patient margins). Both of these systems could cut prices significantly and still thrive financially. Examples include:
- UCHealth had a total profit margin of 26.1% and a patient services margin of 8.5% in 2021.
- University of Colorado Hospital (part of UCHealth) 2021 patient profit margin was 11.4% and total profit margin was 31.3%.
- Poudre Valley Hospital (part of UCHealth) 2021 patient profit margin was 13.5% and total margin was 45.1%.
- Centura-CommonSpirit 2021 patient profit margin was 11.5% and total profit margin was 14.8% while
- St. Anthony Summit (part of Centura-CommonSpirit) 2021 patient profit margin was 31.7% and total profit margin was 34.5%.
Comparatively, Intermountain Healthcare (formerly SCL Health) patient profit margin was 0.9% and total profit margin was 5.2% while St. Mary’s Hospital & Medical Center (part of Intermountain Healthcare, traditionally the highest margin hospital inside the SCL system) patient profit margin was 7.3% and total profit margin was 12.9%.
The Hospital Expenditure Report analyzes major hospital financial metrics such as patient revenue, uncompensated care and operating expenses over the fiscal years 2014 through 2021. It shows Colorado hospitals saw historic growth in net patient revenues, which grew $1.105 billion, an average of 7.3% each year, between 2014 and 2021. Between 2020 and 2021, patient revenues increased 10.2% or $1.831 billion, not including the $1.2 billion in federal stimulus that Colorado hospitals received throughout the COVID-19 pandemic. Despite the historic impacts of COVID-19 on Colorado hospitals, their patient revenues have continued to rise. During the same time period, Colorado hospitals’ operating expenses grew less than in any year since 2015 - an indication that hospital patient revenues are returning to trends seen prior to the pandemic.
Hospital mergers and acquisitions over the last decade have generated ‘mega-systems’ across Colorado. These systems have amassed billions in reserves - the result of higher than necessary prices paid by patients and employers year over year. The report illustrates that for many hospitals, reserves are generating profits equal to or greater than patient service margins. Colorado’s urban and system-affiliated hospitals maintained a median of 225 days cash on hand (reserves) in 2019 compared to 245 days in 2021. This illustrates that hospital reserves have increased compared to pre-pandemic levels, and that the larger systems did not dip into their rainy day funds as much as would have been forecasted given the magnitude of the pandemic, which is the purpose of reserves. It also demonstrates that federal stimulus dollars paid to hospitals had a meaningful, positive impact on their financials. Specifically, the reports illustrate that the $1.2 billion in federal stimulus paid to hospitals in 2020 more than offset the reduction in profits the hospitals would have reported, helping hospitals avoid dipping into reserves in 2020. It also shows a 2021 bounce back of profits (total patient profit margin was 7.2%) equal to 2019 - before the COVID-19 pandemic began. This is despite the increases in 2021 contracted labor expenses, which grew by 115%.
The reports also illustrate a stark contrast between the financial performance of Colorado’s large hospital systems to many rural hospitals, independent hospitals, and the state’s primary safety-net hospital system, Denver Health, which have persistently struggled financially. The report recommends continued investments in rural hospitals and policies that help rural hospitals better meet the needs of the communities they serve.
“Since 2020, hospitals have played an important role navigating the COVID-19 pandemic, patient surges, revenue volatility, unprecedented contract labor rates, and lower investment returns. That said, these reports clearly illustrate that our larger hospital systems are still sitting on huge reserves despite this unprecedented chapter. Improvements in policy are needed to ensure hospitals are prioritizing affordability initiatives and how they channel community investments to better meet the needs of the communities they serve.” said Kim Bimestefer, executive director of the Department. “At the same time, our smaller rural hospitals and Denver Health - our safety-net hospital - need transformative policy and investment to overcome mounting headwinds.”
While Colorado’s large nonprofit hospital systems enjoy larger profits and have accumulated reserves, they do not pay taxes. For this tax exemption benefit, hospitals are expected to make community investments that meet the voiced needs of the communities they serve. The Colorado Hospital Community Benefit Annual Report found that communities across the state overwhelmingly want hospitals to invest in behavioral health services. However, the hospitals’ reported information lacked sufficient detail to understand exactly how community investment dollars are being spent and whether the hospital community benefit investments decisions match the needs identified by their communities. Hospitals report investing 7% of their patient revenues in the community. Due to current community benefit reporting guidelines, the Department is unable to show where all of the community benefit investments are being spent. Some hospitals, including UCHealth and Children’s Hospital Colorado, report spending nearly half of their community investments on their own research and health professional education expenses. This reinforces the need for detailed reporting to provide better insights into hospital community investment spending.
“Families and local businesses need to have a stronger, more impactful voice in how their hospital’s community investment dollars are spent. And it is time we held not-for-profit hospitals accountable for meeting the needs of the communities they are in business to serve,” said Adela Flores-Brennan, the Department’s Medicaid Director.
The Colorado Healthcare Affordability and Sustainability Enterprise (CHASE) Annual Report shows that Medicaid has increased its reimbursement to hospitals, reduced the number of uninsured Coloradans by half, and reduced their uncompensated care costs and the related need to shift public program underpayments to private insurance. While the need to cost shift to private insurance has dramatically decreased, hospital profits from care provided to patients covered by private insurance have continued to grow - increasing by 111% since 2009 as patient revenues grew faster than the cost of care.
Together, the three reports provide Colorado lawmakers, policy makers, employers, advocates and residents transparent analysis based on hospital reported data to inform initiatives that improve Colorado’s health care delivery system and drive affordability. The reports and analyses are annual and required by the Colorado General Assembly.
About the Reports
Colorado Healthcare Affordability and Sustainability Enterprise (CHASE) Annual Report: This report is published by the CHASE Board. Since the inception of the Colorado Healthcare Affordability and Accountability Act and through the implementation of the Colorado Healthcare Affordability and Sustainability Enterprise (CHASE), the hospital provider fee and the healthcare affordability and sustainability fee increased hospital reimbursement an average of more than $410 million per year and substantially increased enrollment in Health First Colorado and CHP+. The annual report includes information about fees and payments, analysis of cost shifting, incentive payment programs, additional tables and figures.
Hospital Expenditure & Hospital Community Benefit Reports:
This annual report is prepared by the Department of Health Care Policy & Financing (the Department) pursuant to Section 25.5-4-402.8, C.R.S. Since the passage of House Bill (HB) 19-1001 in 2019, the Department has worked with Colorado hospitals to compile a dataset of hospital financial and utilization metrics to present a full picture of the hospital industry in Colorado. The Hospital Expenditure Report represents the compilation of historic dataset to date and includes some basic analysis of the dataset.
Hospital Community Benefit
Since 1969, the federal government has required nonprofit hospitals to provide a community benefit to justify their tax-exemption. This report is meant to gain better insights into the investments Colorado’s nonprofit, tax-exempt hospitals make in their communities. The Department is required to submit an aggregated report including the information received from hospitals.
In addition to providing these reports as directed through legislation, the Department is analyzing the rise in Colorado hospital prices, costs, and profits in the state and its impact on the cost of health care coverage for consumers and businesses. The Department is undertaking this analysis as directed by the General Assembly. The reporting and tools will be posted on the Department’s website at hcpf.colorado.gov/hospital-reports-hub.
About the Colorado Department of Health Care Policy & Financing: The Department administers Health First Colorado (Colorado's Medicaid program), Child Health Plan Plus, and other programs for Coloradans who qualify. These health care programs now cover about one in four Coloradans. For more information about the Department, please visit hcpf.colorado.gov.