Colorado Hospitals’ Net Operating Income Drops 50% in 2022, Reserves Largely Better than Pre-Pandemic
Community benefit investments total $1.1 billion
FOR IMMEDIATE RELEASE
February 5, 2024
Media Contact
Marc Williams
Public Information Officer
Colorado Department of Health Care Policy & Financing
720-626-0801 (Cell)
Denver, CO - Today, the Colorado Department of Health Care Policy & Financing (HCPF) continues its national leadership in hospital financial and pricing transparency, accountability, and analytics with the release of four statutorily required hospital transparency reports. These reports provide policymakers, businesses, health care purchasers and communities with critical insights that drive the cost of hospital care — the largest component of Coloradans’, employers’ and the state’s health care spend. These reports also illuminate how hospitals, individually and in the aggregate, have navigated the immediate and lingering impacts of the COVID19 pandemic.
“Hospitals are critical pillars within the communities they serve. They also represent the largest component of insurance premiums paid by Coloradans and employers,” said Kim Bimestefer, HCPF executive director. “2022 was an aberration with the downturn in hospital investment returns, supply chain inflation, and staffing agency wages which impacted overall workforce expenses. Though frontline workforce wages have increased meaningfully, we are asking hospitals to continue to moderate their price increases as they have over the last few years, recognizing the direct impact their prices have on the cost of health care to Coloradans and employers.”
“The reports released today will help the state, employers and communities collaborate with hospitals to save people money on health care, prioritize ‘in-lieu-of-tax dollar' community investments, address outlier hospital financials, and the immediate and lingering impacts of the COVID19 pandemic. It also helps tackle industry challenges like the health care workforce shortage or mitigating unfunded care.” said Bettina Schneider, HCPF Chief Financial Officer.
The 2024 Hospital Financial Transparency report includes data from 2022 when operating expenses grew 10.4% from 2021 while patient revenue grew 5.9% and operating income decreased by $981.0 million or 50.0%. This reflects a sharp pivot from 2014-2021 reporting periods when patient revenue growth was substantially higher than expense growth. Other key insights include:
- Net operating income for Colorado hospitals was $1.9 billion, $1.3 billion, and $2.0 billion in 2019, 2020, and 2021, respectively, before declining to $981 million in 2022.
- Net income, which includes investment income, for Colorado hospitals was $2.3 billion, $1.8 billion, and $3.4 billion in 2019, 2020, and 2021, respectively, before declining to $336 million in 2022.
- Increased labor costs, including an alarming chapter of contracted labor expenditure up 247.6% from 2019, in addition to inflationary pressure.
- Uncompensated care costs rose 12.5% or $60.5 million between 2021 and 2022 to a total of $544.0 million, primarily driven by increases in charity care. Charity care is a main component of uncompensated care, and represents health services that hospitals do not expect to receive payments in full, or in part, because a hospital has determined, with the assistance of the patient, the patient’s inability to pay. Specifically, charity care costs made up $325.8 million, or 59.9% of total uncompensated care costs in 2022. Between 2021 and 2022, charity care costs increased by 10.8% or $31.9 million.
Table 10 Operating Net Income by Peer Groups (in millions)
Table 11 Net Income by Peer Groups (in millions)
Despite the shift seen in 2022, numerous indicators show much of Colorado’s hospital industry is healthy, except for the state’s rural hospitals and the state’s largest safety net hospital, Denver Health, disproportionately impacted by the pandemic and the influx of migrants. The report shows:
- Net patient revenues are returning to trends seen before the pandemic. Net patient revenue grew from $12.1 billion to roughly $21.3 billion between 2014 to 2022, an increase of 75.5% and an average annual increase of 7.3%, or $1.1 billion per year. Between 2021 and 2022, net patient revenue increased by 5.9%, or $1.2 billion.
- In 2022, the median hospital reserve for Colorado was 183 days cash on hand, meaning hospitals could operate without additional revenue for about six months. This compares to pre-pandemic 2019 reserve levels of about five months, at 149 days.
- Children’s Hospital Colorado, UCHealth and Intermountain Healthcare systems had days cash on hand of 299, 325 and 343 respectively, in 2022.
- In the Denver region, Denver Health Medical Center has the lowest days cash on hand with only 87 days cash on hand in 2022.
- While the stock market has rebounded through 2023, 2022 investment losses were significant; the impact to hospitals’ overall profits is concurrently significant, as investment returns for some hospitals historically equal or exceed patient service profits.
“Our active dialogue and negotiations with community hospitals are paramount to achieving our goal of driving affordable health insurance coverage and increased care access to the communities we serve,” said Anne Ladd, CEO, Peak Health Alliance, a leading purchasing alliance operating throughout Western Colorado. “I was proud to testify in support of House Bill 23-1226, knowing that today’s reports would provide transparency into each hospital’s financials, illuminating who is rebounding, who is struggling and who is charging employers and families the highest rates. This information enables us to negotiate a more appropriate reimbursement for those who have to pay the hospital bills.”
The Community Benefit report shines light on what and where tax exempt hospitals are investing their community benefit dollars. This reporting enables communities to see if their hospitals are investing in what their communities have identified as a health need in lieu of paying taxes. During hospitals’ fiscal year 2021, Colorado hospitals’ Community Benefit investment rose 13% to $1.09 billion - a $125 million increase from the previous fiscal year, directed into the below categories:
- 55% was directed into social determinants of health (SDOH), including housing, food, transportation, interpersonal violence, education, and job opportunities. This is a reporting increase from only 7.8%, in 2020, being directed toward SDOH, reflecting greater diligence in reporting and a change in action/focus.
- Reporting also shows corresponding reporting shifts in other areas. For example, in 2020, 55.3% of community benefit dollars were invested in health behavior/risks, while 2021 reporting shows 5% spent on programs addressing health behaviors/risks. These changes reflect more diligent reporting from hospitals in community benefit spending categories.
- 24% into charity care (includes free or reduced-cost health care services)
HB23-1243 took effect in August 2023 and requires more specific, community benefit reporting categories which will help HCPF connect community investment spending directly to community identified needs starting in 2025.
“The laws enacted in Colorado around Medicaid expansion, price transparency, and community benefit have advanced federal policies operationally to benefit patients,” said Patricia A. Gabow, MD, Lown Institute Board chair and past 20-year CEO of Denver Health. “Importantly, the report tells us that we have more work to do in several areas, particularly on defining and measuring the community benefit provided by not-for-profit hospitals in relation to the benefit of their tax-exemption.”
Additionally, the Colorado Healthcare Affordability and Sustainability Enterprise (CHASE) was created as a result of the Colorado Healthcare Affordability and Sustainability Enterprise Act of 2017. The CHASE reduces uncompensated care for hospital providers and the need to shift those costs to private or commercial payers by increasing reimbursement to hospitals and by reducing the number of uninsured Coloradans. The CHASE increases net payments to hospitals by collecting a healthcare affordability and sustainability fee from hospitals which then receives federal matching dollars to increase Colorado Medicaid as well as Colorado Indigent Care Program (CICP) payments to hospitals.
- Together, these higher public program payments enable hospitals to reduce cost-shifting to Coloradans and employers covered by private or commercial payers. Before the CHASE fee, hospitals were receiving about $0.54 cents on their dollar of costs for care provided to Medicaid patients, measured in 2009. In 2022, hospitals received $0.81 on their dollar of cost of care for Medicaid patients, far and above the $0.70 on the dollar of cost of care for Medicare patients.
- The 2024 CHASE Annual Report also illustrates that the CHASE provided $464 million in increased reimbursement to hospital providers, which helped fund health insurance coverage through Colorado Medicaid and Child Health Plan Plus (CHP+) for more than 622,000 Coloradans - with no increase in Colorado General Fund expenditures.
To view all of this year’s reports, along with previous HCPF hospital reports and other resources, please visit HCPF’s 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.