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Gov. Jared Polis speaks before signing a hospital transparency bill into law at the Colorado Capitol in Denver on Thursday, March 28, 2019. The law is designed to identify what drives up health care costs and insurance premiums. (Jesse Paul, The Colorado Sun)

Colorado hospitals and state regulators may be about to launch into the biggest health care fight the state has seen in decades, over a detail in the newly announced plan for a public health insurance option.

The plan would let Colorado officials limit what hospitals can charge to people who have coverage through the public insurance option. What’s more, the state is prepared to require hospitals to accept the insurance — potentially making Colorado the first state to mandate hospital participation in a public insurance option and setting up a battle that could attract national attention.

Government control over hospital pricing — what is sometimes called “rate setting” — has gained steam in recent years among left-leaning groups and politicians nationwide as a way to control health care costs.

At a presentation Tuesday morning in Denver to a roomful of health care industry representatives and policy advocates, state officials explained their push for price controls and mandatory participation with both a smile and a snarl.

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“If our hospital systems don’t participate, this won’t work,” Colorado Insurance Commissioner Michael Conway told the crowd. “…We can’t allow that to happen.”

Kim Bimestefer (Courtesy of the Colorado Department of Health Care Policy and Financing)

Kim Bimestefer, executive director of the state’s Department of Health Care Policy and Financing, responded to a question about how Colorado could legally require hospital participation by talking about how she hopes hospitals will voluntarily work with state officials to be involved in the program and accept the payment terms. But, pressed more, she responded sternly: “Our agencies are confident we have the authority.”

She declined to elaborate.

This has hospital advocates nervous, though the lack of detail has so far kept their criticisms somewhat muted. In a statement released Monday evening, the Colorado Hospital Association’s executive vice president, Chris Tholen, said he is “skeptical” of the effort to dictate price and require participation.

“Colorado hospitals fully recognize that there is much work that needs to be done to address health care affordability,” Tholen said. “But embarking on a path that adds further uncertainty by destabilizing Colorado’s insurance market, on top of instituting government price controls, will likely cause consequences on the state’s health care system beyond what is intended.”

On its surface, the drama might seem a tad overwrought. The proposed health insurance option would be tiny — only available at first to about 7% of Coloradans, though state officials hope to quickly expand it.

But the fight brings together two powerful and opposing forces.

First, hospitals are a massive part of the state’s health care spending and economy. Collectively, about $18 billion a year flows through Colorado hospitals. State Medicaid spending on hospitals accounts for about 9% of the entire state budget.

Hospitals are also major employers — the largest employer in Adams County, for instance, is the UCHealth system — and play a huge role in chambers of commerce and other pro-business groups. For that reason, powerful business-advocacy groups like Colorado Concern have also expressed worries about the insurance option plan.

Gov. Jared Polis speaks before signing a hospital transparency bill into law at the Colorado Capitol in Denver on Thursday, March 28, 2019. The law is designed to identify what drives up health care costs and insurance premiums. (Jesse Paul, The Colorado Sun)

Meanwhile, limiting hospital prices — and pegging them to the prices that Medicare pays for services — has become a frequent talking point of Democratic presidential contenders, including Colorado’s U.S. Sen. Michael Bennet.

And state officials have been aggressively making the case that hospitals have room to give in their budgets, including with the release of a controversial report this year that argued hospitals could have saved Colorado patients $11.5 billion over a nine-year period by limiting their administrative expenses and profit margins.

Bimestefer and others have also pointed to a recent report by the RAND Corp. that found Colorado hospitals charged privately insured patients, on average, 269% of what Medicare pays for the same services. (Bimestefer and Conway have proposed limiting hospitals’ prices for the public insurance option at 175% to 225% of Medicare rates. The RAND study found that only 18 of 65 hospitals in Colorado for which it collected data currently charge privately insured patients less than 225% of Medicare, on average.)

Michael Conway (Courtesy of the Colorado Division of Insurance)

This isn’t even the first time this year state officials have proposed capping hospital prices. Conway and lawmakers initially wanted to pay for the state’s new reinsurance program by limiting what hospitals could charge, before changing course.

So there have long been hints of the potential battle ahead.

At a meeting last month of the group Colorado Healthcare Strategy and Management, an executive at the hospital system Centura Health said rate setting could cause doctors to move to different states or cause cuts in patient services. He likened hospital systems to Robin Hood, moving dollars from richer hospitals in their networks to support poorer ones — a system he said would be undone by price caps on everyone.

“The reality is there will be an impact to the access of health care if we go to a public option that dictates price,” Mark Carley, Centura’s vice president for managed care and risk products, said at the meeting.

State officials have dismissed those concerns, arguing that prices are lower in neighboring states so there’s no richer place for doctors to move to. And Bimestefer, on Tuesday, said the state isn’t looking to put hospitals out of business — only to bring their profits down to the levels of a few years ago.

“There is an opportunity,” she told the audience at Tuesday’s meeting, “to ask our hospitals to make better strategic decisions.”

John Ingold is a co-founder of The Colorado Sun and a reporter currently specializing in health care coverage. Born and raised in Colorado Springs, John spent 18 years working at The Denver Post. Prior to that, he held internships at...