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Colorado hospitals — under increased scrutiny — raised prices and saw more profit, new report says

The report from the Polis administration shows per-patient profits at Colorado hospitals reached their highest level in at least a decade in 2018

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The amount of profit Colorado hospitals made per patient hit its highest level in at least a decade in 2018, according to a new report from the state Department of Health Care Policy and Financing that spells out the Polis’ administration’s argument for trying to aggressively limit hospital prices.

Hospitals statewide made an average per-patient profit of $1,518 in 2018, up 280% from 2009, when the figure was $538, according to the report. The increase cannot be explained solely by inflation or rising hospital expenses, the report argues.

A chart from the Colorado Department of Health Care Policy and Financing’s cost shift report showing average hospital profit per patient in Colorado. (Screenshot)

“It is a strategic decision to raise prices beyond what is necessary to cover their costs and their unfunded liabilities,” said Kim Bimestefer, the executive director of the Department of Health Care Policy and Financing, which is known as HCPF.

The report is an update of a first-of-its-kind analysis released last year that concluded hospitals could have saved Coloradans billions of dollars over a nine-year period if they had held down their operating costs and settled for lower profit margins. Instead, the reports argue that the prices hospitals charged grew faster than hospitals’ operating costs. Prices were about 5% higher than costs in 2009 and 9% higher than costs in 2018, according to the reports.

A chart from the Colorado Department of Health Care Policy and Financing’s cost shift report showing how much hospitals collected in payments for services versus how much they spent to provide those services. Numbers above 1 mean that hospitals were paid more than it cost to provide a service. Numbers below 1 mean they were paid less than was needed. (Screenshot)

The updated report’s release comes as the Polis administration is moving on multiple fronts to rein in hospital prices — through a public insurance option, a forthcoming rule on health care affordability and an effort to encourage communities to join together to negotiate cheaper rates. All of those efforts are controversial, and health industry-affiliated groups are already spending millions of dollars on ad campaigns to argue against the public option.

Meanwhile, the Polis administration has begun taking a more aggressive stance — with the governor recently saying that hospitals are “overcharging” patients in Colorado. That makes this new report something of a foundational document for the administration’s campaign, something it will likely cite again and again in the coming months.

The report looks specifically at what is known as the “cost shift” in hospital pricing. Medicare and Medicaid don’t pay hospitals enough to cover hospitals’ costs for providing care, so hospitals have to charge privately insured patients more to make up the difference.

But the report argues that hospitals go too far and charge the privately insured far more than is needed to cover the shortfall. In 2018, for instance, hospitals statewide lost $2.5 billion providing care to people with Medicaid or Medicare and the uninsured, according to the report. But they made nearly $3.9 billion in profits providing care to privately insured patients — meaning, the report argues, that hospitals collected nearly $1.4 billion more than was necessary.

A table showing how much Colorado hospitals lost providing care to people on Medicare or Medicaid or without insurance, and how much hospitals made by shifting costs to people with private insurance, from the Colorado Department of Health Care Policy and Financing’s cost shift analysis. (Screenshot)

“The trends are continuing along,” said Nancy Dolson, the director of HCPF’s Special Financing Division. “In 2018, not only is the cost shift not abated, it has continued to grow.”

Hospitals, naturally, disagree with HCPF’s analysis and that their profits are too high. In an interview earlier this week, Peter Banko, the CEO of hospital system Centura Health, said hospitals use their profits to replace aging equipment, pay down debt and put money into reserves. While Centura is a nonprofit system, for-profit hospitals also pay taxes out of their margins.

And, Banko said, higher profit margins could be a sign that hospitals are doing their jobs better.

“For Centura, we’ve been able to improve our profitability not by demanding more and more out of insurance companies but by reducing our cost structures,” he said.

In a statement Thursday, the Colorado Hospital Association criticized the Polis administration for taking such an aggressive stance and not taking more responsibility for the cost shift by addressing the low rates paid by Medicaid.

“Hospitals have been good partners in addressing costs with the Polis administration and are disappointed that the state doesn’t acknowledge its role in driving cost shift,” Julie Lonborg, a spokeswoman for the hospital association, wrote in the statement. “The under-reimbursement by government payers has driven cost shift by more than $1 billion since 2010.”

She said “uncertainty and instability in the market and in state and federal public policy” have also caused hospitals to be cautious with their money in recent years, putting more away in reserves.

But Bimestefer said Colorado’s hospital prices are exceptional when compared to the rest of the country. The state has the second-highest hospital profits, the fourth-highest hospital administrative expenses and the second-most hospital construction in the country, according to a separate report HCPF helped produce. That is despite Colorado consistently ranking among the nation’s healthiest states.

“We should be paying some of the lowest health care costs in the nation, not the highest,” she said.

HCPF produced the new report by looking at data provided by the Colorado Hospital Association. The numbers are provided in aggregate, meaning HCPF could not use it to look at any individual hospital’s profits.

A hospital-by-hospital analysis by a private health care consultant using numbers from federal reports last year found that Denver-area hospitals made a record $2 billion in profit in 2018. Hospitals in rural parts of the state, meanwhile, are struggling, with many losing money or barely breaking even.

Bimestefer and Lt. Gov. Dianne Primavera unveiled the report at a news conference Thursday, where they also invited patients to speak about their experiences. One who did was Pamela White, an author and former journalist from Longmont who is a cancer survivor. While she said she is grateful for the life-saving care she received, the treatments came with staggering costs. 

“It’s honestly hard for me to see these numbers,” she said, “and know that while I was burning through my life savings … our hospitals had the second-highest profits in the country.”

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