DENVER – Gov. Jared Polis focused on part of it country address on healthcare costs, saying he’s worked in good faith with the industry to bring costs down, but not everyone is sticking to their end of the bargain.
“Some large hospital systems are making record profits, paying no taxes and holding huge reserves while overcharging clients. At the same time, they are consolidating providers, driving up costs and leaving fewer options for Coradans,” Polis said.
The governor went on to say that it is time to hold these hospitals to account, and that nonprofit hospitals need to work with their communities to deliver on their promises, along with providing more mental health services and other forms of social support.
Polis then called for legislation to build on some of the work from previous legislative sessions to ensure that nonprofit hospitals actually use community dollars for the benefit of communities.
Sharp words soon followed by the Colorado Department of Health Care Policy and Financing (HCPF) which has released a series of reports outlining hospital revenues in recent years.
“What we’ve seen is an increase in patient revenue, a decrease in expenses, with a net increase in earnings through about mid-2021, driving an additional increase in reserves,” said Kim Pemstever, CEO of the HCPF.
The reports, which looked at financial data from 2014 to 2021, found that hospital profits, reserves and patient costs rose dramatically during those years. Between 2018 and 2020, the report found that Colorado hospitals ranked in the top 10 nationally in the measures of cost, pricing, and profit that they track.
The report also found that hospital patient revenues grew faster than operating expenses.
HCPF has identified opportunities for these hospitals to better invest in the communities.
We say to the big systems, don’t raise your prices to protect those profits. “Keep your prices the same,” Pemestiver said.
What is a non-profit hospital?
Most of the state’s hospital systems are not-for-profit. This does not necessarily mean that hospitals do not make a profit, simply that they do not pay federal, state or local taxes.
They are all required to provide societal investments rather than pay those taxes. However, there is no specific requirement. Nancy Dolson, director of private finance at the HCPF, said:
She believes that the state needs to critically examine the societal benefit value against what it would earn from hospital taxes to see if they are fair or if change is needed.
Moreover, Dolson says these hospitals’ community investments are not in line with the assistance their community advocates for.
“UCHealth, for example, we see that nearly half of their community investment will support CU’s medical school and professional education,” Dolson said.
Dolson says the community surrounding UCHealth has asked for more mental health services as a top priority.
The hospital suffers
The HCPF’s rosy financial picture was met with immediate and sharp criticism from the hospital community.
The data does not include the latest financial records, along with the inflation and employment problems that many face, says Jeff Tiemann, CEO of the Colorado Hospital Association.
“Colorado hospital expenses are 21% higher than they were before the pandemic. Staffing expenses are up more than 26%. Since the pandemic, costs for medical supplies have gone up.
In addition to inflation and increasing supply prices, Teemann says, labor shortages are forcing many hospitals to rely on staffing agencies to find workers. These staffing agencies charge exorbitant prices, adding to the financial burdens faced by hospitals.
He argues that the reports left important context around the pandemic, and the fact that hospitals suffered losses of more than $2 billion through August 2022.
“A lot of hospitals in Colorado operate with low or no operating margin, which means they don’t have a lot of money to give back to their facilities or the community,” Teemann said.
It is important to note that HCPF data runs through 2021 as this is the most recent financial record the department has. You won’t receive data outlining hospital revenues for 2022 for several more months.
For this reason, Dolson says more transparency is needed, and perhaps a shift to quarterly reporting rather than annual reporting.
Tieman also took issue with the picture the governor and the HCPF paint of community benefit investments, saying he’s proud of the work hospitals have done across the state.
The hospital authority is more unique than most and runs financially more like a country hospital than a large hospital system, says Donna Lane, CEO of Denver Health.
According to Lynne, Denver Health views itself as a safety net hospital, meaning that it will take care of everyone in the community, regardless of their ability to pay.
“It’s a tough environment to manage from a financial standpoint, very different from most hospitals,” Lin said.
The Hospital Authority is a $1.4 billion enterprise. However, half of her patients use Medicaid, another 20% are on Medicare and 12% are uninsured. As a result, the hospital says it is under a lot of stress at the moment.
“Actually, in 2022, the year that just ended, we’re going to lose money,” Lynn said.
The pandemic exacerbated financial problems. Elective surgeries were cancelled, many patients chose not to attend and the workforce began to shrink. All of this has made the hospital’s finances, as Lynn describes, choppy over the past three years.
Nor is it consistent with the HCPF’s expectation that the workforce will level out.
“I don’t think the workforce problem is temporary. I think it’s permanent,” Lynn said.
In all, the hospital has only 86 days in reserves, and says it will do everything it can to continue to accommodate patients, but the financial situation is not ideal.
According to the report, UCHealth had a gross profit margin of 26.1% and a patient services margin of 8.5% in 2021. During the same year, University of Colorado Hospital, which is part of UCHealth, saw a gross profit margin of 11.4% and a 31.3% gross margin.
“What we look at is gross profits. The reason we look at gross profits is because many of the large systems have billions of dollars in reserves,” Pemstefer said.
However, UCHealth says the data misrepresents the financial environment that hospitals face. In contrast to the HCPF data, UCHealth says operating margin 2021 It was 9.9%, a margin that fell to 5.2% in 2022 and 3.3% in the first several months of fiscal 2023.
The hospital system has accused HCPF of using outdated data, deliberately choosing specific date ranges when maximizing investments and not following generally accepted accounting principles (GAAP) in its data reports.
The regime fears that misleading data may lead to misleading policymaking by lawmakers.
A press release from UCHealth went on to say that the nonpartisan group, Lown Institute, recently ranked UCHealth among the best in the country for social responsibility, societal benefit, value, and patient outcomes. Officials also said the hospital increased its investment by $150 million.
The hospital system reported investment losses of about $200 million, largely caused by a downturn in the stock market.
However, the HCPF notes that hospitals in the state have been awarded more than $1.2 billion to help get through the pandemic.
What about hospital reserves?
Another point of criticism in the HCFP report is excessive rainy hospital funds. The report found that hospitals had amassed billions in spare money, which came from over-the-top rates paid by patients and employers over the years.
On average, Colorado metropolitan and system-affiliated hospitals had 245 days of reserves saved in 2021, up from 225 days of reserves in 2019. The HCPF also says that larger systems didn’t indulge their rainy day cash much until recently. Because of federal aid.
Bimestefer insists that the two biggest factors playing in hospitals’ current financial situation — labor market and stock losses — will level off, so hospitals shouldn’t overcharge patients for the sake of profits.
“Don’t worry too much about reserves and market share,” Pemstever said.
However, Tiemann says all it takes is one cyberattack or other pandemic to completely wipe out those reserves. He disputes the idea that hospitals save a lot of money for their rainy days.
“We have a strong hospital system,” he said, “and we want to keep it that way.”
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