A number of studies and reports released in the last year reveal some alarming details about why health care costs in the state and nation are so high.
Many of them have shown that hospitals, particularly so-called nonprofits, have increased prices to dramatically high levels and are earning record profits in the billions of dollars.
A study released last summer by the Colorado Business Group on Health, for example, showed that Denver-area hospitals, including those operated by SCL Health that owns St. Mary’s Hospital in Grand Junction, collectively made more than $2 billion in profits in 2018.
That’s up from about $1.7 billion the year before, and about $1.3 billion in 2016.
At about the same time, OpenTheBooks.com, a Chicago-based nonprofit that focuses on transparency in government, looked at the 2016 and 2017 tax records of 82 of the largest nonprofit hospitals and hospital groups in the nation. SCL Health was one of them. That study showed the hospitals saw a combined increase in net assets as high as $203 billion in 2017, a 23.6% increase over the previous year.
That report listed the Broomfield-based SCL Health, which includes four hospitals and numerous clinics in the Denver area, as seeing more than $851 million in revenue in 2017. The report, however, didn’t list their expenses. The hospital group is part of a larger organization known as the Sisters of Charity of Leavenworth, which also operates in Kansas and Montana.
Additionally, a report by the Colorado Health Initiative last year confirmed that some areas of the state, such as the Western Slope, had higher health insurance costs because of a lack of competition of medical providers and insurance carriers.
And on Thursday, the state released a report showing that despite millions of dollars that Colorado hospitals receive through a special fee aimed at offsetting losses from uncompensated care and underpayments from public health care programs, hospitals continued to increase costs on private insurance policyholders to cover those supposed losses.
All of that has gotten the attention of policymakers in the state, who have made it clear to providers and insurers that this can’t continue.
“Colorado happens to have the second highest hospital profit margin in the country,” Gov. Jared Polis said at his State-of-the-State address earlier this month.
“Front Range hospitals with over $2 billion in profits in 2018 … are already using some of those profits from overcharging patients to run ads against legislation that would save families money,” he added. “We won’t let that work. The people are crying out for relief on high health care costs.”
INSURANCE COMPANIES SHARE BLAME
While many of those studies focused on hospitals, state officials say insurance companies share some of the blame.
That’s why state officials pushed for reforms last year aimed at reducing premiums and deductibles, such as a new reinsurance program designed to give insurers a way to recover expensive claims from the sickest ratepayers. Doing so could help them to lower premiums for others in the same plans.
But because there’s no guarantee insurers will pass on savings to policyholders — and some hospital officials say that many insurers don’t — state officials this year are pushing for something else they hope also will help lower insurance costs: A public option plan designed to provide more competition in the state’s insurance market, particularly in such areas as the Western Slope where only one or two private carriers offer coverage.
Last year, the Colorado Department of Heath Care Policy and Financing and the Division of Insurance were required under House Bill 1004 to study ways to improve competition in the insurance market as a way to lower premiums.
The public option idea was the result.
“We believe that this recommendation goes directly to that,” said Colorado Insurance Commissioner Mike Conway. “There’s nothing that would stop multiple carriers from offering it. In fact, we’re looking to have multiple carriers to offer plans in every county of the state.”
For now, that controversial public option proposal is limited to only those Coloradans who don’t qualify for public health coverage and don’t have an employer-based policy. As a result, it would impact only about 8% of Coloradans.
Hospitals that serve patients who have those plans would be paid no more than 225% of what Medicare pays. According to a Rand Corporation study of hospital charges released early last year, some are charging patients with private insurance 300% to 600% of what Medicare pays.
The Legislature approved a new law last year calling on hospitals to be more transparent about what they are charging patients and their insurers. That’s designed to drive down overall costs because it would allow patients to compare prices on specific procedures, hospitals to know what their competitors are charging and insurance companies to negotiate lower reimbursement rates.
The heads of St. Mary’s Medical Center and Community Hospital both say they support that kind of transparency, but warn that it’s not the panacea people might think. Revealing hospital charges, they say, is problematic because the information is complicated and the prices aren’t always apples-to-apples comparisons.
Still, the two hospital leaders said it has potential.
“I think it’s absolutely a great thing,” said Chris Thomas, president and chief executive officer at Community. “There is still a lot of confusion on what you’re charging, what you’re paying, what you’re collecting. So we have to work through those details, but absolutely the consumer should know what they’re getting into.”
It will take some time before any of that could impact health care costs, but it already has had an impact on the new leader at St. Mary’s, the largest hospital between Denver and Salt Lake City.
There, newly installed President Bryan Johnson says he and his hospital’s parent company are fully aware that hospitals are making far too much money, particular those that are supposed to be nonprofit organizations, such as Community and St. Mary’s.
According to several year’s worth of St. Mary’s 990 income tax forms filed with the Internal Revenue Service, the hospital went from having about $434 million in total assets in 2012 to nearly $683 million in 2017. That’s a 47% increase in net assets, which includes everything from cash reserves to buildings and equipment.
In 2012, the hospital had more than $408 million in revenue and about $373 million in expenses, leaving it with a profit of about $34 million. By 2017, revenues had increased to about $425 million, while expenses went down to nearly $366 million, leaving a $59 million profit.
That’s a 73% increase.
Johnson said the hospital’s 2018 taxes are expected to be about the same as 2017.
Those same IRS forms also show St. Mary’s going from spending about $9 million on a line-item called “system allocation” in 2012 to more than $57 million in 2017. (That line item didn’t exist in 2011.) That’s money paid to its parent organization for certain administrative services, leaving some critics to complain it’s leaving the community. Johnson, however, said most of that money returns to Grand Junction to pay personnel here who do that work.
Regardless, Johnson said he’s bent on finding ways to help lower costs for his hospital’s patients, while still maintaining a healthy bottom line.
He and other St. Mary’s officials said over the past five years, the hospital reduced its operating costs by about 7%, adding that those reductions aren’t always realized by consumers in the form of reduced premiums, deductibles or co-pays because insurance companies often pocket the difference.
That’s partly why the hospital announced plans last week to lower costs on certain imaging procedures, such as MRIs and CT scans.
To aid that effort to lower costs, the hospital announced last month that it had entered into a contract with Empiric Health, a Salt Lake City-based medical consulting company that provides analytical data to hospitals to streamline operations and reduce waste.
The move is aimed at creating systems that measure health care performance based more on overall patient outcomes, rather than a focus on treating individual medical needs. The systems it develops are to be designed, in part, to limit unnecessary procedures, thus saving time and money for patients and medical providers.
Johnson said that’s the direction all hospitals need to take, adding that many already are heading down that path.
“We’ve done some really good things in terms of driving costs out this past year,” Johnson said. “Our strategy is really not to raise prices to drive bottom line. Our strategy is how we take costs out so we can lower prices for the community.”
Johnson said that, nationally, up to 30% of what medical providers do is considered wasteful, such as ordering unnecessary procedures aimed at appeasing patients who believe they need them, or doctors who fear getting sued if they are accused of not doing enough. That overall waste amounts to as much as $930 billion a year in medical charges nationwide.
That’s where the analytics come in.
“It allows us to take information and break it down by different steps of a process that (doctors) go through,” Johnson said. “It’s evidence-based best practice. We say (to doctors), ‘You need to follow this because there’s value in doing so.’ If you can give physicians that information, most of them will do it. We’ve got physicians who are interested in it.”
Johnson promises those changes are only the beginning.
While many hospital administrators accuse insurance companies of not passing on savings that they create, a new report released by the state Thursday places the blame for high health care costs squarely on the hospitals themselves.
That report, which is partially based on that new hospital pricing transparency law, said despite a special hospital provider fee that the Colorado Legislature approved in 2009 to help them recover uncompensated care and underpayments from government programs such as Medicaid, they didn’t pass that savings onto patients and their insurance carriers.
The report says hospital prices should have gone down because of that extra money and a dramatic increase in the number of Coloradans who have insurance due to the federal Affordable Care Act. The number of uninsured Coloradans went from 13.5% in 2009 to 6.5% last year, the report said.
Instead, hospitals increased their pricing by more than 70% since that time, primarily on patients who have private insurance. That’s called cost shifting.
As a result, hospital profits increased more than 280% from 2009 to 2018, the report said.
“Hospital costs represent the largest component of overall health care costs,” said Kim Bimestefer, executive director of the Colorado Department of Health Care Policy and Financing that released the report.
“This report shines a light on the fact that hospitals are not passing along savings to Coloradans, but are instead making record profits on the backs of consumers,” added Lt. Gov. Dianne Primavera, who heads the governor Office of Saving People Money on Health Care. “We have to ensure these savings will make their way into the pockets of hardworking Coloradans.”
The department says that not only does Colorado have some of the highest hospital prices in the nation, but the state’s hospitals also rank second in hospital construction and fourth for the highest administrative expenses, going from 3.2% higher than the national average in 2009 to 14% in 2018.
Ironically, state officials say, Colorado routinely ranks in the top 10 as being the healthiest in the nation.
The Colorado Hospital Association, however, disputes the report’s findings, saying cost shifting continues to be an issue because of chronic underfunding from state and federal public health care programs, such as Medicare and Medicaid.
The association said that participation in those programs have swelled because of the state’s aging population, further adding to the problem.
“This report is distracting from the unintended, yet predicted, consequences of the state’s own policies,” the association said in a statement. “The data in this report does not reflect the work of hospitals to reduce the cost of care for Coloradans since Governor Polis took office, including funding from the state’s reinsurance program and providing relief to Colorado consumers through 2019’s legislation eliminating surprise billing, among other efforts.”
The association also said the report doesn’t take into account certain expenses, such as taxes, hospital-owned physician practices and training of the next generation of medical providers.
“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,” the association said. “The under-reimbursement by government payers has driven cost shift by more than $1 billion increase since 2010.”
— Staff writer Joe Vaccarelli contributed to this report.