Colorado hospitals could have passed on savings to consumers of as much as $11.5 billion over a nine-year period if they had better contained costs and lowered their margins, according to an explosive new state report.



The report seems to indicate the administration of Gov. Jared Polis will take an aggressive line against hospitals in trying to reduce what people pay for health care. It finds that hospitals charged higher and higher percentages to people with private insurance, even as their revenues grew and the number of people without insurance they were treating fell.



More significantly, the report argues that this cost shift was not the fault of low-ball payments to hospitals from Medicare or Medicaid. Rather, according to the report’s analysis, the shift was likely due to overall growth in hospitals’ spending and profits. In 2017, for instance, hospitals charged privately insured patients $1.2 billion more than was needed to cover losses from treating Medicare and Medicaid patients, according to the report.



“There was a choice,” said Kim Bimestefer, the executive director of Colorado’s Department of Health Care Policy and Financing, which administers Medicaid in the state and produced the report. “The strategic decisions were a big driver of where we are today.”



“That said,” she added, “we all built the system together, so we have to work together to reverse these trends.”

Hospitals dispute the findings

A spokeswoman for the Colorado Hospital Association said analysts there have not had a chance to fully study the 70-page report, which was released late Tuesday. But she adamantly denied that hospital profiteering caused people with private insurance to pay higher and higher prices relative to the underlying cost of care.



“We believe that the cost shift occurs because Medicare and Medicaid pay 69 cents on the dollar for our costs,” said Julie Lonborg, the spokeswoman.



Last week, the hospital association released its own report analyzing cost trends. In addition to an increase in Medicaid patients as a result of the Affordable Care Act and state laws, the hospitals’ report argues that Colorado’s high cost of living and competitive job market also push hospital costs higher.



“There’s a lot we can do to manage those costs, but frankly it’s just a reality of doing business,” Katherine Mulready, the hospital association’s senior vice president and chief strategy officer, said during a panel discussion at the Colorado Health Institute’s annual conference in December.

Lt. Gov. Dianne Primavera announces the creation of the Office for Saving People Money on Healthcare on Wednesday, Jan. 23, 2019. (Jesse Paul, The Colorado Sun)

Capitol health cost fight

Though still early, this battle between the state and hospitals is setting up to be the major fight of the legislative session when it comes to health care costs. One bill — to which Democrats gave a place of honor as HB-1001, the first bill introduced in the House this session — would require hospitals to provide more detailed financial reports to the state, so that it can better analyze hospital charges and expenses. (The panel where Mulready spoke last month was fittingly titled “Hospitals in the Hot Seat.”)



And that makes the state’s new report an opening salvo in the fight.



On Wednesday — the morning after the report’s release — Polis and a slew of Democratic lawmakers and administration officials announced the official creation of his new Office of Saving People Money on Health Care. Polis said the office, to be led by Lt. Gov. Dianne Primavera, will coordinate efforts across the administration to reduce the cost of health care, especially in rural areas. He said he will ask the legislature to approve $247,000 to get the office off the ground.



In ticking through ideas to lower health care costs, Polis mentioned several proposals pending in the legislature — such as HB-1001 or a bill that passed its first committee vote Wednesday that would study the idea of creating a state-run insurance program that people could buy into.



But he also specifically mentioned the new report, saying that it “shows there’s a lot of work we need to do on bringing down hospital costs.”

Explaining the cost shift

Bimestefer’s department created the report for the Colorado Healthcare Authority & Sustainability Enterprise board, which helps implement a fee that is supposed to reduce the need for hospitals to charge privately insured patients more to compensate for underpayments from Medicaid and Medicare. (The report is still technically in draft form and won’t be official until approved by the board at its meeting next month.)



But, despite the fee and other reforms, the cost shift has grown over the past nine years, according to the state report. In 2009, Medicare and Medicaid in Colorado paid 78 cents and 54 cents, respectively, for every $1 worth of care their patients received. Privately insured patients paid $1.55 for every $1 worth of care.



In 2017, Medicare and Medicaid had equalized, each paying 69 cents for every $1 in care in Colorado. But privately insured patients were now paying $1.66 for every $1 worth of care, according to the report.



This table shows what various types of coverage paid Colorado hospitals relative to what the services actually cost. Medicare and Medicaid paid hospitals less than what they needed to cover their costs. Private insurers paid more. (From the Colorado Department of Health Care Policy and Financing’s draft Cost Shift Analysis Report, page 12.)

During that nine-year span, hospitals also saw the percent of uninsured patients they treated plunge as a result of the federal Affordable Care Act and the expansion in Colorado of Medicaid eligibility, meaning they were treating fewer patients without receiving any payment at all.



Payments to hospitals grew from $9.5 billion to $15.7 billion. Costs grew, too, increasing 58.7 percent while hospital discharges, a measure of how many people are using the hospital, grew only 14.2 percent. And hospital margins — the money left over after payments are taken in and expenses are paid — increased from $417 million to $1.2 billion.



This table shows how much money various types of coverage underpaid or overpaid hospitals relative to how much the services cost. The cost shift to private insurance reached $1.2 billion in 2017. (From the Colorado Department of Health Care Policy and Financing’s draft Cost Shift Analysis Report, page 17.)

“One conclusion could be that the benefits of Medicaid expansions and the ACA (have) not been passed onto commercial insurance, employers or commercial consumers,” the report states.



John Bartholomew, the Department of Health Care Policy and Financing’s chief financial officer, put it more directly: “If they had managed their costs, the cost shift could have been flat.”



In one scenario modeled in the report, if hospitals had held their cost increases to inflation levels while also keeping their margins at 2009 levels, the cost shift to privately insured patients would have decreased and consumers in Colorado would have saved $11.5 billion.



But hospitals say this kind of math oversimplifies their situation.



Lonborg, the hospital association spokeswoman, said Colorado’s aging population plays a role in hospital cost increases. At the Colorado Health Institute conference, Richard Hammett, the CEO of Swedish Hospital, said more patients with minor medical issues are being treated in non-hospital settings, meaning the population of patients using hospitals now is relatively sicker and more expensive than it once was.



“So intensity drives cost and it drives the level of resources we provide,” he said.



And Jamie Smith, the president of Saint Joseph Hospital, said an influx of patients from neighboring states seeking care in Colorado has helped drive the Front Range’s hospital building boom — often cited as one cause for spiraling costs being pushed onto patients.



“We are net importing patients … from communities outside our own,” he said. “So I think that ought to be considered in some of this building.”



Bimestefer dismissed the idea that hospitals are building only to meet consumer need, saying that hospitals are largely building in high-income areas and that marketing helps make sure new beds get filled.



“If you have excess capacity, that creates demand,” she said.



But she said she hopes the report doesn’t lead to back-and-forth arguments.



“All of us,” she said, “have to work to change the hand of cards we’ve been dealt.”



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