For 25 years, health care analyst Allan Baumgarten has been studying the hospital market in Colorado, and his new report will show something it never has before: Denver-area hospitals surged past the $2 billion mark in profits in 2018.

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The 27 metro-area hospitals Baumgarten includes in his report made just over $2 billion in pre-tax profits in 2018, compared with $1.7 billion in 2017 and $1.3 billion in 2016, according to his calculations.

The latest number represents a 19.3% profit margin for the hospitals, as a percent of net patient revenues, and it’s a full percentage point higher than the 18.1% margins hospitals reported in 2017, according to Baumgarten’s findings. The money the hospitals made from patient care increased 9.2% for Denver-area hospitals in 2018, while the hospitals’ cost of treating those patients increased only 4.1%. Inpatient hospital days — a measurement of patient volume — creeped up only about 1%.

“That’s the kind of spread a Wall Street analyst would find very impressive,” Baumgarten said Thursday at a meeting of the Colorado Business Group on Health, where he presented a first-look at his every-other-year report. The final report will be available in the coming weeks.

“That’s not a lot of growth,” he said of the patient volume figure. “That’s not a lot of increased utilization. That suggests to me that it’s not utilization that’s driving increased revenues, it’s the prices.”

Many hospitals outside of the metro area also turned solid — but not record — profits, according to the report. The 28 largest non-metro hospitals collectively made $769 million in pre-tax profits in 2018, down slightly from the $781 million they made in 2017. Their margins also fell, to 13.2% from 14.3%.

In a statement, a spokeswoman for the Colorado Hospital Association said the association had identified “numerous significant errors” in an earlier version of Baumgarten’s data and had concerns about the accuracy of his figures. The spokeswoman, Julie Lonborg, said the association has not received a final report from Baumgarten and could not comment on specifics.

But she confirmed that hospitals saw increased profit overall in 2018.

“This is partially a function of Colorado’s strong economy and a focus on controlling costs as we work on improved affordability,” Lonborg wrote in an email.

People leave Boulder Community Hospital in October 2018. (Jonathan Castner, Special to The Colorado Sun)

The report is sure to add fuel to Gov. Jared Polis’ administration’s push to bring down hospital prices, a charge led by the state’s Department of Health Care Policy and Financing, which administers Medicaid in Colorado. On Thursday, HCPF’s CFO, John Bartholomew, listened in the audience as Baumgarten presented his findings.

“As Coloradans continue to struggle with the high cost of health care while hospitals enjoy record profits, we must ask how hospital systems are sharing this prosperity with the communities they serve, and with Colorado employers and consumers who buy health insurance,” Bartholomew said later in an emailed statement.

In May, a study by the RAND Corp. showed that hospitals in Colorado charged privately insured patients, on average, more than twice what they charge Medicare for the same procedure. A subsequent analysis commissioned by the Colorado Business Group on Health — which encourages employers to work together on health care prices — found that how much a hospital charges relative to Medicare isn’t always connected to measurements of the quality of care the hospital provides.

In January, a report from HCPF concluded that hospitals across Colorado could have saved patients as much as $11.5 billion over a nine-year period if they had lowered their margins and better controlled their costs.

A separate report, also presented Thursday at the Colorado Business Group on Health meeting, suggested a reason why hospitals haven’t done that: They hold the power in the health care marketplace.

In the Denver metro area, 85% of the total hospital admissions are at hospitals that are part of four big health systems — UCHealth, HealthONE, SCL Health and Centura Health.

“There is substantial evidence that provider consolidation leads to higher health care prices,” the report, from the group Catalyst for Payment Reform, stated, “and this correlation clearly plays out in the Denver market.”

Of those four systems, HealthONE had by far the largest profit margin — 46%, as a percentage of net patient revenue. But HealthONE is also the only system of the group that is for-profit; the others are non-profits. That means HealthONE’s margin is before it paid its required taxes, which amounted to $141.5 million in 2018, according to the health system. Lonborg said other important expenses, like those related to medical-education programs, also come out of a hospital’s margin.

SCL Health had a 14.8% margin, UCHealth had a 12.5% margin and Centura Health had a 7% margin, according to Baumgarten’s calculations.

The University of Colorado Hospital took in far-and-away the most money of any in the state in 2018 — nearly $1.9 billion just in patient care, Baumgarten reported. But its pre-tax profits of about $266 million placed it second, behind HealthONE’s Presbyterian St. Luke’s Medical Center, which had a profit of more than $291 million.

There were also several hospitals that lost money in 2018, according to Baumgarten’s numbers, including Boulder Community Hospital — which had an $8 million loss.

Baumgarten, who is based in Minnesota, compiles these numbers on Colorado hospitals from reports that the hospitals submit to federal officials. In many cases, hospitals’ profits are bolstered not just by revenue from patient care but also from investments or other sources. The figures also have their limitations — they do not, for instance, include revenues that health systems earned at smaller clinics or free-standing emergency rooms.

His figures also do not include numbers for some of Colorado’s smallest, and, thus, most vulnerable, hospitals. Lonborg said there is wide variation among hospitals in terms of finances, but the state had fewer that lost money last year and fewer that fell below a key sustainability threshold.

“This is critical in an environment where we are seeking to assure access to quality health care,” she wrote in an email.

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