After years of profits, some Colorado hospitals face a downturn

After years of churning out profits, many Colorado hospitals are now facing a downturn, according to recently filed financial disclosures.

UCHealth, for instance, reported a $157.5 million loss in the quarter ending Sept. 30, 2022. The loss was driven largely by investment losses — reported at more than $200 million. But the sagging stock market was not the only economic stressor for the hospital system.

Revenue from patient care was up by more than $100 million compared with the same period in the prior fiscal year. But the system spent more than $100 million more on wages than it did the previous year and $45 million more on supplies, signs of how inflation is impacting the hospital industry.

The trends are similar at other hospital systems in Colorado.

Vail Health reported a $47 million loss through July 31, compared with a $60 million gain for the same period of 2021. Operating revenue was flat, while supply costs increased by $10 million and the wage bill rose by $7 million.

Children’s Hospital Colorado reported an $82 million loss for the first nine months of 2022, driven by a $180 million investment loss. Profit from its operations — i.e., patient care — was $70 million, up nearly $13 million from a year prior.

Denver Health is seeing higher supply, labor and pharmaceutical costs compared with what it had budgeted for. It is also seeing fewer patients than expected who are covered by private insurance — a more lucrative revenue source for a hospital that often treats people covered by government programs. Denver Health also reported providing higher-than-expected levels of charity care, for which it does not get paid.

Through September 2022, Denver Health had seen a nearly $40 million loss on operating revenue for the year. It had about three months cash on hand, roughly one month less than it did at the same time in 2021.

Tom Rennell, the Colorado Hospital Association’s senior vice president for financial policy and data analytics, has said hospitals are facing a “double whammy” of higher expenses and flat revenues, and they are also being hammered in the stock market.

“I expect negative margins this year for many, many, many hospitals, potentially the entire industry,” Rennell said in late 2022.

Placing the downturn in context

Allan Baumgarten, an independent health care analyst who has produced reports for years on the Colorado hospital market, cautioned that the current downturn should be placed in context.

In Baumgarten’s most recent report on Colorado hospitals, looking at financial performance in 2020, he found that Denver-area hospitals posted nearly $1.4 billion in profits for the year. And that was a slightly down year. In 2018, Baumgarten found that Denver-area hospitals saw a record $2.1 billion in profits.

“I think it’s necessary to look not just at the current year of results but to put into context how they have been doing for the last five years,” he said. “Is this a temporary blip?”

Many hospitals have faced criticism for the size of their investment portfolios and the growing amount of money they’ve made from them. UCHealth, for instance, reported more than $1.2 billion in investment income for the 2021 fiscal year.

Baumgarten said those prior investment gains should give many hospitals the ability to absorb higher costs now.

“I would think that a lot of them would have a lot of money in the bank that if necessary they can fall back on,” he said.

Operating with a reduced cushion

Hospital systems such as UCHealth, though, argue that they’ve already tapped some of that reserve — to help cover the unexpected expenses brought on by the pandemic.

“We used some of that money during the pandemic when we had to spend tens of millions of dollars on lab testing equipment and PPE and other things that were not planned for,” said Dan Weaver, a spokesman for UCHealth.

So, to hospitals, the current investment losses are particularly ill-timed because it means they can’t use investment revenue to cover their higher expenses. Rennell said the rising costs of doing business for hospitals will likely lead eventually to higher prices for services and, ultimately, higher health insurance prices.

“The hospitals are having a hard time offsetting these costs,” he said. “I will just say that it is a big challenge.”

The entrance to the University of Colorado Hospital on the Anschutz Medical Campus in Aurora. The hospital is the flagship of the UCHealth system. (John Ingold, The Colorado Sun)

UCHealth provides an example of how runaway costs are gobbling up hospital budgets. The system has 13 hospitals in Colorado, as well as four affiliated hospitals in Wyoming and western Nebraska. It employs roughly 28,500 people.

Weaver said the health system budgeted for salary increases for staff last fiscal year. But the tight labor market for health care workers ended up pushing staff compensation even higher — $214 million more than was budgeted.

Weaver said UCHealth has increased staff compensation by 21.4% over the past four years.

“UCHealth is fortunate to have stable finances, but our margin has also decreased significantly over the past two years,” Weaver wrote in an email.

The most worrisome financial situation in Colorado is in Leadville, where community-owned St. Vincent Health recently came within 24 hours of not being able to make payroll, according to a report by Colorado Public Radio. Lake County Commissioners approved a nearly half-million-dollar bailout for the hospital, according to the Leadville Herald Democrat.

The Colorado Department of Health Care Policy and Financing, which administers Medicaid in the state, agreed to advance the hospital money, agency spokesman Marc Williams said.

“The financial loss in 2022 will delay some investment.”

At Denver Health, the rough financial waters have caused the health system to pull back on some long-term projects.

“Denver Health remains committed to the critical expenditures that ensure quality care,” spokeswoman April Valdez Villa wrote in an email to The Sun. “However, the financial loss in 2022 will delay some investment needed for long-term growth while we prioritize the present needs of our patients and staff.”

One example of that postponed investment is the system’s Sam Sandos Westside Family Health Center, a community clinic in Denver’s Sun Valley neighborhood that serves a disproportionately low-income population. Denver Health had been planning to replace the existing, aging facility. With the downturn, though, Valdez Villa said the health system has put those plans on hold and will make due with the current facility for at least a little longer.

“That’s one of the biggest pieces, and of course, we’ll continue to reprioritize as safety nets always do to make sure quality patient care is upheld no matter the challenges we face,” she wrote.

Echoing national trends

Overall, the struggle of hospitals in Colorado echoes what is happening nationally.

A recent report by the consulting firm Kaufman Hall estimated that hospitals’ operating margins are expected even in the most optimistic scenario to be down 37% for 2022 compared to pre-pandemic levels — making 2022 the worst year financially for hospitals since the start of the pandemic. A more pessimistic projection for 2022 put margins as much as 133% below pre-pandemic levels. Nationally, overall hospital expenses for 2022, including for labor and supplies, are expected to be $135 billion more than for 2021.

“These realities translate into access to services being put in jeopardy,” Rick Pollack, the president and CEO of the American Hospital Association, said in a statement. “This deserves the immediate attention of policymakers at every level of government.”

Presbyterian/St. Luke’s Medical Center, a hospital in the HealthONE system in Denver. Photographed on Oct. 22, 2019. (John Ingold, The Colorado Sun)

But the financial results are more mixed when looking at multistate health systems that operate hospitals in Colorado.

CommonSpirit Health, the Chicago-based nonprofit system that co-owns the Centura Health system, reported an operating loss of $227 million for the first quarter of its 2023 fiscal year (which began in July). Centura operates 19 hospitals in Colorado and western Kansas, including St. Anthony Hospital in Lakewood and Penrose Hospital in Colorado Springs.

But Utah-based Intermountain Health, which last year merged with SCL Health, reported profits of more than $2 billion through the first nine months of 2022, despite suffering big investment losses. Intermountain owns 33 hospitals across the Western U.S., including St. Joseph Hospital in Denver.

The for-profit HCA Healthcare, which owns HealthONE hospitals in Colorado, reported more than $3.5 billion in net income through the first nine months of 2022. HCA is the largest for-profit hospital system in the country, with seven acute-care hospitals in Colorado including Presbyterian-St Luke’s Medical Center in Denver.

Arizona-based Banner Health reported more than $800 million in losses through the first nine months of 2022, made up mostly of investment losses but including $113 million in operating losses. Banner operates five hospitals in Colorado, including North Colorado Medical Center in Greeley.

“It doesn’t mean we’re changing the focus.”

Kim Bimestefer, the executive director of the state Department of Health Care Policy and Financing, said she recognizes many hospitals are struggling.

Kim Bimestefer (Handout)

Bimestefer and her agency have for years criticized hospitals for their financial excesses. A report from the agency earlier this year found that Colorado hospitals overall in 2020 had the nation’s sixth-highest prices per patient and seventh-highest profit per patient, as well as the nation’s sixth-highest total profit. Costs per patient, a measure of efficiency that looks at hospitals’ underlying costs to provide care, was the 10th highest.

Based on those numbers, Bimestefer has argued that hospitals in Colorado need to slim down — more efficient operations, lower prices, tighter margins. The current downturn hasn’t changed her mind. She sees some of the issues, such as the investment losses, as being short-term things.

“Just like your 401(k) or an investment portfolio that anyone has, including hospitals, that too shall turn around,” Bimestefer said.

Hospitals often complain that Bimestefer’s agency is at least partly to blame for their woes. Weaver, the UCHealth spokesman, said Medicaid reimbursement rates have increased 4.5% over the past four years, while inflation has gone up nearly four times as much.

“This trend is unsustainable,” he wrote in an email.

But Bimestefer is undeterred and said her agency will continue to push hospitals to work with the state to provide higher-quality, more-efficient and more-affordable care to Colorado patients.

“This has been a little bit of a hard chapter for them,” she said. “It’s an unusual chapter all around. It doesn’t mean we’re changing the direction, and it doesn’t mean we’re changing the focus.”

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