The financial power of a Colorado hospital system
Market power, state laws, location and population wealth often dictate how well hospitals do. That's why local politics matter just as much, if not more, to the industry than what's going on at the federal level.
How it works: Look to Colorado, where the University of Colorado Health holds one of the highest profit margins in the country and controls large shares of inpatient and outpatient services throughout the state.
By the numbers: UCHealth had a 13.3% operating margin in its 2019 fiscal year, which ended this past June.
- UCHealth's margin has consistently been above 10%, which is far above the hospital industry average of 2-3%, according to data from Moody's Investors Service.
- Because UCHealth is a tax-exempt, not-for-profit system, it is supposed to reinvest all surplus money into the community. But those funds are often directed elsewhere.
The big picture: "Hospital systems have consolidated and merged to a point where they really have the leverage over the (insurance) networks. They are the ones dictating the prices," said Merrit Quarum, CEO of medical billing audit firm WellRithms.
- Systems affiliated with medical schools often command higher prices from private insurers based on brand name alone.
- UCHealth expanded into the suburbs when its academic medical center merged with a dominant system in 2012. It now controls more than 50% of the market in 2 of its regions and extracts some of the highest prices from insurers in the country.
Colorado is also a particularly lucrative market. The state's median income is higher than the U.S. average, and UCHealth's suburban facilities are located in affluent areas with high rates of commercial insurance.
- Colorado expanded Medicaid under the Affordable Care Act, which has boosted hospitals' bottom lines. Charity care represents less than 3% of UCHealth's gross revenue.
- Colorado administers a program for low-income patients that involves collecting fees from hospitals to get higher federal Medicaid payouts. UCHealth netted a cumulative $154 million from this program in 2016 and 2017 — all taxpayer money.
- UCHealth's facilities have some of the highest rates in the state for workers' comp claims, and the state recently enhanced its payments for some of those claims. Workers' comp "is a license to profit" for hospitals depending on the state's structure, according to health care consultant Joe Paduda.
UCHealth declined several interview requests but said in a statement that it offers "competitive prices."