CO Healthcare Costs Keep Climbing Due to Hospital Cost-Shifting

Hospital cost-shifting is behind rising healthcare costs in Colorado, according to a new report from the state’s Department of Health Care Policy & Financing.

The report found that, despite significant decreases in uncompensated care and substantial increases in Medicaid and Medicare reimbursement rates, hospitals in Colorado “persistently” increased the price of care, making Colorado one of the most expensive states to undergo certain procedures.

At the same time, hospital profits increased by more than 280 percent between 2019 and 2018, from $538 to $1,518 per adjusted discharge, the state reported.*

The Department of Health Care Policy & Financing pinned the blame on hospital cost-shifting, which is a practice hospitals use to offset the reimbursement shortfalls from certain payers. In this case, hospitals increased the prices of care for privately insured patients to offset financial losses stemming from treating Medicaid and Medicare beneficiaries.

Colorado policymakers have been aware of hospital cost-shifting and its impact on healthcare costs. The group previously implemented the Colorado Health Care Affordability Act (CHCAA) in 2009 to establish the Hospital Provider Fee (later replaced by the 2017 Colorado Healthcare Affordability and Sustainability Enterprise, or CHASE, Act).

The state also expanded Medicaid under the authority of the Affordable Care Act, which lead to an increase in Medicaid reimbursement and a reduction in uncompensated care due to higher insurance rates.

But the new report suggests that these policies and regulations did not work to stymie hospital cost-shifting and healthcare costs in Colorado continued to soar. Specifically, the Department of Health Care Policy & Financing found that hospital prices increased faster than growth in patient volume; prices grew by about 71 percent since 2009 while adjusted discharges only increased by 16.6 percent.

The data indicates that “cost shifts are driven by strategic hospital decisions, not by shortfalls from public insurance,” the state said in the report.

“The increased funding generated by public, taxpayer funded programs — which are intended to reduce private insurance premiums and out-of-pocket costs — are not being passed along to health care consumers and employers,” state officials elaborated. “Health First Colorado (Colorado’s Medicaid program) has steadily increased payments year-over-year since 2009. Hospitals could have been passing on significant savings- from the reduction in charity care and the increases in Medicaid payments- to commercial insurance consumers and employers if they had matched national cost benchmarks. Instead, Colorado has far exceeded those cost benchmarks to the disadvantage of consumers and employers.”

The report comes as Colorado Governor Jared Polis aims to control healthcare costs in the state, which has been called out as one of the most expensive states for healthcare.

“Since we took office, this administration has been focused on lowering the cost of health care for all Coloradans,” Lieutenant Governor and Director of the Office of Saving People Money on Health Care Dianne Primavera said in a release on the Governor’s website. “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. We have to ensure these savings will make their way into the pockets of hardworking Coloradans.”

The Polis administration has released the “Roadmap to Saving Coloradans Money on Healthcare,” which aims to reduce costs through several reforms in the state including, hospital price transparency, a reinsurance pool, a state-backed health insurance option, and alternative payment models.

But hospitals in the state are defending cost-shifting practices, contending that it exists “because of chronic underfunding of state and federal public health care programs – namely Medicare and Medicaid.”

Specifically, the Colorado Hospital Association reported that that government payers, which pay 70 to 77 percent the cost of providing are, now cover than 60 percent of Coloradans who receive hospital care. The aging population is partially to blame for this shift, the association added.

Additionally, hospitals have faced uncertainty and instability in the market because of state and federal policies aiming to reduce hospital costs while improving care quality, the association stated.

“Lastly, 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 the state’s reinsurance program and providing relief to Colorado consumers through 2019’s legislation eliminating surprise billing, among other efforts,” the association stated in its official release. “The most recent report from the Commonwealth Fund shows Colorado ranking 9th best in the country for health insurance premiums.”

The association concluded that 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.”

Hospital cost-shifting continues to be a national problem. Research from the RAND Corporation recently found that hospital prices for private payers were 241 percent of what Medicare would have paid for the same services.

However, many hospitals still claim that cost-shifting is not widespread or does not occur.

As healthcare costs skyrocket, hospital prices will continue to be on the chopping block.

CORRECTION: A previous version of this article said "At the same time, hospital profits increased by more than 280 percent between 20019 and 2018."  A correction has been issued to update the year to 2019.