Colorado is the first state toanalyze whether hospital cost-shifting — often referred to as a“hidden tax” on health plans — dropped following Medicaidexpansion. (Photo: Shutterstock)

The Medicaid expansion promoted by the AffordableCare Act was a boon for St. Mary's Medical Center, the largesthospital in western Colorado. Since 2014, the number of uninsuredpatients it served dropped by more than half, saving the nonprofithospital more than $3 million a year.

But the Grand Junction hospital's prices did not go down.

“St. Mary's is still way too costly,” said Mike Stahl, CEO ofHilltop Community Resources, which provides insurance to about halfof its nearly 600 employees and their families in western Colorado.“We are not seeing the decreases in our overall health bills that Ibelieve the community overall should be feeling.”

Stahl and other employers in Colorado hoped that as hospitalssaved millions of dollars in charity care from the Medicaidexpansion, it would lead to a curb in consumer and employer healthcosts and insurance premiums.

A new state report found that didn't happen.

While hospitals are financially better off since the expansion,they have increased the costs they shift to commercial health planssince 2009, the state researchers said.

The state report noted the average hospital profit per eachpatient discharge rose to $1,359 in 2017, twice the amount in 2009.For patients covered by commercial and employer-based health plans,margins per discharge rose above $11,000 in 2017 compared with$6,800 in 2009.

Julie Lonborg, a spokeswoman for the Colorado HospitalAssociation, said the state agency that did the study was biasedagainst hospitals and had a “predetermined conclusion.” Hospitalsin the state are not doing as well as the report suggests, sheadded, noting that a third of them face operating losses.

And some insurers have not passed along savings to customersthat hospitals give them, she said.

Hundreds of thousands of state residents gained coverage underthe Medicaid expansion, lowering Colorado's uninsured rate by halfto 7 percent. In addition, hospitals' uncompensated care costs dropped by more than 60 percent, ormore than $400 million statewide.

Kim Bimestefer, executive director of the Colorado Department ofHealth Care Policy & Financing, said that hospitals have usedtheir expanded revenues to focus on adding services that providehigh profits or expanding operations in wealthier areas of thestate that often duplicate what is already available.

“They used those dollars to build free-standing [emergencydepartments], acquired physician practices, build new facilitieswhere there was already sufficient capacity,” she said. “Hospitalshad a fork in the road to either use the money coming in to lowerthe cost shift to employers and consumers or use the money to fuela health care arms race. With few exceptions, they chose thelatter.”

Hospital's profit margin doubles

In written testimony to the state legislature last year, Coloradoofficials pointed to St. Mary's as an example of a hospital withhigh overhead and operating costs — factors they said can lead tohigher insurance premiums.

The facility's profit margin was above 14 percent from 2015 to2017, according to the latest available tax returns. Those figuresare nearly double St. Mary's margin before expansion and twice the margin of the average U.S. hospital in 2017,according to American Hospital Association data.

Colorado is the first state to analyze whether hospitalcost-shifting — often referred to as a “hidden tax” on health plans— dropped following Medicaid expansion.

But a conservative think tank in Arizona said hospitals theredid not cut prices following that state's Medicaid expansion.

“Not only did [it] fail to deliver on the promises ofalleviating the hidden healthcare tax, it allowed urban hospitalsto increase charges on private payers dramatically,” said a reportfrom the Phoenix-based Goldwater Institute.

Some critics point out that hospitals are also benefitingbecause Congress has repeatedly delayed a key ACA provision thatwould have cut federal funding for hospitals with large numbers ofMedicaid and uninsured patients.

The continuation of the program — called Medicaiddisproportionate share payments — has provided Colorado hospitals atotal of $108 million.

How outside costs may factor in

The hospital industry disputes reports that it has merelypocketed profits from Medicaid expansion. They say many factorsinfluence how much they charge employers and private insurers,including the need to upgrade technology and meet rising health anddrug costs.

Lonborg of the state hospital association said hospitals need toshift costs to private employers to make up for lower prices paidby Medicare and Medicaid and to make up for care hospitals give forfree to the uninsured.

But, she added, other factors, including the need to keep upwith rapid population growth, have kept costs from dropping.

Janie Wade, chief financial officer for SCL Health, theBroomfield, Colo., hospital chain that owns St. Mary's and sevenother facilities, said its costs are higher because it has sickerand older patients than most.

She said looking at just the hospital profit margins on St.Mary's IRS-990 form is not a fair assessment because it doesn'ttake into account costs that are outside the hospital, such as its93 physician practices. The hospital lost nearly $12 million onthose doctor practices in 2017, she said.

Across all operations, she added, the hospital's operatingmargin fell from 9.5 percent in 2015 to 4.5 percent in 2018.

Wade said the hospital used some of its new revenue to purchase14 physician practices in recent years. That was designed, sheadded, not to ensure they send their patients to St. Mary's but tohelp keep those doctors in the city so they can staff importantservices such as trauma and maternity care.

“Medicaid expansion was a good thing and, of course, wesupported it,” Wade said.

But she pointed out that the hospital loses money on Medicaidand Medicare, which together cover more than three-quarters of itspatients.

St. Mary's has sought to keep price increases for commercialinsurers and employers to no more than the general inflation rateand made it even lower for some, according to Wade. If employers'rates were rising more than that, she said, it was likely becauseinsurers were adding price increases.

Officials from Rocky Mountain Health Plans, which was recentlyacquired by UnitedHealthcare and is one of Grand Junction's largestinsurers, would not comment.

Dave Roper, who used to oversee employee benefits for the cityof Grand Junction and now heads a local employer coalition, saidthe state report confirms what local businesses leaders have longknown. “St. Mary's has no incentive to reduce its costs,” hesaid.

Edmond Toy, a senior adviser for the nonprofit Colorado HealthInstitute, said the argument that pursuing the ACA policy wouldhelp lower insurance premiums “broadened the appeal of Medicaidexpansion … and conceptually it makes total sense.”

But he noted health experts have long debated whether the higherprices hospitals charge people with private insurance aredesigned to make up for the losses they take on with Medicare,Medicaid and uninsured patients.

He said the state report shows how hospitals in heavilyconsolidated markets don't have to cut prices as their bottom linesimprove. “They can charge whatever the market will bear.”

Marianne Udow-Phillips, director of the Center for Health andResearch Transformation at the University of Michigan, saidhospitals have considerable bargaining power in many places becauseof health system consolidations and their purchases of manyphysician practices.

“It does appear Colorado hospitals have a strong negotiatingposition with payers, or payers there are not negotiating veryeffectively,” said Udow-Phillips. “Hospitals are not going to giveit away.”

Kaiser Health News isa nonprofit news service covering health issues. It is aneditorially independent program of the Kaiser Family Foundation,which is not affiliated with Kaiser Permanente.

Read more: 

• Medicaid expansion cheaper than ACAsubsidies
• More skip care in states lacking Medicaidexpansion
• 4 requirements for what today's 'health systems'should be