UCHealth, Colorado’s largest health care provider, has prevailed for now in an exceptionally complicated fight with the state Medicaid agency over hospital provider fee money — a dispute that could see as much as $50 million a year shift away from public hospitals and move to private hospitals, according to state officials.
The fight has to do with whether two UCHealth hospitals that once were public, Poudre Valley Hospital in Fort Collins and Memorial Hospital in Colorado Springs, should still be considered public. UCHealth, a private nonprofit, has for years managed the hospitals under its banner pursuant to long-term lease agreements.
But the Colorado Department of Health Care Policy and Financing continued to classify the two hospitals as public for the purposes of the hospital provider fee — a mechanism the state uses to draw down a boatload of federal money, much of which it sends back to hospitals.
Under the system, hospitals pay a fee based on their amounts of inpatient and outpatient care. The state combines that pool of money with the matching federal funds and then redistributes it, focusing especially on helping hospitals that treat a lot of Medicaid patients.
The end result of the system is that the hospital industry in Colorado as a whole comes out ahead, as do the vast majority of individual hospitals. Because Medicaid typically pays hospitals less than what it costs to provide a service, the money is vitally important for stabilizing some hospitals’ bottom lines and discouraging them from charging even more to privately insured patients to cover the shortfall.
A half-billion dollar system
In the most recent fiscal year, Colorado hospitals paid roughly $1.3 billion in fees and got back about $1.8 billion in payments, netting the industry a $500 million win. But some hospitals end up getting back less than they put in.
How this reallocation works depends in part on how a hospital is categorized — whether it is grouped with state government-owned hospitals, private hospitals or other public hospitals. The state had classified Poudre and Memorial as “non-state government owned,” but UCHealth disagreed and sued in state court to reclassify the hospitals as private.
Last month, a district court judge in Denver agreed, writing, “Because the court holds the hospitals are the sole owners and operators of Memorial and PVH (Poudre Valley Hospital), the court also holds Memorial and PVH were incorrectly categorized.”
The state is considering whether to appeal the judge’s ruling.
Colorado Gov. Jared Polis, left, points to the COVID-19 vaccine in a small vial as he watches as Gina Harper, a clinical pharmacy coordinator, reconstitutes a dose of the vaccine before it is administered to the first patients in Colorado at UC Health Poudre Valley Hospital on December 14, 2020 in Fort Collins, Colorado. (Pool photo by Helen H. Richardson/The Denver Post)The lawsuit focused narrowly on technical arguments about federal law and rules. But the context is this: Both Memorial and Poudre don’t currently benefit a lot from the provider fee system. Last fiscal year, Memorial netted less than $1 million, while Poudre paid in about $12 million more than it got back.
UCHealth spokesperson Kelli Christensen wrote in an email that recategorizing the hospitals “could result in higher payments,” but she added that it’s not certain, given the complexities of the system.
UCHealth is Colorado’s largest provider of services to Medicaid patients, and Memorial and Poudre treat more Medicaid patients than any other hospital in their respective regions, Christensen noted.
“Following federal law and correctly classifying hospitals is important to ensure proper payments to hospitals that care for Medicaid patients,” she wrote. “An incorrect classification can result in underpayments — and this hurts both the hospital and Medicaid patients.”
State warns of consequences
State officials say the court ruling could hurt other hospitals that treat a lot of Medicaid patients, namely the others categorized as non-state government owned public hospitals. This list includes Denver Health and a slew of small, rural hospitals operated by local hospital districts.
Nancy Dolson, the special financing division director for the Department of Health Care Policy and Financing, said pulling Memorial’s and Poudre’s contributions out of that pool and moving them over to the pool for private hospitals could shift $25 million to $50 million annually away from publicly owned hospitals.
“We need to really recognize the impact and harm that, in some circumstances, could be more than significant to our rural hospitals and Denver Health if this decision would prevail,” Kim Bimestefer, the executive director of the Department of Health Care Policy and Financing, said in an interview.
79% of hospitals benefit
Of the 85 acute care hospitals listed in the most recent annual report for the Colorado Healthcare Affordability and Sustainability Enterprise — the entity within the Department of Health Care Policy and Financing that collects and redistributes the fees — 67 received a net benefit last year.
The biggest beneficiaries were also some of the state’s biggest providers of services to Medicaid members — Denver Health and UCHealth University of Colorado Hospital.
At the other end, there were 18 hospitals that received back less than they put into the system, with HCA HealthONE Sky Ridge at the bottom. The hospital paid in $24 million more than it got back.
Provider fee under fire
The hospital provider fee could be up for big changes at the federal level.
A proposal by Republicans in the U.S. Senate, part of the under-construction version of the giant tax and spending bill, would cut how much states can charge in provider fees, thus also limiting how much matching federal dollars they could draw down. (The version of the bill that passed the U.S. House would have frozen existing fee rates in place.)
The nonpartisan Senate parliamentarian has ruled the provision out-of-order for how lawmakers have proposed passing the bill. But supporters in the Senate of the plan to cut fees, which is vital to GOP lawmakers’ goals for cutting federal spending to offset tax breaks, have vowed to press forward and find a way to include the provision — or a similar one — in the bill.
The U.S. Capitol. (Photo by Adam Michael Szuscik, via Unsplash)In the first year of the Senate proposal, the state estimates it would see $115 million less collected in provider fees and a subsequent $180 million hit to what it gets in federal funds. By the time the full weight of the Senate proposal is in effect in 2030, Colorado estimates it could see an annual loss of more than $550 million in provider fees collected and as much as a $2.5 billion hit to federal funding.
If that happened, it would not only impact the payments to hospitals but it would also impact Colorado’s ability to continue providing coverage to people under the Affordable Care Act’s Medicaid expansion. The federal government currently pays 90% of the costs for people in the expansion group, and Colorado uses money from the provider fee system to pay the remaining 10%.
Joshua Ewing, the Colorado Hospital Association’s vice president of rural health, said at a roundtable discussion earlier this month with Gov. Jared Polis and U.S. Rep. Brittany Pettersen that both the cuts to hospitals and the impact on Medicaid members would be disproportionately felt in rural Colorado.
“I’m deeply concerned for rural communities in Colorado, our rural hospitals and the people of Colorado,” he said.
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