Denver hospitals are leading a formidable charge to statewide profitability, showing big profits and a resurgence in the insurance market as well, according to a report from Minneapolis-based independent analyst and health finance researcher Allen Baumgerten.
His Colorado Health Market Review 2017 analyzed trends, competition and strategies in Colorado's health care payer and provider markets using Medicare cost reports.
Results showed a steady stream of strong profits for Denver-area hospitals for years running, culminating in a net income in 2016 of $1.3 billion, or 15.2 percent of net patient revenues. They also had operating income of $371.8 million as well as other revenues including investments, philanthropy and government grants of $970.2 million.
Three large systems grew their profits over their 2015 figures. HCA/HealthOne hospitals showed average pre-tax margins of 35.7 percent, while Centura hospitals had average margins of 6 percent and the SCL Health hospitals showed margins of 11.9 percent.
"The HCA/HealthOne hospitals are the most profitable, and have benefited by their large market share, their dominance of certain geographic sub-markets, and their status with many employers and health plans as a 'must-have' provider. For example, the HCA/HealthOne hospitals had net income of $800.2 million in 2016, pre-tax, out of total net income for hospitals in the region of $1.324 billion," Baumgartner said.
The income for the University of Colorado hospital, now the hub of the largest hospital system in the state, showed net income of $221.5 million which was less than in 2015. That still constituted a strong margin of 15.2 percent.
Hospitals throughout the state also showed strong financial performance in an analysis of 25 other institutions that showed an average margin between them of 8.5 percent. Some showed margins as high as 15 percent, including Banner McKee in Loveland, Centura St. Anthony Summit and UC Poudre Valley in Fort Collins, the report said.
In what would seem like a contradiction to such strong financial performance, inpatient occupancy in Denver hospitals actually decreased from 69.2 percent in 2008 to 64.9 percent in 2016, a drop about five percent. Inpatient utilization has been largely flat, Baumgarten said in a statement, despite ongoing construction projects and expansion of hospital footprints.
"In the past two years, systems have made new investments in micro-hospitals and freestanding emergency departments in the Denver area, and constructed new or replacement hospitals in Colorado Springs, Fort Collins, Greeley and Grand Junction. The University of Colorado Health system has been especially active, completing or building five new hospitals since 2016, on a path to establishing a regional health system in Colorado and Wyoming," Baumgarten said.
Following losses in 2015, the health of Colorado insurance plans has also rebounded, the report showed. Colorado HMOs reported net income of $78.1 million in 2016, or 1.1 percent of underwriting revenues. The majority came from UnitedHealth Group's PacifiCare, who touted after-tax profits of $73.4 million on its Colorado, Arizona and Nevada Medicare Advantage plans. The state's largest payer, Kaiser Permanente, either broke even or lost money in 2016 and 2015.
Insurance coverage went up, as many newly insured consumers signed up with HMOs. The number of Colorado residents with health insurance increased by almost 675,000 over four years, and HMO enrollment swelled by 8.2 percent in 2015 and 7.1 percent in 2016, the report said.
"These hospitals have benefited from the expansions of coverage under the Affordable Care Act. From 2011 to 2015, almost 675,000 people gained insurance in the state, many of them through Medicaid but about one-fourth through private insurance. That has greatly improved revenues for hospitals and reduced their number of uninsured patients," Baumgartner said.