UCHealth, which is known as Colorado’s largest healthcare provider, has temporarily won a critical legal battle against the state Medicaid agency concerning the reclassification of hospital provider fee money. This ongoing dispute has potential repercussions that might redirect as much as $50 million per year from public hospitals to private ones, according to state officials.
The core of the conflict revolves around whether two UCHealth hospitals, Poudre Valley Hospital located in Fort Collins and Memorial Hospital in Colorado Springs, should still retain their status as public hospitals. Although these hospitals were once public, UCHealth, as a private nonprofit organization, has managed them under long-term lease agreements for several years.
Despite UCHealth’s management of these hospitals, the Colorado Department of Health Care Policy and Financing has continued to classify them as public entities for the purposes of the hospital provider fee, a crucial mechanism that allows the state to access significant federal funds that it redistributes back to hospitals.
In principle, the hospital provider fee requires hospitals to pay a fee based on the extent of their inpatient and outpatient services. The state then pools this money with matching federal funds, redistributing it primarily to hospitals that provide substantial care to Medicaid patients.
The framework has yielded considerable benefits for Colorado’s hospital sector, with the system generally favoring both the industry as a whole and the majority of individual hospitals. As Medicaid reimbursements typically fall short of covering the costs incurred by hospitals, these funds play an essential role in bolstering financial stability, preventing hospitals from increasing charges on privately insured patients to compensate for the deficit.
In the last fiscal year, approximately $1.3 billion was collected from hospital fees, with hospitals receiving around $1.8 billion in return, culminating in a substantial net gain of $500 million for the industry. However, some hospitals do receive less than they contribute, highlighting disparities within the system.
The allocation of funds is contingent upon the classification of hospitals—whether they are categorized as state government-owned, private, or other public hospitals. The Colorado Department of Health Care Policy and Financing had specified Poudre and Memorial as “non-state government owned,” but UCHealth disputed this classification and subsequently filed a lawsuit in state court to have the hospitals recognized as private.
A Denver district court judge ruled in favor of UCHealth, concluding that Memorial and Poudre Valley Hospital were incorrectly categorized, asserting that the hospitals are indeed the sole owners and operators.
In light of the ruling, state officials are contemplating the possibility of an appeal, emphasizing the potential negative impact on other hospitals that predominantly serve Medicaid patients, particularly those also classified as non-state government owned. Such hospitals include Denver Health and numerous smaller, rural facilities operated by local hospital districts.
According to Nancy Dolson, the special financing division director for the Department of Health Care Policy and Financing, reclassifying Memorial and Poudre away from the pool for public hospitals could result in a revenue loss totaling between $25 million and $50 million annually, removing critical funding from these entities.
Kim Bimestefer, executive director of the Department of Health Care Policy and Financing, articulated the potential repercussions, stating, “We need to really recognize the impact and harm that could be more than significant to our rural hospitals and Denver Health if this decision would prevail.”
A closer examination of the financial landscape reveals that of the 85 designated acute care hospitals referenced in the latest annual report from the Colorado Healthcare Affordability and Sustainability Enterprise, 67 benefitted from the provider fee system last year.
The biggest gains were observed among major entities providing Medicaid services, including Denver Health and UCHealth University of Colorado Hospital. Conversely, 18 hospitals reported receiving less in returns than their contributions, with HCA HealthONE Sky Ridge experiencing the steepest deficit, as it paid in $24 million more than it received.
Amid this legal dispute, the hospital provider fee structure itself faces scrutiny at the federal level. A recent proposal put forth by Republicans in the U.S. Senate is poised to reshape how states can impose provider fees, consequently limiting the federal matching funds drawn by the states. A version of this bill that passed in the U.S. House had also proposed freezing existing fee rates.
Although the nonpartisan Senate parliamentarian has ruled certain provisions of the bill out of order, proponents of the fee reductions see this as a crucial step toward realizing their federal spending reduction goals.
Initial estimates suggest that, in the first implementation year of the Senate proposal, Colorado could experience a loss of $115 million in provider fees, alongside a $180 million reduction in federal funds. By the time the full implications are projected to unfold in 2030, Colorado estimates potential annual losses exceeding $550 million in provider fees and up to $2.5 billion in federal funding cuts.
If implemented, such cuts would jeopardize not only hospital payments but also Colorado’s capacity to sustain coverage for individuals enrolled in Medicaid under the Affordable Care Act’s expansion provisions. Currently, the federal government covers 90% of the costs associated with this particular group, with Colorado utilizing revenue generated from the provider fee system to fund the remaining 10%.
Joshua Ewing, the vice president of rural health for the Colorado Hospital Association, voiced profound concern regarding the impact of potential cuts on rural healthcare. Speaking at a recent roundtable with Governor Jared Polis and U.S. Representative Brittany Pettersen, he highlighted the disproportionate effects that reductions would have on rural communities, rural hospitals, and the people residing in Colorado.
Despite the temporary legal victory for UCHealth regarding the classification of Poudre and Memorial, the broader implications of the ruling for healthcare funding in Colorado, particularly for publicly operated hospitals, remain uncertain. The discourse surrounding the hospital provider fee and its funding methodologies continues to evolve in the backdrop of these significant local and federal legislative developments.
image source from：coloradosun
