Colorado’s mountain hospitals have higher net income margins
April 6, 2017
Wednesday, April 5: State commission taking “deep dive” into health care costs in mountains
Thursday, April 6: How Coloradans benefitted from Obamacare
Friday, April 7: Colorado’s mountain hospitals have higher net income margins
Saturday, April 8: High country residents find partial solutions to health care costs
Editor’s note: This is the fifth in a six-part series on health care costs in the Colorado mountains.
Hospital bills in the high country are higher than in metro Denver — but that's inevitable anywhere there is a small population base, say hospital executives.
The hospitals have to big enough for the crush of ski season, when the number of people in the communities triple in size, and there are crazy numbers of fractures, sprains and concussions. But they can't hire nurses and doctors just for the ski season — or if they could, they would have to sweeten the deal with salary bumps.
"We have extremely low economies of scale" due to having to maintain staffing levels and equipment while having much lower usage per day, Aspen Valley Hospital CEO Dave Ressler said.
Whether they have one patient or 10, they need to maintain core staffing levels. That means a nurse for the first patient and a second nurse in case a second patient arrives during the shift.
But with insurance premiums in Pitkin, Routt, Summit, Eagle and Garfield counties 50 percent to 100 percent higher than they are on the Front Range, many high-country residents are wondering whether the hospital bills are justified — or whether the amenities have to be so nice.
Lynn Kirchner, a real estate agent from Carbondale, said her husband's navel hernia procedure would have cost more than $10,000 locally, but that he got it done for $800 in a suburban Denver hospital. "We could have gone to London — that would have been $4,000."
She says Valley View provides very good care — "they're a class act, I'm not denying them that" — and it has its share of people whose lives were saved and who contribute generously to the hospital.
But when she sees all the expansion, the robotics lab, and the valet parking, "I tell people, you are paying for that luxury."
A recent analysis of Colorado hospitals found that hospitals in the mountain recreation areas of the state have higher net income margins — net revenues less net expenses — than in metro Denver or than at other rural hospitals. For 2015, the margins were:
• 8.3 percent, Yampa Valley Medical Center (Steamboat Springs)
• 13.1 percent, Valley View Medical Center, (Glenwood Springs)
• 23.3 percent, Aspen Valley Hospital (Aspen)
• 27.2 percent, Vail Valley Medical Center (Vail)
• 29 percent, St. Anthony Summit County (Frisco).
For metro Denver hospitals, the average margin was 15.6 percent; and for rural hospitals the average margin was 7.2 percent.
Hospital CEOs agree that it is frustrating that insurance premiums here are so high, but they don't think their hospitals are the main culprit. They note that they've been raising their prices by just a couple percent a year, while overall health care spending has risen about 5 percent annually.
But that's not the whole story. One of the most confounding mysteries of the 21st century is the price of services at an American hospital.
Rural hospitals may announce that their "charges" are about the same as hospitals in urban areas. But what patients or insurance companies pay can vary greatly from those charges — and vary greatly from hospital to hospital.
In urban areas, insurers can negotiate rates for tens of thousands of people with a single hospital. And if the hospital doesn't accept a stiff enough reimbursement discount, the insurer can try with a half dozen more.
In Colorado Ski Country, it's usually one hospital per county — and one or two insurers per county.
Hospitals can't resolve the issue of high health care costs alone, the executives say. "This is an issue involving all medical providers, insurance companies, drug manufacturers and the general wellness of the people accessing healthcare," Vail Valley President/CEO Doris Kirchner (no relation to Lynn Kirchner) said.
Hospital executives point to some of the popular aspects of Obamacare as driving up insurance costs, such as requiring that insurers not jack up rates for those with pre-existing conditions. The 20 million newly insured, especially those on the individual market, turned out to be sicker than anticipated, they say, driving the big increases in rates the past two years.
Typically, young people in the system offset the more expensive care for older adults, but in ski country, the young people tend to fracture bones, pull tendons, snap hamstrings and the like in their pursuit of outdoor sports, Vail Valley's Doris Kirchner said. So the young people here don't provide that hedge, even if they're in the system. And if they require expensive hospital care and are uninsured, they drive up hospital costs for all.
"I doubt if you are ever going to get health care as cheap in the resort areas as in Denver," Valley View Medical Center CEO Gary Brewer said. "It's just not going to happen."
If an insurer has only 1,000 clients — or "lives" in health insurance jargon — it's far riskier. If just one or two of those 1,000 come down with extremely expensive problems, the risk pool loses money — and insurance premiums skyrocket again the next year.
"If you don't bring us a large number of lives, it is very difficult to offer a good discount, because there are just not enough lives," Brewer said.
The insurer always has the incentive to negotiate as steep a discount as possible, whereas the hospital tries to do the opposite — the thinner the discount, the better.
Eagle County Commissioner Jill Ryan would like to see more transparency on hospital charges, to get a better idea of whether what people pay at the hospitals in Vail, Aspen, Glenwood Springs and Frisco are actually significantly more for most procedures. There is a database for that, but most procedures come with an asterisk — "data not available."
Medicare operates a "hospital compare" website that compares hospitals on patient satisfaction, appropriate use of imaging tests and costs of procedures. In the most recent published survey on patient satisfaction, St. Anthony Summit, Vail Valley, Yampa Valley Medical Center and Aspen Valley all scored above average compared to other hospitals in Colorado and the nation. Valley View in Glenwood Springs was given average scores.
On price, most of the rural hospitals didn't have enough data for a fair comparison, or were deemed to not vary significantly from the average for similar hospitals.
The mountain resort hospitals ranked within a point or two of average on the appropriate use of imaging tests such as CT scans and MRIs. The exception was Valley View, which gave MRIs about 58 percent of the time to patients complaining of lower back pain, without first trying physical therapy. The state and national average is about 40 percent.
Overuse of MRIs is considered a major driver of health care costs.
The hospital patients who get hit with the astronomical bills are generally the uninsured who are asked to pay the notorious "charge master" prices.
Those prices are four or five times what insurance companies pay, after they've negotiated steep discounts with the hospitals. In areas where there is just one hospital and few insurers, the discounts aren't as steep — so what the insurers pay is higher, and what they charge their customers for premiums is higher.
The "charge master" prices are about eight times higher than what Medicare and Medicaid pays. Hospital officials say those reimbursements don't cover costs, variously complaining that they lose anywhere from 50 cents on the dollar to 20 cents on the dollar for each senior (Medicare) or very low-income (Medicaid) patient.
For treating simple pneumonia, hospitals charge $53,000 to the uninsured, but Medicare reimburses $9,400; for chest pain, the "charge master" price is $25,600, the Medicare price $3,600.
In between those extremes is the price paid by those who are insured. Simple pneumonia might be $15,100 instead of $53,000.
But it can still be costly for insured residents of the resort regions. A bronze plan costing some $400 a month might come with a $6,000 yearly deductible, so that has to be paid before the insurer starts kicking in.
Obamacare's expansion of Medicaid — providing the care for those whose household income is up to 139 percent of the federal poverty level — has helped lower the pot of uncompensated care at both rural and urban hospitals. But Medicaid reimbursements only cover about three-fourths of the costs of treatment.
Executives of the non-profit hospitals in Colorado's mountain resort communities note that every dollar they collect in excess of expenses is pumped back into the operation. But that's the rub. Margins can look tiny or huge, trumpeting thrift or largesse, depending on who is looking at the numbers.
Allan Baumgarten, who provides market reports to which several states subscribe to examine hospital expenses and revenues, noted that nonprofit hospitals don't pay dividends to shareholders or offer stock options to executives.
But saying that every dollar goes back into the operation is a very broad statement, he said. "It can include providing rich compensation packages to executives, it can be used to acquire physician practices or build new clinics, it can be used to improve facilities for certain specialties like oncology and orthopedic surgery and provide additional compensation to the doctors that practice at the hospital.
"In concept those hospitals could say, 'our reserves are strong, our bond rating is solid, we want to benefit the community by not increasing payments from insurers for the next three years.' But I would be surprised if I ever saw that happen."
Hospitals counter that they need those big margins year after year to be able to expand — and seemingly they are always expanding.
With expansion plans in the works, the only way to earn a good low interest rates on the bonds is to show the investors that there is a good margin. And the way the rating services such as Moody's measure that is to require hospitals to have cash on hand equal to a certain amount of days of operational costs.