About Hospital Finances

Hospitals treat everyone who comes through their doors, regardless of their ability to pay for services. This is a federal requirement for some services, such as emergency care, but also a point of pride for Colorado hospitals as cornerstone institutions in their communities.

Perhaps the largest consideration in the finances of a hospital is: Who pays for the services? In Colorado, there are several ways hospitals are reimbursed, or paid for the care they give to patients: the government programs Medicare and Medicaid, which includes the Colorado Healthcare Affordability and Sustainability Enterprise (CHASE), commercial insurance, and directly from patients. Sometimes, patients can’t pay for the care they receive at the hospital – this is called uncompensated care

Medicaid Financing

Medicaid is a publicly funded health insurance option available to low-income residents who qualify. All states’ Medicaid programs are funded jointly by the state and federal government, and each state’s program is managed differently. Colorado’s Medicaid program, named Health First Colorado, is administered by the Colorado Department of Health Care Policy & Financing (HCPF). As of fiscal year 2020, approximately 1.2 million Coloradans were enrolled in Medicaid and the program’s total expenditures were $8.1 billion.

Medicare Financing

Medicare is a publicly funded health insurance option available to people aged 65+ and younger people with disabilities, and is administered by the federal government through the Centers for Medicare & Medicaid Services (CMS). In 2020, Medicare covered approximately 64 million people in the United States. Total expenditures in 2020 were $829.5 billion. This money comes from the two Medicare Trust Funds.

Medicare relies on a number of different approaches when calculating payments to each provider for services they deliver to beneficiaries in traditional Medicare but have maintained a fee-for-service payment structure for most types of providers.

Medicare uses prospective payment systems for most of its providers. In general, these systems require that Medicare pre-determine a base payment rate for a given unit of service (e.g., a hospital stay). Then, based on certain variables, such as the provider’s geographic location and the complexity of the patient receiving the service, Medicare adjusts its payment for each unit of service provided.

Additional information can be found here: 

CHA has access to financial and utilization statistics for all hospitals in the United States that file Medicare Cost reports. CHA provides data and analytics to health care stakeholders upon request. To request this data or additional information, contact Stephanie Fillman, CHA senior financial analyst, or submit a request through the CHA data request form.

Colorado Healthcare Affordability and Sustainability Enterprise (CHASE)

The Colorado Healthcare Affordability and Sustainability Enterprise (CHASE), which was originally established as the Hospital Provider Fee in 2009, collects fees that hospitals pay to the state based on how many patients they care for. This money is pooled together and receives a matching amount from the federal government. The pool of money is then redistributed among hospitals based on the different factors, including but not limited to, Medicaid utilization, Medicaid charges, quality of care, and uncompensated care each hospital provides in a given year  This model is a win-win-win: it provides medically underserved Coloradans with access to high-quality health care, reduces the amount of undercompensated care, and does not cost the state extra money.

The CHASE fee is a win-win-win because it provides medically underserved Coloradans with access to high-quality health care, reduces the amount of uncompensated care for hospitals, and does not draw upon state funds.

  • Uninsured Coloradans: As many as 500,000 uninsured Coloradans will be able to access critically important preventive, primary, and acute care services through Medicaid and CHP+ expansions.
  • Commercially Insured Coloradans: Hospitals are forced to make up for shortfalls created by low reimbursement rates and treating uninsured patients by requiring higher payments from commercially insured patients, which in turn forces consumers to pay higher health insurance premiums. The CHASE fee helps reduce this cost shift.
  • Colorado Hospitals: The provider fee increases hospital reimbursement rates and reduces the amount of uncompensated care by providing coverage for more previously uninsured patients. Medicaid payments to hospitals still fall short of the cost of providing them; however, the increased reimbursements have been instrumental in decreasing operational losses for hospitals.
  • The Colorado State Budget: The CHASE fee does not use any of the state’s tax revenue from its General Fund. While Medicaid enrollment has increased in Colorado over the past few years, this is due to a challenging economy and not a change in Medicaid eligibility. Additionally, from inception of the provider fee in July 2009, Colorado hospitals provided hundreds of millions of dollars in General Fund relief via the CHASE fee.

Commercial Health Insurance

Hospitals are paid from private health insurance or self-insured carriers to provide care to patients obtaining health care coverage through the commercial markets. Examples include ACA individual plans, small group plans, and large group coverage. 

Due to uncompensated care, and because public programs such as Medicare and Medicaid generally pay hospitals at rates less than the cost of providing care, hospitals strive to maintain a favorable balance of public and private payers to remain financially sustainable in the long-run. In response to uncompensated care and to support public programs, hospitals must shift costs onto other payers, raising prices for individuals and businesses to ensure sustainability, a phenomenon commonly known as “cost shifting.”

In recent, years the Colorado and national policymakers have sought to improve the cost of commercial health care. With the passing of several significant legislative items, many new laws and regulations have been or will be implemented.  

Uncompensated Care

Uncompensated care is a combination of “charity care” – care provided to low-income patients unable to pay their medical bills and who quality under a hospital’s charity care policy; “bad debt” – care provided to patients who are subsequently unwilling or unable to pay the amount owed and do not quality for charity care; and “undercompensated care” – the gap between what it costs to provide patient care and what is reimbursed by government programs. 

Charity care is the dollar value of free care provided by hospitals to patients who are unable to pay their medical bills. It represents expenses for which hospitals never expected to be reimbursed. A patient’s ability to pay is determined by a hospital’s charity care or financial assistance policy, which typically considers factors such as individual and family income. Charity care determinations are typically made prior to admission; however, it may also be granted later to allow for emergencies or a lack of information about the patient’s financial status at the time of admission.

Bad debt is incurred when a hospital cannot obtain reimbursement for care provided because a patient is either unable or unwilling to pay their bills. Unlike charity care, bad debt involves situations where the patient did not request or qualify for financial assistance. For uninsured patients, the amount of bad debt can include all or any portion of the unpaid bill. For insured patients, the unpaid portions of the bill that are the patient’s responsibility – such as co-pays and deductibles – are counted as bad debt.

Undercompensated care, or underfunded care, is associated with governmental programs such as Medicare and Medicaid. These programs have historically paid well below the cost of providing care.

As of 2020, Medicare paid hospitals $0.69 for every dollar they spent caring for a patient. For Medicaid, the reimbursement rate is $0.71 for every dollar spent.