How Hospitals Get Paid

Hospitals treat all patients who come through their doors. While federal law requires hospitals to provide certain services, such as emergency care, Colorado hospitals also view this commitment as a point of pride and a core responsibility to their communities. A hospital’s financial health largely depends on who pays for the care it provides. In Colorado, hospitals are reimbursed through Medicare, Medicaid — including the Colorado Healthcare Affordability and Sustainability Enterprise (CHASE) — commercial insurance, and payments made directly by patients. When patients are unable to pay for their care, the cost becomes uncompensated care.

Bottom line: Hospitals care for everyone, regardless of their ability to pay.

Medicaid Financing

Medicaid is a jointly funded state–federal health insurance program for low-income residents, with each state managing its own system. In Colorado, Medicaid is known as Health First Colorado and is administered by the Colorado Department of Health Care Policy and Financing (HCPF); as 2024, it covered about 1.2 million Coloradans with $16.2 billion state dollars.

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), originally created as the Hospital Provider Fee in 2009, collects fees from hospitals based on patient volume, which are matched with federal funds and redistributed to hospitals based on factors like Medicaid use, charges, quality, and uncompensated care. This system expands access for underserved Coloradans, reduces undercompensated care, and does not increase state costs.

The CHASE fee 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: The CHASE fee expands access to preventive, primary, and acute care by supporting Medicaid and CHP+ coverage for hundreds of thousands of previously uninsured residents.
  • Commercially insured Coloradans: By reducing uncompensated care and increasing Medicaid reimbursement, the CHASE fee helps limit cost shifting to private insurance, easing upward pressure on premiums for individuals and employers.
  • Colorado hospitals: The provider fee increases reimbursement rates, lowers uncompensated care, and helps offset losses from Medicaid payments that remain below the cost of care, improving hospitals’ financial stability.
  • The Colorado state budget: The CHASE fee does not rely on General Fund tax dollars and has generated hundreds of millions of dollars in General Fund relief since 2009, even as Medicaid enrollment has grown due to economic conditions rather than eligibility changes.

For more information on the CHASE fee, visit the HCPF website.

Additional information can be found here:

Commercial Health Insurance

Hospitals are paid by private insurers and self-insured employers for care covered through commercial plans, including ACA, small-group, and large-group coverage. Because Medicare and Medicaid typically pay below the cost of care and hospitals also provide uncompensated care, hospitals rely on a balanced mix of public and private payers and often shift costs to commercial payers to remain financially sustainable. In recent years, Colorado and national policymakers have enacted new laws and regulations aimed at lowering commercial health care costs.

In recent years, the Medicaid cost shift has been 1.0 – meaning hospitals are charging the exact amount needed to make up for Medicaid shortfall.

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 free care hospitals provide to patients who cannot afford to pay, covering costs the hospital does not expect to be reimbursed for. Eligibility is based on a hospital’s financial assistance policy, usually considering income and family circumstances, and is typically determined before admission but can also be granted afterward in emergencies or when financial information is unavailable.

Bad debt occurs when hospitals are not paid for care because patients do not or cannot pay, even though they did not qualify for or seek financial assistance. It includes unpaid bills from uninsured patients and unpaid patient responsibilities, such as deductibles and co-pays, for insured patients.

Undercompensated care refers to care paid for by programs like Medicare and Medicaid that reimburse hospitals less than the cost of providing services — as of 2020, Medicare paid about $0.69 and Medicaid about $0.71 for every dollar hospitals spent on patient care.