Colorado hospitals saw a significant dip in profits in 2022, according to a new report, confirming what scattered financial filings have previously hinted at.

One state health official called the downturn an “aberration” and said it shouldn’t be used by hospitals to justify substantial increases in prices, while the Colorado Hospital Association pushed back and said hospitals’ financial outlook remains dreary.

Overall, hospitals made $336 million in total profits in 2022, according to a report by the Colorado Department of Health Care Policy and Financing. That number takes into account all hospital expenses and sources of revenue, including investments. And it’s a 90% drop from 2021, when the state’s hospitals made a collective $3.4 billion in profits, according to the report.

Colorado hospitals as a whole made $1.8 billion in profits in 2020 and nearly $2.3 billion in 2019.

“For 2022, we don’t want the aberration of the year to cause increases in commercial rates that are inappropriate,” said Kim Bimestefer, the executive director of the Department of Health Care Policy and Financing. “It’s Coloradans and employers who have to pay those prices.”

Pay increases for staff, higher costs for supplies and higher levels of charity care all contributed to the lower profit numbers. But so, too, did a sagging stock market in 2022 — especially at larger hospital systems where investment returns in good years can make up a significant chunk of the total revenue.

Cash reserves are stronger for many hospitals

Despite the down year in 2022, Bimestefer said Colorado hospitals are generally well positioned.

She pointed to their cash reserves. In 2019, before the pandemic hit, Colorado hospitals had a median 149 days cash-on-hand — in other words, they had enough in reserves to keep going for 149 days without receiving any other income. In 2022, that number had increased to 183 days.

“Profits went way down, but they got through it in a reasonable way,” she said.

A man points a flashlight into a CT-scan machine while another looks
Visiting Siemens engineers Larry Wright, left, and Michael Szabo take part of a routine maintenance of a CT-scan machine inside the Memorial Regional Health hospital, Feb. 2, 2023, in Craig. (Hugh Carey, The Colorado Sun)

That was echoed by Allan Baumgarten, a Minnesota-based health care consultant who has produced reports on Colorado hospital finances since 1994. His latest report, which came out last week, showed profit plunges in 2022 similar to the state’s report.

“There was a major drop-off for the hospitals in 2022, but the year before they set new records for their profitability,” he said. “So looking at it over a multi-year period, I would still say that Colorado hospitals are very strongly profitable.”

“Things have really changed.”

But Tom Rennell, the senior vice president for financial policy and data analytics at the Colorado Hospital Association, disputed the characterization.

He noted rising levels of uncompensated care — that is, patient care that hospitals provided but did not get paid for. It increased more than 12% in 2022, to $544 million. According to the hospital association’s own analysis, more than 70% of Colorado hospitals are operating at unsustainable profit margins, which the association defines as below 4%.

“We are not seeing a significant rebound in operating margins or revenues,” he said.

The outside of the emergency department of a hospital
The emergency room entrance to Saint Joseph Hospital in Denver, photographed on Oct. 22, 2019. (John Ingold, The Colorado Sun)

He also disputed Bimestefer’s idea that a hospital’s days cash-on-hand is a good way to measure its financial strength. He said he knows of hospitals that have been taking out debt to boost cash reserves.

“Things have really changed over the last couple of years,” he said. “It probably doesn’t mean hospitals are going to go out of business. That’s not the first choice you make. But they’re really having to re-rationalize their services — do we continue to offer this?”

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