Regional hospitals: Who’s profitable, who’s not and why

There’s a wide gap in how much profit hospitals in Northern Colorado and the Boulder Valley make each year, despite a growing pool of patients moving to the region.

UCHealth Poudre Valley Hospital in Fort Collins, for example, brought in just over $203.3 million in net income on $1.7 billion in patient revenue, according to the last cost filing it made with the federal government, while UCHealth Broomfield Hospital took a $41.4 million loss on $205.7 million in revenue in the same year.

So what separates the providers in the black from those in the red?

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Andrew Friedson, a University of Colorado Denver professor specializing in health-care economics, said figuring out hospital profitability is the same as any other business: revenues in versus expenses out.

Revenues mainly come down to what mix of services a hospital service can provide and how much it gets paid from either pre-negotiated prices from private insurers or the set payments from Medicaid and Medicare.

“There’s probably a fair amount of cross-subsidization with hospitals, that there’s more profitable units and less profitable units,” he said. “And hospitals will invest in places that are going to allow them to do more.”

Those higher-earning units can also cover losses incurred by uninsured patients visiting the emergency rooms.

A medical provider’s financial fortunes are also tied to how it performs, especially if many of its patients are on Medicaid. The Centers for Medicare and Medicaid Services (CMS) uses a value-based financing model that bases how much a hospital gets paid based on metrics from the previous year. Poorly performing hospitals could take as much as a 2 percent hit if it struggled the year prior.

“If you go from the very top-ranked hospitals or the very top-ranked group, the most popular hospitals to the very bottom-ranked group of hospitals, you could suffer a rather large penalty for poor performance,” he said.

What hospitals do with that money and their overall revenues mostly comes down to how they’re organized. For-profit hospitals have pressure from shareholders to make money and give out dividends, Friedson said, while non-profits may give those revenues to physicians, executives or invest in new equipment and procedures.

So why does one hospital in a city pull a profit, like UCHealth Poudre Valley taking in $203.3 million in profits in the last reported year, while another struggles, like Banner Fort Collins taking a $13,080,674 loss?

Friedson said a more popular hospital or one that offers higher-ticket procedures is more likely to attract people with insurance that covers more of the patient’s costs and pays the hospital more.

And those hospitals that draw more financially well-off patients or are more popular can invest in a larger mix of more profitable services or expand their bed count, allowing them to achieve economies of scale that their smaller counterparts can’t match.

“So what’s left over for the other hospitals? Patients with less generous insurance or who don’t have the option to pay for that higher quality product,” he said.

That’s a key part of the equation in determining how successful a hospital can be, but it’s one that depends on the individual patient instead of the hospital and is difficult to break down completely.

So how exactly does someone define what is a high-quality hospital compared to what isn’t?

There’s a slew of factors, chief among them being hospital readmission within a certain period of time, mortality rates and how much a hospital is overspending or underspending to perform a certain procedure. But Friedson cautions that perceived quality and actual outcomes aren’t always aligned.

“This is the issue, is that quality is notoriously difficult to measure,” he said.