Colorado’s Medicaid agency says a recent court verdict could force it to claw back and redistribute nearly $60 million in funds from Denver Health and rural hospitals, but industry groups contend the state is overselling the impact and should eat the costs.
The Colorado Department of Health Care Policy and Financing lost a case in Denver District Court in May over a seemingly academic question: whether UCHealth’s Memorial Hospital in Colorado Springs and Poudre Valley Hospital in Fort Collins are publicly or privately owned.
Both hospitals belonged to local governments before UCHealth signed a lease to take over their operations in 2012. The state had labeled them as public hospitals, but the court ruled that they were privately owned.
Whether they are public or private matters, because of Colorado’s provider tax.
Last year, Colorado hospitals paid about $1.3 billion in provider taxes, drawing down $500 million in federal matching funds. While the formulas are complicated, the general upshot is that hospitals that treat more Medicaid patients receive a greater share of the combined provider tax funds and federal match, while those that treat relatively few lose money. Out of 85 hospitals that paid the tax, 67 came out ahead.
Last year, Memorial Hospital came out ahead by about $973,000, which is one of the smaller margins among the hospitals that benefited. Poudre Valley lost about $12 million. Memorial sees more patients covered by Medicaid, though the hospitals also have other differences that factor into their shares of the provider tax.
The state pools the provider tax money from hospitals with the same ownership type. That means, if Memorial and Poudre Valley are privately owned, their share of the tax goes into the private pool, leaving less money for publicly owned hospitals to split.
And since each hospital’s share depends on how its Medicaid patient load compares to its specific pool, the two UCHealth hospitals could get more if they compare favorably to other privately owned facilities. Think of it like transferring between two classes that grade on the curve, but have different curves because of their mixes of students.
The Department of Health Care Policy and Financing, which runs the state’s Medicaid program, filed an appeal Wednesday.
“HCPF believes the district court erred in its decision and is working toward a favorable outcome in the Court of Appeals,” the department said in a statement. “HCPF also continues to work with UCHealth, the Colorado Hospital Association and the impacted hospitals toward a resolution that leads to a more productive outcome.”
If the appeal doesn’t go the state’s way and it has to redistribute the 2023-2024 payments, 29 public hospitals would have to give back a combined $59.7 million, which private hospitals would then divide up, the department said. It didn’t specify how much would go to the two reclassified hospitals, or others owned by UCHealth.
Most of the state’s public hospitals belong to rural counties or special districts. Denver Health is a notable exception. The state’s calculations show it would lose $15.2 million, but Denver Health declined to comment on those projections.
UCHealth spokesman Dan Weaver said the system asked the Department of Health Care Policy and Financing to reclassify its hospitals in 2023 because of concerns the federal government could determine the whole provider tax program is out of compliance, not as a way to bring in more money. When the agency failed to take action, the system sued, he said.
“This is not about the dollar figure,” he said.
The department should use its own funds to make rural hospitals whole, so they don’t bear the brunt of the clawback, Weaver said.
The Colorado Hospital Association said discussing clawbacks is premature, because the department needs to discuss any changes with stakeholders and with the boards overseeing the funding. Multiple revenue streams attempt to compensate hospitals for underpayments from Medicaid, so the state might need to direct other money to public facilities.
Zachary D’Argonne, president CEO of Eastern Plains Healthcare Consortium, said the state hasn’t explained how it came up with what each hospital would owe.
The department’s calculations show 12 of the 13 independent hospitals in the consortium will have to give back funding, ranging from $600,000 at Haxtun Health on the Eastern Plains to $2.6 million at Arkansas Valley Regional Medical Center in La Junta.
Not every hospital could repay those amounts, and those that have sufficient funds typically were saving to invest in their services, D’Argonne said. If a court ordered them to turn over money they don’t have, hospitals would have to close unprofitable departments, such as primary care, behavioral health or obstetrics, he said.
If someone has to compensate the private hospitals, it should be the Department of Health Care Policy and Financing, which misclassified the two UCHealth hospitals, D’Argonne said.
“No rural hospitals in the state created this error,” he said. “We followed the formula. We paid in what we’re supposed to pay in.”
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