Stethoscope on the dollars.

Three years ago, as a mysterious and deadly virus called COVID-19 began to take hold in Colorado, hospital executives in the state scrambled to formulate plans, meeting weekly — sometimes daily — with elected officials, public health experts and with each other to get ahead of the coming storm they feared could overwhelm and financially cripple their systems.

Meanwhile, in Washington D.C., the federal government opened an unprecedented spigot of relief money, known as the CARES Act, sending billions of dollars to the nation’s hospitals as the country went into lockdown and hospitals began cancelling revenue-generating non-emergency surgeries and treatments.

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In the first year of the pandemic, Colorado’s 100 hospitals accepted a total of $1.2 billion in direct relief under the CARES Act. Hundreds of millions more were given in grants to offset the cost of retaining staff and in advance payments for Medicare patients which were to be paid back.

But now, looking back, significant questions have emerged whether the large, wealthy Colorado hospitals truly needed the money.

And despite alarm bells at the time from the Colorado Hospital Association, predicting upwards of $7 billion in losses by 2021 and possible forced closures, reviews of financial records and state policy reports by The Gazette show that during the pandemic the rich hospitals simply got richer, especially as time went on and revenues bounced back.

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In part it goes back to how the CARES money was initially doled out. The U.S. Department of Health and Human Services based allocations on previous Medicare payments and hospital revenue. It was a calculation, borne out of urgency and uncertainty, that was supposed to be a predictor of hardship.

But, in fact, the math rewarded wealthier hospitals while the state’s struggling smaller, rural and community hospitals got much less and arguably needed it more.

“The more money you were earning, the more money you got,” said Loren Adler, associate director of USC-Brookings Schaeffer Initiative for Health Policy in Washington D.C.

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This is significant in Colorado as its Department of Health Care Policy and Financing has reported the state’s hospital prices and per patient profits are among the highest in the nation, and the Rand Corporation found that in 2020 Colorado hospitals, on average, were charging insured patients three times more than what Medicare paid. The Colorado Hospital Association has called the findings misleading.

The federal allocations also failed to consider hospitals’ financial reserves — which in the case of the state’s largest systems were worth billions.

For instance, non-profit UCHealth, one of the state’s largest systems with 12 hospitals (not including its pending merger with a Pueblo hospital), received more than $270 million in direct provider relief funds in the first two years of the pandemic, plus another $44 million in 2022. That did not include the $458 million in Medicare advance payments in 2020 which the system has since repaid.

During the same time UCHealth was holding more than $5.3 billion in cash reserves and investments as of June 2020, which grew to $6.8 billion by June 2021, according to audited financial statements submitted to the Municipal Securities Rulemaking Board, a self-regulatory organization that is the official source of municipal securities data. The financial reports were analyzed for the Gazette by Marilyn Bartlett, a senior policy fellow for the National Academy for State Health Policy.

And while UCHealth reserves dropped significantly to about $5.2 billion last year — the bulk from unrealized investment losses — they were still higher than June 2019 before COVID struck, the financial report shows. An unrealized loss is a “paper loss,” where an asset drops in value but if you do not sell it that loss is not realized.

Financial analysts say the hospital losses in investments last year are likely temporary, not unlike the losses people experienced in their 401K accounts when the stock market fell.

Overall the non-profit system reported more than $7 billion in total net assets as of Sept. 30, 2022 — $1.8 billion more than before the pandemic.

“In hindsight it would’ve made more sense (for federal stimulus money) to be based on need,” said Kim Bimestefer, executive director of the state’s Department of Health Care Policy and Financing in a recent interview.

Perhaps the most striking example of that came in October 2020 when Sam Hazen, CEO of for-profit HCA Healthcare, one of the nation’s largest and wealthiest health systems and parent company of Colorado’s HealthONE network, announced his company would give back $1.6 billion in direct federal assistance and pay back its $4.4 billion in Medicare advance payments early.

Hazen said HCA revenues had risen in the third quarter of 2020 and the system had been able to weather the storm and still remain profitable. “We believe returning these taxpayer dollars is appropriate and the socially responsible thing to do,” he said at the time.

In Colorado, HealthONE received a total of $272 million in federal assistance in 2020 — $106 million in provider relief and $166 million in Medicare advanced payments. All was returned, said Stephanie Sullivan, a spokesperson for HealthONE in an email.

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She added she did not know of any other large Colorado system to do the same.

Dan Weaver, a spokesperson for UCHealth, said he was unaware of internal discussions at his organization to return the federal money other than to repay the advances in Medicare payments.

There were too many unknowns, he said.

“The funds we received from HHS helped give us the financial stability to expand services during the pandemic and support employees and avoid layoffs and furloughs,” Weaver said, adding, “I’m proud of the way UCHealth responded as a resource to Coloradans.”

As required by the state, UCHealth halted non-essential surgeries and closed its networks of clinics which Weaver said created financial stress and furthered the uncertainty. To help preserve finances, it temporarily stopped construction projects which have since been restarted.

More recently, Weaver said, the system, like many others, has been hard hit with higher staff costs and inflation that have “significantly” reduced UCHealth operating margins to the current level of 4 percent, which he said is a bare minimum.

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Still, last month Fitch Ratings assigned UCHealth a AA rating, its second highest rating, based in part on the hospital system’s “very strong capital ratios, benefitting from a track-record of very strong operating margins.” Even taking into account higher labor costs and inflation, the rating service said UCHealth’s margins are expected to remain “robust.”

Weaver said financial reporting can be misleading. “We’re a large system and will have large revenue but we also have large expenses,” he told the Gazette. “We are financially stable, which is a good thing for the state.”

The state’s Health Care Policy and Financing Department reported in August 2021 that three Colorado large hospital systems — UCHealth, HealthONE, and AdventHealth, part of Centura Health — turned a profit in 2020 even before factoring in the federal relief.

One metric used to determine a hospital’s financial health is its number of days with “cash on hand” which refers to the number of days a hospital can pay its operating costs with available cash.

In Colorado, UCHealth had 430 days of cash on hand in 2020 and 380 in 2021, according to Health Care Policy and Financing. Banner Health had 284 in 2020 and 256 in 2021, while Children’s Hospital Colorado had 333 in 2020 and 358 in 2021. AdventHealth, and SCL Health, which merged last year with Intermountain Health, each had roughly 7 to 8 months of days of cash on hand in the first two years of the pandemic, according to the state agency.

Weaver at UCHealth said last week its number of days of cash on hand has now dropped to 308.

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Leila Roche, a spokesperson for Children’s Hospital Colorado, said in an email that its cushion of days has dropped to 313 as of September 2022.

Children’s Hospital Colorado received $54.2 million in federal money in 2020 and 2021 and an estimated $12.1 million in 2022. “Without CARES money we would have incurred a $27 million operating loss in 2020,” she said in an email, adding that the financial pressures from staffing expenses have continued throughout the pandemic and the system also had significant unrealized investment losses last year.

One thing the pandemic did was highlight the financial disparity between well-heeled urban-based systems and their struggling rural and community hospital cousins.

While no Colorado hospital closed as had been feared, the way the assistance was calculated meant that the smaller hospitals got significantly less money.

The 15-bed Lincoln Health hospital in tiny Hugo, part of a small rural system that also operates a nursing home, assisted living facility, primary care clinics, a hospice and transport service, currently has about 65 days of cash on hand, said Dr. Kevin Stansbury, its CEO.

His is the only hospital on the Interstate-70 corridor between Denver and Burlington. It received $4 million in federal relief funds plus a $1.6 million Paycheck Protection Program loan which has now been forgiven, he said. It also received $4 million in Medicare advance payments which have been repaid.

“We’ve done OK,” Stansbury told the Gazette, “We used it wisely.”

His organization spent the money for staff salaries, community education about the pandemic, and bought equipment to treat the virus.

“I don’t have a lot of cushion,” he said, adding that he lives with the constant fear of staying afloat. “That’s the life of a rural hospital CEO.”

He operates in the red. So do 15 other rural hospitals in the state as of this year, said Michelle Mills, CEO of Colorado Rural Health Center. Early in the pandemic there were 22 in the red.

Nearly half of the state’s hospitals are in rural or remote areas. Of those 43 hospitals, 32 have been designated as critical access and have 25 beds or less. They were especially hard hit when forced to suspend non-emergency and out-patient treatments. At some facilities 75 percent of their revenue came from out-patient services.

Stansbury said he is grateful for what his hospital received and does not begrudge the larger systems’ bigger assistance allotments or their wealth. Health care is an ecosystem and small hospitals often rely on larger ones. “I want them to have large reserves. I want them to be solid,” he said, “We partner with them.”

Earlier this year the Colorado Hospital Association issued yet another dire warning, not dissimilar to those of 2020, saying that the state’s hospitals were facing “a serious financial toll, with no further relief in sight.”

“The losses in 2020 and 2021 were partially offset by federal COVID dollars and increased volumes with a slight bounce back in 2021,” the report said. But it added that “investment losses, coupled with increases in operating expenses, have led to a significant decrease in in total income.”

The hospital association said more than half of the state’s hospitals “are unable to make ends meet,” and the low operating margins are “unsustainable.”

Cara Welch, senior director of communications for the association, acknowledged the report did not differentiate between large and small hospitals in its finding.

While quick to say that the state’s rural hospitals remain in trouble, Bimestefer, at the Department of Health Care Policy and Financing, is skeptical of the hospital association’s alarm when it comes to the larger systems.

A new bill, HB 23-1226, was introduced earlier this month in the state legislature to boost transparency. The measure would require hospitals to submit to the state audited financial information, executive compensation and the disclosure of mergers and acquisitions, and capital improvements.

“If reserves are going down, where did they go?,” Bimestefer said in an interview with The Gazette. “We believe even if they had a rocky year, the big systems had the rainy day reserves to dip into.”

The Colorado Hospital Association said it has “a longstanding history of support for transparency.” The organization is currently working with the sponsors of the bill “to make sure it isn’t duplicative and will result in useful information,” Welch said in an email.

There is no question that hospitals, especially their front-line workers, performed admirably, even heroically, when faced with the crises COVID brought. But health economists say that does not mean there were not lessons learned.

Adler, at USC-Brookings Schaeffer Institute, said there needs to be a better way to access true need before allocating relief money. “Going forward,” he said,” any hand-outs should not go to the rich hospital systems.”

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