March 11, 2020 02:52 PM UTC

"Everybody Is Fat and Happy" -- Colorado Hospital CEOs Proud of Their Profits

• 6 Comments
• by: Erik Maulbetsch

(Not the ideal messaging from Big Hospital as it prepares to fight the Colorado Option — Promoted by Colorado Pols)

Colorado’s largest hospitals are ramping up a campaign against legislation aimed at lowering health care costs, saying they’re being unfairly targeted and the proposed law would weaken the hospitals.

But in various industry news interviews and speeches over past two years, several Colorado hospital CEOs have bluntly acknowledged their sizable profits, boasting in one case that hospitals and others don’t want to change because they’re “fat and happy.”

In a 2019 interview, Centura CEO Peter Banko was asked by industry blog Advisory Board about his hospital having its “single best financial year in 22 years,” citing Centura’s 13% profit margin.

Banko mentioned the prevalence of private health insurance in Colorado, as well as the state’s Medicaid expansion as providing “a big boost to health systems.” He also noted that while Centura was doing really well, its competitors are making even higher margins.

He then made the point that the major industry players are making so much money, they don’t want to change anything.

“Since everybody is fat and happy, the payers and providers don’t want to change…Basically, no one wants to disrupt the market; everybody’s just doing traditional stuff,” said Banko.

Here’s the extended exchange, in which he states that his hospital competitors are doing even better than Centura, which operates Lutheran, Porter, and St. Anthony’s hospitals, among others.

Q. I understand Centura just had its single best financial year in 22 years. I can count on one hand the number of nonprofits with a 13% EBITDA margin.

Banko: Yeah, I believe so—I only have the last 10 years or so in actual data—but here’s the thing: A lot of our competitors in the market are putting up higher margins. As someone at Innosight said, “You’re a C student at Harvard.” So while we’re performing well and had a really great year, we’re not performing as well as our competitors. We have to up our performance to be able to do the things we need to do over the next five to seven years.

Q: Let’s talk about what constitutes ‘good’ performance in such a unique market. Can you describe the health care market in your region (and Denver more generally) to the rest of the country?

Banko: On the surface, it appears a very easy place to operate. Colorado has five big payers—Kaiser, United, Anthem, Cigna, Aetna—that are all doing well, and all the health systems are doing really well, and we’ve got 50 new people moving into Denver every day. The market’s in the upper 50s in terms of the percentage of the population with commercial insurance. So, you hear about other markets that are 70%, 80% government payer—that’s just not us. And Colorado is a Medicaid expansion state, so that’s been a big boost for the health systems.

But that kind of market stability comes with a whole host of other challenges. Since everybody is fat and happy, the payers and providers don’t want to change. I think less than 3% of our revenue is in value-based payment, and that 3% is fee-for-service plus per-member-per-month (PMPM). Basically, no one wants to disrupt the market; everybody’s just doing traditional stuff. From that perspective, I’ve found the ability to change and disrupt in parts of the market is probably 10, 15, even 20 years behind other parts of the country.

That same January 2019 interview noted that Centura’s annual revenue was $3.8 billion dollars, and that it was “projecting to double in size in seven years.”

A year after that interview, Banko penned an opinion column for the Colorado Sun, opposing the as-yet unwritten public option bill.

After noting that his family, like everyone else, has encountered problems with their health care, and it’s too expensive, he proceeded to list a number of potential problems with a public option bill, before adding:

“This isn’t a time for politics. Most certainly, it isn’t a time to rush the process.”

Just days earlier, Colorado Hospital Association lobbyist Joshua Ewing expressed the same “let’s go slow” sentiment in a January interview with health care policy blog State of Reform.

“Our hope this year is that we can slow down the rush to solve problems and really focus on evidence-based solutions,” said Ewing in the interview.

In a Feb. 6 speech to the Denver Rotary Club, UCHealth CEO Liz Concordia also focused on the same two main points: that the public option bill is bad– and that instead policymakers should try to “look at the total cost of care.”

She identified the public option bill as “the biggest challenge we have here in Colorado.”

After saying she agreed that the cost of health care is too high, she offered statistics to say that relative to other states, the problem “isn’t so bad.”

“I do think the political and regulatory landscape is the biggest challenge we have here in Colorado and you’ve probably heard a lot about the public option that the governor is proposing,” said Concordia in her speech.

“We agree with the governor that the cost of insurance and the premiums and the cost of health care absolutely have to come down, but just for grounding we have the ninth-lowest insurance premiums in the country and they’re inflating at a rate that’s the second-lowest in the country. That’s not to say we do not have the health care cost problem- we do, but our starting point is isn’t so bad.

“The challenge that we have is a proposal to implement a public option which would set rates on hospitals where as we as an organization believe that we should be looking at the total cost of care and how do we reduce the total cost of care which would then reduce the premiums for everyone in the room.”

Sen. Bob Rankin (R-Carbondale) has proposed a “total cost of care” bill, which appears to approach the problem as Concordia wants.

“This is the long-term, big-picture of how we get the parties to work together,” Rankin told the Colorado Sun.

It hasn’t been introduced yet, but the Sun reports the bill’s first step is creating an independent commission that would gather copious amounts of data and then make proposals for limiting spending by all stakeholders.

Without specific bill language it’s hard to compare its impact to the public option bill, but it seems clear that it would take far more incremental and indirect steps toward cost control. As its supporters in the hospital industry say, “no need to rush.”

The Colorado Hospital Association is using the coronavirus outbreak to argue against Colorado’s public option bill:

Now is not the time to weaken Colorado hospitals. #coleg https://t.co/eF3yV9PkcS

"Hospitals gird for coronavirus surge after years of cutbacks" https://t.co/9Ha4KqXkMh

— CHA (@COHospitalAssn) March 11, 2020

In a Colorado Politics “sponsored content” Q&A column purchased by business advocacy group Colorado Concern, Sylvia Young, President and CEO of HCA Continental Division (which includes seven Denver metro-area hospitals), didn’t shy away from the fact that her company is making money:

“We have an obligation to be philanthropists, to give back to the community and to be involved in the debate,” said Young in the interview. “I also think the business community shouldn’t be embarrassed about our motive to have a return on investment. We are investing significantly in our community and HCA is proud to be the only tax-paying health system in the state.

As of January 2018 HCA Continental made $2.7 billion in net revenue.

Colorado legislators will hold the first hearing this afternoon in the House Health & Insurance committee on the public option bill.

While this meeting of the will be the first formal discussion of the proposed legislation, a very loud and expensive, albeit one-sided, debate has been ongoing for months now, thanks to a massive opposition advertising campaign waged by groups linked to hospitals and health insurance companies.

Jason Salzman contributed to this report.