Colorado lawmakers are preparing a bill that would cap urban hospitals’ reimbursement rates for state employees and small businesses — a plan backed by cash-strapped health centers and legislators but opposed in principle by Colorado’s hospital trade group.
The legislation, unveiled to reporters by Democratic lawmakers Tuesday, is expected to be introduced later this week. According to details from Gov. Jared Polis’ office, the bill proposes capping larger hospitals’ reimbursements at 150% to 165% of what Medicare pays for the same care. Doing so could save the state and small businesses money on employees’ health plans.
The proposed caps would amount to about half of what hospitals currently charge private insurers, including for state employees’ plans.
The proposal would also set a minimum payment level for primary care and behavioral health services — to better shore up providers working in those fields — while directing savings from the reimbursement caps to beleaguered frontline clinics.
“Other states like Oregon and Montana have implemented maximums for what the state will pay hospitals for state employees’ health care, which has helped their state budgets and saved state employees money on health care,” said Rep. Emily Sirota, a Denver Democrat and a sponsor of the coming bill.
She said the state should examine if it’s “fair” that hospitals charge state government three times more than it charges Medicare for the same care.
The bill is co-sponsored by fellow Democrats Rep. Kyle Brown and Sens. Iman Jodeh and Jeff Bridges. Sirota and Bridges are members of the Joint Budget Committee, which is tasked with cutting hundreds of millions of dollars from the upcoming state budget in coming months to close a gap.
They both noted that fiscal situation as a reason to try to cap health costs.
Their measure would apply to the state health plan, which covers about 60,000 Coloradans working for state government, and to small employers who have 50 or fewer workers, adding another 200,000-some patients.
But the bill would not apply to larger employers, which would still be subject to current hospital reimbursement levels. Brown said lawmakers were trying to target the measure to smaller businesses with tighter margins.
The bill would apply to 54 of the state’s 86 acute-care hospitals, according to the Colorado Hospital Association. That primarily includes urban hospitals along the Front Range but not smaller, isolated hospitals common in rural areas.
Hospitals charge private insurers 291% more than they are paid for the same care by Medicare, legislators said Tuesday. (The Colorado Hospital Association puts that figure at 285%.) Supporters said capping hospital reimbursements would save the state health plan — and thus the state itself — more than $50 million a year, based on research by Brown University.
That research also indicated that capping reimbursements would have a “nominal impact” on hospitals’ finances, which are largely shored up by patients with private insurance.
The bill would take effect in 2027. Should it pass this year, 80% of its savings would be reinvested in the state’s primary care fund to support federally qualified health centers; that money would also be eligible for matching dollars from the federal government. The remaining 20% would be used to lower state employees’ premiums and boost their other benefits.
Cash-strapped federally qualified health centers — which care for lower-income Coloradans who are often on Medicaid or are uninsured — have rang increasingly panicked alarm bells in recent months.
As the pandemic emergency faded, millions of Medicaid enrollees were removed from the program. Colorado has lost more Medicaid members than nearly any other state, meaning health centers have provided care for more and more uninsured patients — and thus received no reimbursement for them.
The legislation will doubtless be contentious. The Colorado Hospital Association hasn’t formally voted to oppose the bill, spokeswoman Julie Lonborg said Tuesday, but the group generally opposes the type of cap lawmakers are seeking.
“This is rate-setting, and that’s a problem,” she said. “It’s problematic and ultimately isn’t the right long-term solution for the state. Seventy percent of our hospitals are operating at unsustainable margins, which means they aren’t making enough to put away for a rainy day.”
She said hospitals charge more to payers other than Medicare to make up for how little Medicare and Medicaid pay. According to a January report from the state Department of Health Care Policy and Financing, nearly half of Colorado hospitals’ patient revenue in 2023 came from private insurance, even though Medicaid and Medicare provided coverage for more people than private insurers.
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