Denver Health could stop providing health care in the city’s jail and detox facility in 2026 because it says the contracts for those services don’t fully cover the health system’s costs.
Donna Lynne, CEO of the financially struggling Denver Health, told a City Council committee Wednesday that the possibility of dropping one or more contracts was “on the table” because the city refused to include some level of payment to cover indirect costs, such as the time the system’s information technology and human resources departments spend supporting workers at the jail and detox center.
Denver will buy about $43.4 million in services from Denver Health in the coming year, and grants or contracts typically allow about 10% for behind-the-scenes support, Lynne said. In this case, that would cost the city an additional $4.3 million, but the system ended up receiving nothing for indirect services at the end of budget talks, she said.
This year, the city paid Denver Health about $41.2 million for the contracted services. The increase for the coming year went to cost-of-living wage increases for employees, Lynne said.
Since Denver doesn’t reimburse for the full cost of providing those services, the health system’s leaders have to decide how much they’re willing to “subsidize” the city, and what they’re willing to give up to do it, Lynne told the City Council committee. The jail contract, in particular, is expensive to support, because high employee turnover requires human resources to devote more time to it, she said.
“We stopped doing other things to pay for the indirects,” she said.
Questions to the mayor’s office about Denver’s contracts with Denver Health and whether the city had received other bids to perform the work in recent years weren’t immediately answered Wednesday.
Denver Health has been in a difficult financial situation for years. The system is seeking support from a sales tax, which would increase rates in the city by about 0.34 percentage points and raise about $70 million. The system is on track to spend about $11 million more than it takes in this year, which is about a 1% loss on its $1.4 billion budget, Lynne said.
It came out ahead by about 1% in 2023, after receiving $21 million in one-time funds. Without that money, it would have lost about $4 million – an improvement from a $35 million loss in 2022, but not sustainable, Lynne said.
“‘Break even’ is not a long-term strategy,” she said.
In the second quarter, all but one of Colorado’s other health systems reported they had earned at least a small profit margin. (CommonSpirit Health hadn’t reported its quarterly numbers yet, but investment gains made up for loss on patient care in the fiscal year that ended in June.) AdventHealth, Intermountain Healthcare and HCA HealthOne reported their incomes were up compared to the same time in 2023, while UCHealth said its profit margin was slimmer.
The city gave Denver Health about $30.8 million toward the cost of care to people who don’t have insurance and can’t pay. This year, uncompensated care could total about $155 million, Lynne said, but the city’s contribution has remained flat even as the cost of caring for uninsured people ballooned, she said. About three-quarters of that care has gone to city residents.
Denver Health has taken steps to bring in more cash, including selling some properties it originally hoped to turn into clinical spaces, and most likely will sell a parking lot on its campus this year to help close financial gaps, Lynne said.
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“We sell something, we get maybe $5 million, but it doesn’t solve the long-term problem,” she said. “Sometimes we do it to get through the year.”
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