How Denver Health, city’s safety net, fell into dire financial straits

By design, Denver Health and other safety-net hospitals run on margins that most facilities would blanche at, getting paid less to care for their communities’ most vulnerable people.

It works, until it doesn’t.

Since 2022, Denver Health has been in one of those crisis periods, necessitating millions in bailout funds from the state and donations from other health care organizations after providing more than $260 million in uncompensated care. The money has helped keep the hospital afloat, but doesn’t solve the fundamental dilemma: Not enough well-paying customers use Denver Health to offset the disproportionate number of patients who are covered by Medicaid or have no insurance at all.

The problem has no easy solution. Treating any patients living in Denver, and people with emergencies from elsewhere in the state, is the core of Denver Health’s mission: The hospital can’t simply turn away those who are unable to pay. Nor can Denver Health easily attract enough patients with better-compensating commercial insurance to balance its books.

Without many other options, the health care system has sought more government support, a shaky proposition when the city of Denver is dealing with an influx of new immigrants needing services and the state’s budget is always tight.

The safety net has always been “fragile” in the United States because of a lack of investment on multiple levels, and Denver Health’s situation is emblematic of that, said Dr. Patricia Gabow, who served as the system’s CEO from 1992 to 2012.

“If you open your doors to everyone, including the most vulnerable, you’re going to be stressed financially,” she said. “I used to say, ‘What we need to be able to do is print money,’ but no one gave us that printing machine.”

So far, the legislature’s one-time cash infusions have helped Denver Health, but don’t solve the underlying imbalance. Safety-net hospitals around the country have faced the same problem, and none offer a clear model for Denver Health. Some have closed when they couldn’t make the numbers work, straining nearby hospitals. While Denver Health isn’t facing imminent failure, it also won’t get out of the cycle of living on the financial edge without a major change in how the country funds care for those who can’t pay — a development even the hospital’s supporters say isn’t likely to come any time soon.

The Denver Post spoke to current and former Denver Health officials, Colorado lawmakers, health care experts and city officials to better understand how the city’s 164-year-old safety-net hospital landed in its current financial predicament, what could happen if it failed and what it would take to stabilize the health system.

Earlier this year, the Colorado Department of Health Care Policy and Financing wrote in its budget request that Denver Health needed supplemental funding to keep it out of a “death spiral” after significant financial losses, though the agency added later in its request that it believes the system isn’t too far gone to get back on firmer financial footing. The department requested another one-time payment to “jump start” changes to make Denver Health more sustainable, including cutting costs and expanding services that bring in more revenue.

Donna Lynne, the health system’s CEO, said reports of a death spiral were exaggerated, but Denver Health needs more public support if it’s going to continue serving Colorado’s growing uninsured population. The state’s increasing migrant population and the loss of continuous Medicaid coverage when the COVID-19 public health emergency ended both will push up the number of uninsured. Many hospitals, including Denver Health, have reported sharp increases in uncompensated care since 2020.

In 2023, the legislature fast-tracked an $5 million one-time payment to Denver Health to help keep the hospital and its clinics operating. At the time, lawmakers on the Joint Budget Committee expressed hope that a larger solution was in the works, and that the funding they sent would act as a stop-gap measure.

That hasn’t happened. Lawmakers made another $5 million special appropriation this year. That’s a relatively small infusion for an organization with an annual budget of more than $1 billion and around 8,000 employees.

Safety-net hospitals consistently have narrow financial margins because they treat an above-average percentage of patients who are uninsured or covered by Medicaid, which pays less than the cost of care, said Beth Feldpush, a pharmacist and senior vice president of policy and advocacy at the trade group America’s Essential Hospitals.

That makes such hospitals vulnerable any time a shock hits the industry, whether that’s the need to cancel elective surgeries at the beginning of a pandemic, rising prices for supplies and labor, or disruptions to payments from a cyberattack, she said.

No one has found a clear way out of the financial bind that the safety-net mission creates, Feldpush said. Increasing Medicaid rates and other sources of government revenue would help, but the political and fiscal realities mean those hospitals more often have to focus on fending off cuts, she said.

“It would take a historic shift” to make safety-net hospitals’ finances less precarious, she said.

Part 1: How did Denver Health get here?

Denver Health has hit rocky financial patches before.

The hospital regularly ran $30 million deficits when it was fully owned by the city, Gabow said. Denver Health’s financial situation started to improve after it became a separate entity in the late 1990s and started receiving “disproportionate share hospital” payments, she said. (The federal payments, known in the industry as DSH, partially compensate hospitals that have more patients who are uninsured or covered by Medicaid.)

“There were even people who wanted to sell (the hospital). Of course, nobody wanted to buy it,” she said.

The legislature created what would become the Denver Health and Hospital Authority in 1994 to give the hospital more flexibility and reduce its dependence on government funds, and the city transferred the hospital and other health care assets to the authority in 1997 under the first operating agreement.

The authority allowed Denver Health to make changes to be more efficient, including raising salaries to keep up with the market, resolving contracts faster than the city could, seeking its own bonds for capital improvements and joining purchasing cooperatives with other hospitals, Gabow said. Denver Health also remodeled wards to give patients more privacy and upgraded the information technology infrastructure, she said.

“We did well, and the city did very well” because Denver no longer needed to subsidize the hospital at the same level it had before, Gabow said. “The old Denver Health with four-bed wards wasn’t going to attract a lot of patients with commercial insurance, who had a choice.”

In the first operating agreement, the city agreed to make up the difference between what Denver Health took in and what it needed to care for patients, Gabow said. Since then, the agreement has changed, and Denver has contributed about $30.8 million annually even as the amount of unpaid care has skyrocketed, she said. Denver Health reported about $120 million in uncompensated care in 2022 and $140 million in 2023. The 2023 total was more than double the 2018 level.

Denver spokeswoman Laura Swartz said the city was never obligated to cover Denver Health’s full uncompensated care costs, and the city’s contribution was always based on what it could afford.

A 2003 article, written by Gabow and two other physicians working at Denver Health at the time, laid out the system’s possible future financial challenges even as the authors argued that integrating the public hospital and the outpatient safety-net system had served Colorado well. They noted that government revenue hadn’t kept up with the cost of serving the uninsured, and that the ability to save costs by making patients healthier isn’t infinite.

“One of the challenges actually springs from the success of the system. The burden of uncompensated care falls disproportionately on Denver Health since it has been able to provide this care,” the authors wrote.

For a time, the system had enough paying customers to offset the uncompensated care: In 2018, Denver Health turned a $56 million profit. But even in those good years, the profit margin was below 5%, which was smaller than other metro-area hospitals and didn’t allow Denver Health to build up significant reserves for lean times to come, CEO Lynne said.

Margins on patient care started to decrease in 2019, which a report from the consulting firm Ernst & Young attributed to fewer employers choosing to use the Denver Health Medical Plan, which steers their workers toward the health system for care. The plan had gotten too expensive, because too many people with serious medical needs had signed up, according to the report.

Denver Health also earns less than some nearby hospitals when insured patients do use it. Both Aetna and United Healthcare — two of the larger plans in Colorado — pay Denver Health less on average than they do for care at Rose Medical Center and Saint Joseph Hospital, according to consulting group Turquoise Health. Rates are based on what a provider and an insurer negotiate, and largely reflect market power.

Stimulus funds meant to offset increased costs and lost revenue during the early stages of the COVID-19 pandemic brought the hospital into the black in 2020, but that money started to dry up at about the same time workers began to burn out and the “Great Resignation” drove up labor costs in health care. Typically, a nurse on a short-term contract costs two to three times as much as one on staff, but with so many people leaving their jobs as the pandemic dragged on, Denver Health had no option but to pay to plug those gaps, Lynne said.

“You can’t close one day a week” because of lack of staff, she said. “We’re not as flexible in health care as a restaurant would be.”

Supply costs also rose at the same time as inflation took off, and Denver’s homeless population continued to increase, rising 39% since 2018. The problem isn’t only that patients who are homeless frequently can’t pay for the immediate care they need, but also that Denver Health doesn’t have anywhere safe to discharge them, Lynne said. The hospital gets paid for treating a homeless patient’s frostbite if the person has Medicaid coverage, but not for providing housing where that person can recover, she said.

Denver Health partnered with the Colorado Coalition for the Homeless to fund units where unhoused people can recuperate after a hospital stay, but in some cases, the hospital still can’t find a safe place to discharge patients and has to keep them in its beds.

Other Colorado hospitals dealt with some of the same problems, though most in the Denver area had more reserves to draw on during lean times. Profits in the Colorado hospital sector as a whole dropped about 70% in 2022, though the majority still made money.

Denver Health lost about $35 million in 2022 and about $2 million in 2023. But that smaller loss last year came after the state’s cash infusion and an additional $10 million donation from Kaiser Permanente Colorado.

Four months into 2024, the trends haven’t turned around.

Lynne told members of Denver’s City Council in January that treating the needs of undocumented and uninsured migrants would “break” the health system unless it receives additional support. The number of new arrivals to the city has leveled off somewhat since then, though uncompensated care costs are still rising as Medicaid continues going through its rolls and Coloradans lose insurance following the end of the federal public health emergency, which had prevented disenrollments.

“Our plan this year is to break even,” Lynne said in March. “That’s not a long-term strategy.”

An additional challenge is that Denver has more providers offering relatively well-reimbursed care like trauma services than it did a decade or two ago, but less-compensated services like primary care, school-based clinics and behavioral health treatment still disproportionately land at Denver Health, Gabow said. That means the system doesn’t have as many opportunities to offset the cost of those under-reimbursed services, she said.

All safety-net providers are struggling to serve both the newcomers and their existing patient base with no reimbursement for the care they provide, said Cathy Alderman, chief communications and public policy officer at the Colorado Coalition for the Homeless. The coalition had to stop accepting new patients at its clinics because it couldn’t take on more newcomers, who aren’t covered by Medicaid and can’t pay out of pocket, she said.

“It’s really throwing our revenue models completely out of whack,” Alderman said.

Part 2: What would happen if Denver Health failed?

Revenue from patient care covers only about 69% of the cost of operations at Denver Health, and the system largely relies on government funding to close the gap, according to the Ernst & Young report.

Consultants told a city budget committee in January that other urban safety-net hospitals are seeing the same pattern of expenses rising faster than revenues. They noted Denver Health provided care at a lower cost and had above-average quality compared to a group of similar hospitals, suggesting wasteful spending wasn’t the primary problem.

Since 2020, safety-net hospitals have closed in Chicago, Atlanta, Philadelphia and San Antonio. Others didn’t close, but drastically curtailed services, with hospitals in the District of Columbia, Philadelphia, New York City and Cleveland dropping inpatient care since 2020. Unlike Denver, however, none of those cities had just one safety-net hospital.

If safety nets close, other hospitals must prepare for an influx of patients. When one Philadelphia safety-net facility, Hahnemann University Hospital, closed in 2019, a nearby hospital reported a 20% increase in patient visits to its emergency department. Emory University Hospital Midtown in Atlanta reported a similar increase at its emergency department after a safety-net hospital closed in that city.

Other hospitals don’t necessarily want the customers who previously went to a safety-net facility, because they can’t pay much, if anything, said Nancy Kane, a professor emerita of health policy and management at Harvard School of Public Health.

“It’ll hurt your payer mix,” she said.

Regardless of whether their patients are desirable or not, Denver Health takes care of so many people that the sheer number would create a problem for surrounding hospitals, said Julie Lonborg, senior vice president of communications at the Colorado Hospital Association.

Last year, about 270,000 people made a combined 1.3 million visits to Denver Health’s hospital and clinics. In comparison, Hahnemann University Hospital treated about 50,000 people in its emergency room and had about 16,000 inpatients annually, and didn’t run a comparable network of outpatient clinics.

“I don’t know if there’s enough capacity in the system if a hospital of that size and magnitude made a dramatic shift in services,” she said. “It would be a significant challenge.”

While the effect on other hospitals is clear, less data is available on how many patients instead go without care after a safety-net facility closes. Federal law requires all hospitals to stabilize patients who show up during a medical emergency. But hospitals have no obligation to continue treating patients who can’t pay once they’re stable enough to be sent home or transferred to another facility.

A 2004 working paper found mixed positive and negative effects when hospitals closed in Los Angeles County. People who reported needing to travel farther to a hospital were more likely to say they had found a usual doctor and less likely to rely on an emergency room for care. Uninsured people were more likely to report difficulty accessing health care, however, and deaths from heart attacks and accidents increased.

Unlike Los Angeles, however, Denver has only one safety-net hospital and a handful of federally qualified health centers that provide outpatient care to people without insurance. If Denver Health were no longer in business, the other safety-net clinics couldn’t meet the demand, said Alderman, of the homeless coalition. Other hospitals likely would try to step up and serve Denver Health’s patients, but they aren’t built around serving highly vulnerable people, she said.

“We have other great hospital partners in the Denver area. They’re just not serving the same population,” she said.

The two closest general hospitals, Rose Medical Center and Saint Joseph Hospital, didn’t make executives available to discuss whether they would be able to absorb a wave of patients if Denver Health were to close. Saint Joseph released a statement saying that caring for the “poor and vulnerable” was always part of the the hospital’s mission, while Rose said it could draw on resources from the rest of the hospitals and urgent care centers HealthOne owns in the area.

“Because of our scope of ERs across metro Denver, we are able to meet the needs of any one facility which is experiencing a more significant surge by sharing nurses, technicians, space, supplies, best practices, etc.,” Rose officials said in a statement.

Part 3: What can Denver Health do?

Denver Health has made some changes to limit expenses. In 2023, the health system stopped seeing uninsured people who weren’t already patients for nonemergency care. It also left about one-third of its psychiatric beds unfilled because it would cost too much to staff them, and reduced planned cost-of-living pay increases for employees.

The system cut its contract labor costs roughly in half in 2023, because it was able to hire and retain more employees, CEO Lynne said. The hospital can’t totally eliminate the need for contract labor, though, because of seasonal surges in demand, she said.

“I am not just looking for more revenue,” Lynne said. “My responsibility is to be as efficient as I can.”

Typically, safety-net hospitals in financial difficulty start by cutting expenses, which is more straightforward than raising revenue, said Feldpush of America’s Essential Hospitals. They usually first pause any expansions or new projects, then reconsider services they don’t get reimbursed for or which cost too much, she said.

For example, clinics might cut social workers who assist patients with finding resources like food assistance, because they can’t bill Medicaid or other insurance for that, or cut back hours to save on staffing, Feldpush said. One hospital that she works with is considering dropping a contract to have an obstetrician experienced with high-risk births on call at all times, because it has to weigh the benefit to patients against the $1 million annual cost, she said.

That said, new revenue almost certainly has to be a part of the solution for Denver Health. Lynne said the system has unsuccessfully sought to recoup money for care given to people from other counties. About 68% of the hospital’s uncompensated care went to Denver residents, 30% went to people from other Colorado counties and the rest was for people who live out-of-state.

In theory, Denver Health could at least partially solve its chronic revenue shortfalls by attracting more patients with commercial insurance, which pays more than Medicare and Medicaid. But the hospital’s clinics are largely located in low-income areas, and most people aren’t willing to travel far out of their way for care — with the exception of the uninsured people and non-English speakers who come from surrounding counties because they feel more comfortable at Denver Health, Lynne said.

“We’re not in Cherry Creek,” she said. “Your geography partly determines your destiny.”

Bringing in commercially insured patients can be a valid option, but only if a hospital has significant capital on hand to build or purchase facilities in affluent areas — which doesn’t appear to be the case for Denver Health, said Kane, of Harvard’s School of Public Health. Another option is to affiliate with another system that’s willing to subsidize them, but not many profitable systems are looking to ride to a safety net’s rescue, she said.

In addition, Denver Health doesn’t have a lot of open appointments or beds to take additional patients, even if people with insurance suddenly decided to seek care there, Lynne said. That leaves two levers: increasing what the hospital gets paid for caring for Medicaid patients, and making sure it gets paid something for care to the uninsured, either by signing them up for Medicaid or through additional government funding.

“I think the city needs to recognize the dimensions of this uncompensated care problem,” Lynne said. “There’s no question that the work we do benefits the city, and the metro area, and other hospitals.”

So far, efforts to raise public support have yet to yield results, other than the $5 million one-time payments from the legislature in 2023 and 2024. During a City Council committee meeting in January, Stephanie Adams, Denver’s deputy chief financial officer, spoke about giving further support to the hospital as a worthwhile endeavor, but not one that gives the city an obvious win.

“For an additional million, or an additional $10 million, what investments can we make in our community?” she said. “Not that it’s not worthy to provide additional money to safety-net hospitals, there’s just no additional thing that we get.”

Councilwoman Shontel Lewis said she believes Denver needs to contribute more, but it can’t close Denver Health’s gap in uncompensated care, which was about $109 million in 2023. Last year, she unsuccessfully proposed increasing the city’s $30.8 million annual contribution by another $15 million, but council members are still discussing what might be feasible this year, she said.

Denver purchased an additional $94 million in services from Denver Health in 2023, including paying for health care at the city’s jail, and has contributed about $230 million for capital projects over the last 20 years, city spokeswoman Swartz said. The city also is working with Denver Health to see how else it could help, she said.

“The structural issues facing the hospital’s finances are complex and beyond the scope of what can be addressed through the city’s annual budget. They are also not unique to Denver Health but can be found in safety-net hospitals across the country,” Swartz said in an email.

Mayor Mike Johnston was unavailable for an interview, but released a statement saying Denver Health is a “key partner” in improving Denver’s health and reducing homelessness.

“The city will continue to work closely with and advocate for Denver Health at all levels to ensure our safety net hospital remains a hallmark of our community,” he said in an email.

Lewis said she floated the idea of seeking a congressional earmark to help fund Denver Health, and that other local governments need to pitch in.

“It shouldn’t fall entirely on the shoulders of Denver,” she said.

A spokesman for Rep. Diana DeGette, a Democrat who represents Denver, said that under current congressional rules, members can’t add earmarks to the health and human services budget. Even if that were to change, each lawmaker gets a limited number of earmarks and has to decide among competing priorities, he said.

DeGette did introduce a bill that would give states more flexibility in how their governments distribute Medicaid supplemental funds, allowing them to consider whether a hospital offers other services like ambulances and dentistry, said Jeremy Springston, director of reimbursement at Denver Health. The bill doesn’t include any additional funding, though, so it’s unlikely states would make changes that shift dollars from some hospitals to others, he said.

“Any potential changes at the federal level, that’s probably more in the long-term solutions,” he said.

The homeless coalition and Denver Health have been pushing for federal action to pay for care to migrants, because neither states nor local governments have the resources to make hospitals whole, Alderman said. So far, though, the federal government hasn’t responded, she said.

More aid isn’t forthcoming at the state level, either.

Rep. Shannon Bird, a Westminster Democrat and vice chair of the Joint Budget Committee, said the group hopes the Department of Health Care Policy and Financing, which runs the state’s Medicaid program, will work with Denver Health. The state government “will never have the resources” to plug the full budget hole, so everyone needs to find creative ways to fund the system, she said.

“We all recognize that Denver Health is that critical safety-net hospital not only to Denver but to the entire state,” Bird said. “We have a strong interest in making sure we do everything we can.”

If the state had to come up with money to fill in Denver Health’s 2022 loss of $35 million, it would have cost about what Colorado will spend on the Department of Labor and Employment in the coming budget year.

The Colorado Department of Health Care Policy and Financing declined to make staff available to discuss how the agency could work with Denver Health, but issued a statement saying the agency would consider ways to bring in more federal Medicaid dollars to support the system’s work.

Hopefully, other hospitals will agree to take on a larger share of uncompensated care or would pay something toward Denver Health’s services, particularly if they get some prompting from the state, Bird said.

“Ideally, people in this space would see the benefits to working this out among themselves,” she said. “It’s in everyone’s interest that they be successful.”

The state has taken some steps to assist all hospitals that treat significant numbers of patients covered by Medicaid. The legislature increased reimbursements by 2% across the board in 2022 and 3% in 2023 — an improvement, though not enough to fully cover the cost of most services.

The state also could change its formula for dividing up supplemental payments through Medicaid, which go to hospitals with disproportionate shares of uninsured and publicly insured patients, though it has no plans to do so this year. That wouldn’t necessarily be an easy step either, however, since any change would produce losers as well as winners.