Gov. Jared Polis’ office and a group of Democratic legislators want to cap the prices that hospitals can charge Coloradans insured by the state or private small-group plans, saying the move is needed to bring relief to the budget and to employers struggling with costs.
But the proposal, coming in a bill expected to be introduced this week, could deal a body blow to a hospital sector already reeling from ballooning supply and labor costs, federal funding uncertainty and a surge in uninsured patients, industry leaders say. It also would represent a new incursion by the state into reimbursement contracts between insurers and health-care providers as the Democratic governor continues his years-long efforts to save state residents money on health care.
The bill, which will be sponsored by Democratic Reps. Kyle Brown of Louisville and Emily Sirota of Denver, would bar most of the state’s 108 hospitals from seeking reimbursement rates from small-group insurance plans or the state’s insurance plan that are more than 165% for of Medicare rates. The only facilities exempted from the cap would be the 32 rural critical-access hospitals that have 25 or fewer beds and are a minimum of 35 miles from the nearest hospital.
Capping reimbursements for the roughly 60,000 workers and dependents covered by the state’s insurance plan could save the state as much as $62 million annually if the bill passes and takes effect in 2027, Sirota said. The savings would go to a new cash fund that would seek federal matching money and distribute funds to federally qualified health centers and other community clinics that serve largely uninsured patients and Coloradans in the public Medicaid insurance program.
Stepping into insurer-hospital negotiations

A hospital nurse prepares an infusion for a cancer patient.
But the inclusion in the proposed reimbursement cap of small-group health plans, which are purchased on the open market by companies with less than 100 workers and regulated by the Colorado Division of Insurance, makes the bill more than a budget-savings measure. And sponsors made it clear at a Capitol news conference on Tuesday that they mean for the legislation to go after hospitals that they feel charge too much for their services and to advocate for small employers who have little leverage to get the facilities to charge less.
“We certainly have a budget crisis. But we also have a crisis on people’s wallets. And small businesses have been taking it on the chin for too many years,” Brown said in an interview after the news conference. “A large part of what drives the prices that are paid in health care is relative negotiating strength. It’s really just ‘How big are you compared to the person you’re negotiating against?’ This is an appropriate time for us to step in as a state and say, ‘This is an excessive price.’”
Technically, this is not the first time that Colorado has gotten involved in rate setting for healthcare plans. It created the Colorado Option program that requires insurers to offer some individual plans at lower premiums, which can only happen via lower provider pricing. And the state sets reimbursement rates for Medicaid providers — rates paying about 79% the cost of services.
But if passed, this bill would represent the first hard cap the state has put on reimbursements in contracts between two private health-care parties. And the Colorado Hospital Association, in addition to being against rate-setting as an infringement on its members’ contractual rights, said that the proposal couldn’t have come at a worse time.
Hospitals struggling financially
An exodus of workers during the pandemic has led to hospitals’ labor costs skyrocketing by 30% since 2019, and supply-chain issues have contributed to a 50% hike in supply pricing over that same time frame. Nearly 70% of state hospitals have operating margins of less than 4%, which is considered unsustainable, according to the CHA. And the disenrollment of tens of thousands of Coloradans from the Medicaid program last year has led to a spike in uninsured state residents with more acute symptoms showing up for costly emergency-room treatments but unable to pay their bills.
Polis seemed to give hospitals a boost in his State of the State Address when he said he would support their efforts to pass a bill that would bar pharmaceutical manufacturers from limiting their access to the federal 340B discount drug-pricing program. But the governor also said he would “take real action to deal with excessive hospital prices while also protecting our safety net” — a statement whose meaning wasn’t clear until Lt. Gov. Dianne Primavera joined the news conference announcing the bill Tuesday.

Colorado state Sen. Jeff Bridges, standing beside Lt. Gov. Dianne Primavera, speaks Tuesday about a bill to cap some hospital reimbursements.
Bill sponsors noted that the average privately insured Coloradan reimburses hospitals at 291% the rate of Medicare payments, and they argued that 165% of that rate will be sufficient. “There’s still room for profit — maybe not as much profit as if you got 3X Medicare, but still profit,” said Sen. Jeff Bridges, a Greenwood Village Democrat who will co-sponsor the measure in his chamber.
Could caps lead to service cuts?
Capping reimbursements at 165% of Medicare rates is particularly problematic, however, because Medicare payments only cover 73% of the costs of services, said Julie Lonborg, CHA chief of staff. She emphasized that higher reimbursement rates for private payers are how facilities make up for government underpayments and stay afloat, particularly now that 61% of state residents are on Medicare or Medicaid.
Brown argued that research has found that mandating lower reimbursements for some patients in other states has not led to a “cost shift” in which other private payers are forced to pay more. But Lonborg pointed to the Jan. 15 Colorado Healthcare Affordability and Sustainability Enterprise report noting that enterprise funds have helped to stop what had been a more extensive cost shift to employer-paid plans.
Limiting reimbursements from a significant portion of the population may not cripple the 30% of hospitals with sustainable margins, but it will hurt the 70% that already are struggling and may force them to cut services, Lonborg said. And that, combined with other pressures that hospitals face and uncertainty over whether President Donald Trump will reduce federal funding to the sector, could exacerbate problems in a system near cracking.
“It’s not just this one bill. It’s all of these things together,” Lonborg said. “We share their goal (of cutting costs). I think it’s fair to say that we disagree on the way to go about that.”
Bill could have myriad effects on employers

Alejandro Flores-Munoz, owner of Combi Taco, speaks at a news conference Tuesday for a bill that could cap what small employers pay hospitals for services.
It’s likely other groups will weigh in too. Insurers, for example, must determine if they are accepting of the state government coming in to dictate the terms of the reimbursement contracts they negotiate — even if that may lead to lower reimbursement costs.
And employers clearly would be affected by the proposal too.
Alejandro Flores-Munoz, owner of catering company Combi Taco, said at the news conference that annual hikes in his insurance premiums force him to choose between paying more out of his limited resources, getting a lower-benefit plan or dropping coverage. The bill will reduce costs for small businesses and make it easier to grow, he said.
But if hospitals shift costs toward other private payers, it likely would be the larger businesses and self-insured employers who will feel that the most. And those employers have yet to weigh in on the debate.