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Will CA’s $150M Life Raft Keep Distressed Hospitals From Sinking?

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Access to a new $150 million state loan fund might not be enough to help re-open Madera Community Hospital, which closed in late 2022. (CalMatters/CatchLight Local/Larry Valenzuela)
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A bill to provide a $150 million lifeline to struggling hospitals is headed to Gov. Newsom’s office, but one legislator says medical facilities need at least $1.5 billion to stay afloat through the end of the year.

The Distressed Hospital Loan Program from state Sen. Anna Caballero (D-Merced), Assemblymember Esmeralda Soria (D-Merced), and Speaker-Designate Robert Rivas (D-Salinas) would create a state fund to offer loans to hospitals that can show they don’t have the cash on hand to keep operating.

A stipulation in the bill passed on Thursday states that hospitals would have to create a financial plan showing they can be solvent going forward. But many rural hospitals have little to no control over Medicare reimbursement rates or the wealth of the populations they serve.

Too Little, Too Late for Closed Madera Community?

The loan program gives a hospital time to come up with a financial plan, said Madera County Health Officer Dr. Simon Paul.

In Visalia, Kaweah Health also faces financial problems. In 2022, the hospital operated at a loss, losing nearly $60 million according to the most recent financial data from the Department of Health Care Access and Information. In a call to investors, CEO Gary Herbst had said they may be eligible for a $50 million loan, according to Beckers Hospital Review.

“Any business plan or business model that gets reimbursed 74 cents on every dollar that you spend is a pathway to bankruptcy.” — state Sen. Shannon Grove (R-Bakersfield)

Recently closed Madera Community Hospital would be eligible for funds to help the hospital reopen, but the clock is ticking if the facility were to reopen. Right now, the hospital is operating on a suspended license, said Paul.

The longer the hospital takes to reopen the harder it will be. If the license were to expire, there is a much larger checklist of standards that would have to be met to get a new license.

At a forum hosted by the National Public Radio “1A” podcast, Madera Community CEO Karen Paolinelli said if the hospital did not find a buyer before the bankruptcy process ended, she doubted the facility would ever reopen because of the lapsed license.

Madera County Administrative Officer Jay Varney told GV Wire in an email he believes the hospital is looking for a buyer while at the same time filing paperwork to possibly liquidate assets in case no buyer is found.

Loan Fund Doesn’t Solve Underlying Financial Woes

A press release from Caballero’s office stated Covid-19 cost hospitals $12 billion statewide, putting dozens of hospitals at risk of closing. More pressing, Caballero said a handful of hospitals – mostly rural ones — would close by the end of the year if the state did not come up with $1.5 billion.

State Sen. Anna Caballero (D-Merced) said a handful of hospitals – mostly rural ones — would close by the end of the year if the state did not come up with $1.5 billion.

Language in the bill requires hospitals to author a financial plan for solvency.

But Paul, the public health officer with Madera County, said it’s challenging to “simply recreate the same hospital where the same problems exist.”

The Central Valley has lower Medi-Cal reimbursement rates compared to coastal areas, said Paul. While that may have worked in the past, it’s no longer sustainable. The patient mix for Medi-Cal and Medicare used to be around 20% to 30%. Now, it’s over 50% statewide, said Paul.

Paolinelli in the “1A” forum said 84% of Madera Community’s patients were on Medi-Cal or Medicaid.

Those insurance programs don’t cover the full cost of procedures and treatment.

At Madera, often, those with private insurance, including city and county employees, would travel to St. Agnes Medical Center or Clovis Community Hospital to get procedures done, Paolinelli said

As the ratio of private-to-government insurance tips heavier toward Medi-Cal and Medicare, hospitals have to cover those losses.

Labor Expenses and Availability

If Madera’s hospital were to reopen, it would need to hire from an already-exhausted labor pool. There are more than 400 open nursing positions in the Fresno area, Paul said. Reopening the hospital would mean competing with those hospitals for workers. Many former nurses at Madera have gone on to places such as Camarena Health. They may not want to switch back, Paul said.

Having an established name take over the hospital may help attract labor. A good solution Paul sees is UC Merced taking over the hospital.

In order to reopen, the solution may be reduced bed counts or services, Paul said.

California Budget Deficit Limits Financial Options

Caballero has said that AB 112 is only the first step in getting hospitals into the black.

But considering California’s projected $22.5 billion budget deficit, legislators have said they have often been told not to expect anything new from the governor’s office when it comes to programs.

Caballero has authored a bill to restore Managed Care Organization tax — a tax on health insurance plans which was not carried forward in the 2019-2020 California budget. The roughly $1.5 billion yearly it raised was used to leverage more favorable Medicare reimbursement rates from the federal government.

The Associated Press cited the Newsom administration as saying it plans to use the new tax money to increase payments to hospitals, but that won’t happen until next year at the earliest.

“Any business plan or business model that gets reimbursed 74 cents on every dollar that you spend is a pathway to bankruptcy,” said state Sen. Shannon Grove (R-Bakersfield).

Edward Smith began reporting for GV Wire in May 2023. His reporting career began at Fresno City College, graduating with an associate degree in journalism. After leaving school he spent the next six years with The Business Journal, doing research for the publication as well as covering the restaurant industry. Soon after, he took on real estate and agriculture beats, winning multiple awards at the local, state and national level. You can contact Edward at 559-440-8372 or at Edward.Smith@gvwire.com.