CA’s Safety-Net Hospitals Can’t Afford $25 an Hour Minimum Wage

Gov. Gavin Newsom could sign Senate Bill 525 any day now, which will institute a minimum wage for healthcare workers across the state.

No one would be prouder than I to stand behind a pay increase for healthcare workers who devote their lives to care for others, especially during a major, personal healthcare crisis. That level of commitment was demonstrated over and over again during the pandemic.

However, SB 525 is another crushing blow for hospitals struggling in the inflation-laden, economic aftermath of COVID-19 without a commensurate increase in Medi-Cal and Medicare reimbursement rates. This is especially true for safety-net hospitals caring for high volumes of patients insured by these government programs.

Community Regional Medical Center has the second-highest Medi-Cal and Medicaid hospital patient discharges in the state and ranks sixth in the nation. I am extremely proud of our 125-year history of caring for underserved residents in the Central California region. But, I am also perplexed by lawmakers who passed legislation that threatens struggling California hospitals and could reduce the very jobs this bill seeks to bolster.

SB 525 will require hospital wages to progressively increase toward a $25 minimum wage, beginning next June. By how much and how fast will depend on the size of the hospital, whether it’s part of a larger system, and its volume of government-insured patients.

This Bill Doesn’t Provide Funding for Mandated Pay Increases

Sadly, nothing in the bill will help cover the cost of this new unfunded mandate. Medi-Cal and  Medicare reimbursements lag behind inflation and don’t cover the dramatically rising costs of healthcare labor and supplies. Last year alone, Community Health System incurred a nearly $214 million shortfall in Medi-Cal and Medicare reimbursements even with supplemental reimbursement streams aimed to minimize the strain for hospitals.

Medi-Cal and Medicare cover only 88% of costs. When 84% of your patients are covered by one or both of these programs, well, you can do the math.

Our state government continues to expand Medi-Cal benefits, enforce unnecessary and antiquated seismic requirements, and now institute a healthcare minimum wage, seemingly without regard for how hospitals will absorb the additional costs.

The recent closure of Madera Community Hospital sent shockwaves throughout the state. Thankfully, Newsom and key legislators rallied to aid struggling hospitals. The Distressed Hospital Loan Program was established, and 17 hospitals benefitted from $300 million in no-interest loans. However, a total of 30 California hospitals applied, requesting more than $900 million in loans, and dozens more would have applied had small safety-net systems been eligible.

The loan program was funded partly by the state’s renewed Managed Care Organization, or MCO, tax, which was deemed a “historic commitment to address the longstanding shortfall in Medi-Cal payments.” I hope that’s true. If it plays out the way legislators hope, the four-year MCO tax on health insurance plans will be federally matched. It would also provide higher Medi-Cal reimbursement for emergency and outpatient services for California’s 334 general acute-care hospitals and for graduate medical education training programs.

Hospitals Struggle Because of Medi-Cal Underfunding

While this is welcomed relief, exactly how much funding is uncertain and comes with an expiration date. None of the funding is intended for safety-net hospitals, and it does nothing to address decades of underfunding in the Medi-Cal program. Despite the potential for the MCO tax, unfortunately, SB 525 would eclipse whatever providers receive from one-time, no-interest loans or temporary funding mechanisms.

If the governor signs SB 525, the Newsom administration and any legislator with a safety-net hospital in their district must also champion an equally meaningful and sustainable increase in Medi-Cal funding.

Otherwise, I fear more hospitals will buckle under the weight of unfunded mandates, and underfunded and over-extended government programs — ultimately reducing access to care and threatening the jobs that help provide it.

About the Author

Craig S. Castro is the president and CEO of Fresno-based Community Health System. He wrote this for CalMatters, a nonpartisan and nonprofit news organization dedicated to explaining how state government impacts people.

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