California Legislators Fast-Track a Loan Program to Prevent Hospital Closures

California hospitals in financial trouble will soon be able to apply for interest-free state loans, although key questions about the selection process aren’t yet resolved.

The Legislature on Thursday approved a bill that will allocate a one-time sum of $150 million from the general fund to aid hospitals that are facing severe financial distress and are at risk of closure, or that have closed but have a plan to reopen. The loans would have to be paid back within six years, although loans may be forgiven for hospitals that meet certain requirements. Gov. Gavin Newsom needs to sign the bill to enact the program.

Legislators and hospital administrators have acknowledged a loan program is only a stopgap for a number of hospitals that for months have warned of their precarious fiscal situations. Legislators fast-tracked action following the closure of Madera Community Hospital at the start of this year, which left this San Joaquin Valley county of 160,000 people without a local emergency room.

Since then, another hospital, Beverly Hospital in the city of Montebello, has filed for bankruptcy.

“This bill, this money, will keep them (Beverly Hospital) open long enough to be able to perhaps sell, regroup, whatever, but they will keep their doors open,” Sen. Bob Archuleta, a Cerritos Democrat whose district includes Montebello, said on the Senate floor.

Loans under the new program would be available to nonprofit and public hospitals. Those that would most likely need and could benefit from the loans are independent and rural hospitals, some of which were struggling even prior to the pandemic, and that have had a difficult time managing cash flow after they stopped receiving federal COVID relief funds. Hospitals that apply will have to demonstrate need and viability to the California Department of Health Care Access and Information, which will oversee the program in conjunction with the state’s health department and the California Health Facilities Financing Authority, a financing program within the State Treasurer’s Office.

It’s not clear exactly how many hospitals could qualify and how much each would get, according to officials from the state Department of Finance who testified in a budget committee hearing earlier this week. That will be determined by the agencies in charge, who will have to create eligibility criteria for these loans.

In hearings leading to Thursday’s vote, lawmakers asked why the state wasn’t conducting its own analysis of hospitals’ current situation so that the Legislature knows exactly which hospitals are in immediate need of relief.

“We don’t know how many hospitals, we don’t know which hospitals. We don’t know which areas those hospitals are (in), we don’t know anything. And now we’re asked to approve $150 million to be doled out without access to plans, without access to the finances that would give us the evidence to feel comfortable with this,” said Sen. Maria Elena Durazo, a Los Angeles Democrat, during a Senate budget committee hearing on Tuesday.

Much of the information available to legislators has come from the California Hospital Association, whose job is to lobby on behalf of hospitals. According to a report commissioned by the association, 1 in 5 hospitals is at risk of closure (PDF), and half of California’s hospitals are losing money. The report did not list which hospitals are in immediate danger. The association has also not identified facilities, noting that when a hospital announces its financial troubles it can prematurely begin to lose workers and patients.

But aside from the now defunct Madera Community Hospital, at least seven other hospitals have publicly spoken about their financial troubles, either through op-ed pieces, news reports, notices on their website or communication to their staff. These include: Kaweah Health Medical Center in Visalia, El Centro Regional Medical Center in Imperial County, Beverly Hospital in Montebello, MLK Jr. Community Hospital in Los Angeles, Hazel Hawkins Memorial Hospital in Hollister, Sierra View Medical Center in Porterville and Mad River Community Hospital in Humboldt County.

During this week’s hearings, legislators also questioned how the state came up with the $150 million figure, given that the state does not yet know how many hospitals need a loan or would qualify.

“One hundred fifty million is something that we believe we can absorb at this time,” said Erika Li, with the state’s Department of Finance, during Tuesday’s budget hearing. “Trying to address an issue during fiscal constraints is always difficult because you’re always balancing lots of priorities.”

With eyes on the upcoming fiscal year, the California Hospital Association has asked the state for $1.5 billion in one-time relief, a tough request in a deficit year. But Senate Democrats are in support, proposing that hospitals get $400 million annually for four years (PDF) that would come with requirements and conditions, according to their budget proposal that is to be finalized this summer.

A spokesperson for the California Hospital Association said the loan program is welcome news and promising for hospitals on the financial brink, but more state support is necessary. Specifically, the association has been advocating to increase reimbursements for services provided to patients covered by Medi-Cal, the health insurance program for people with lower income, which covers about 15 million people in the state.

“Beyond this short-term relief, a sustainable and systemic solution will be needed to protect care for Medi-Cal patients throughout the state for years to come,” said Jan Emerson-Shea, a spokesperson for the California Hospital Association. “As California continues to reel from the long-lasting and negative impacts COVID-19 has wrought on the state’s health care system, the work must continue if we are to preserve critical hospital services in all communities.”

Seeking longer-term relief, Sen. Anna Caballero, a Merced Democrat whose district includes Madera, is also pushing separate legislation that calls for the state to renew a tax on managed care organizations that expired last year. That money would be used to increase Medi-Cal payments to hospitals and other providers, helping hospitals that disproportionately serve patients with lower income.

“Ensuring that our hospitals remain open and able to serve patients has been priority number one for me this year. The hospital closure in Madera and other looming closures would be catastrophic in both rural and urban communities,” Caballero said in a statement following Thursday’s vote. “To ensure proper oversight of public funds, I will continue to seek more transparency and frankly more accountability on hospital operations to ensure California preserves health care access for all.”