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Clinical Laboratories and Pathology Groups

Hosted by Robert Michel
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California Doles Out $300 Million in No-Interest Loans to Save its Financially Struggling Hospitals

State’s new program helps ensure local communities have access to a community hospital and its physicians and clinical laboratories

Like phoenixes rising from ashes, a number of bankrupt and shuttered California hospitals have new life due in part to a state-run program offering the healthcare providers interest-free loans. The medical staff in these hospitals—including the clinical laboratories—will be happy to learn that their local communities refused to let their preferred healthcare providers shut down and disappear.

California’s Distressed Hospital Loan Program, operated by the state’s Department of Health Care Access and Information (HCAI) and the California Health Facilities Financing Authority, is making awards of nearly $300 million in no-interest loans to 17 healthcare providers, an HCAI news release announced.

“The program, established through Assembly Bill 112, offers interest-free, working capital loans to nonprofit and publicly operated financially-distressed hospitals, including facilities that belong to integrated healthcare systems with less than three separately licensed hospital facilities,” according to the news release.

This clearly demonstrates that even as both physicians and patient are increasingly comfortable with telehealth consultations—and having their healthcare conditions managed in ambulatory settings—the concept of the community hospital as an essential medical resource continues to motivate local governments and citizens to invest money in money-losing hospitals.

Elizabeth Landsberg

“Today we have provided much needed assistance to community hospitals across the state that desperately need financial help to provide the care their communities need,” said HCAI Director Elizabeth Landsberg (above). “I’m grateful to the legislature for spearheading this effort to help make sure these vital healthcare institutions are fiscally stable so they can continue to provide quality, affordable healthcare for all Californians.” Thanks to these loans, clinical laboratories in these hospitals will continue to perform critical testing for their communities. (Photo copyright: Gilbert Perez/HCAI.)

Providers Get Support with Conditions

Among the 17 healthcare providers receiving loans is Madera Community Hospital, a 106-bed hospital that served a rural area in California’s Central Valley. Madera, which closed in December and filed for Chapter 11 bankruptcy earlier this year, is one of 17 “troubled hospitals” in California getting a “lifeline,” KFF Health News reported.

Madera will receive a $2 million bridge loan earmarked toward operational costs. It is also eligible for a $50 million loan once Adventist Health, Madera’s intended new administrator, offers up a “comprehensive hospital turnaround plan,” HCAI noted.

“California hospitals face many financial challenges, and for independent rural hospitals, these challenges can sometimes be almost insurmountable,” said Kerry Heinrich, JD, President and CEO of Adventist Health, in a blog post leading up to the state’s announcement of loan awards. “If Madera succeeds in getting the financial resources it needs, Adventist Health will provide Madera Community Hospital with the expertise of a large healthcare system, helping to secure a sustainable future for healthcare in Madera County.”

It’s interesting to note that potential “operators” are watching to see if the hospital or State of California can arrange tens of millions of dollars in loans or other financing before they agree to come in and manage the hospital. 

The Distressed Hospital Loan Program aims to provide “loans (repayable over six years) to not-for-profit hospitals and public hospitals, as defined, in significant financial distress or to governmental entities representing a closed hospital to prevent the closure or facilitate the reopening of a closed hospital,” according to California Assembly Bill 112.

“The hospitals approved for this program have shown a detailed plan for financial recovery, and these funds will help them keep the doors open so they can keep serving their communities,” Fiona Ma, CPA, California State Treasurer, told Cal Matters.

Also receiving financial support is Beverly Hospital, a 202-bed Montebello, California, provider set to be purchased by Adventist Health White Memorial of Los Angeles, Cal Matters reported.

Beverly Hospital received a $5 million bridge loan to use toward operation costs while it is “purchased out of bankruptcy,” HCAI said in the news release.

Another hospital getting a “lifeline” is Hazel Hawkins Memorial in Hollister, California. The 25-bed level IV trauma center will receive a $10 million loan.

Other Ailing Hospitals Getting Interest-free Loans

According to HCAI, the other 14 hospitals receiving loans include:

What Led California’s Hospitals to Financial Hardship? 

According to Cal Matters, hospitals in California are “distressed” due to rising labor costs and inadequate reimbursement from Medicare, Medi-Cal, and commercial insurance.

In addition, the COVID-19 pandemic had a “staggering” impact on California hospitals’ financial health, Kaufman Hall reported in its April “California Hospital Financial Impact Report.”

The consulting firm’s report also found:

  • One in five California hospitals is at risk of closure due to “an unsustainable combination of negative margins, decreasing cash positions, and increasing debt.”
  • Hospital expenses in 2022 were $23.4 billion over pre-pandemic levels, outpacing revenue increases.
  • Operating income in 2022 was $8.5 billion less than in 2019.

Will Consumer Demand Affect California’s Success?

California’s commitment to its financially struggling hospitals comes amid national trends suggesting physicians and patients—especially younger healthcare consumers—are becoming increasingly comfortable with remote healthcare monitoring and receiving primary care in non-traditional environments, such as retail pharmacies and clinics.

In “Survey Indicates Zoomers and Millennials Are Ready for Pharmacies to Play a Bigger Role in Their Primary Care,” Dark Daily reported how demand for low cost, convenient access to doctors and drugs is driving transformation to decentralized medical care, and how retail pharmacy chains are seeing opportunity in offering primary care services.

Will younger Californian’s demand for low-cost, convenient healthcare render the state’s attempt to rehabilitee its failing hospitals moot? Time will tell. The ongoing financial woes of California hospitals will be watched by hospital-based clinical lab managers and pathologists in other states. That’s because California has a reputation for being first in the nation in attempts to address problems or regulate activity.

Regardless, it’s clear that—at this moment—the state is willing to invest in hospitals with a history of deteriorating financial performance as a way of ensuring access to healthcare for all of its citizens.   

Donna Marie Pocius

Related Information:

California Offers Lifeline to 17 Troubled Hospitals

California Announces $300 Million in Financial Support for Community Hospitals Across the State

Assembly Bill 112

Adventist Health to Manage Madera Community Hospital

California Bails Out Distressed Hospitals, Offers Interest-Free Loans to 17 Troubled Providers

San Benito Health Care District Receives Letter of Intent

California Hospital Financial Impact Report

Survey Indicates Zoomers and Millennials Are Ready for Pharmacies to Play a Bigger Role in Their Primary Care

Studies by KHN, Navigant, and Others Report That Independent and Rural Hospitals Are Closing at Record Rates, Leaving Patients Without Critical Nearby Healthcare Services

Negative financials, low population growth, and excess inpatient capacity cited as reasons communities—especially rural areas—may lose their independent hospitals, including access to nearby clinical laboratory testing and anatomic pathology services

Could America’s independent rural hospitals actually disappear altogether? Metrics compiled by multiple healthcare monitoring organizations suggest that, with the increase in mergers and acquisitions of health networks, it’s a distinct possibility.

If so, what would happen to all the clinical laboratories affiliated with and servicing those hospitals? And how might hospital-based medical laboratories that are absorbed into larger healthcare networks be required to alter their workflows? For almost three decades, the clinical laboratory profession has seen similar hospital acquisitions lead to consolidation, standardization, and regionalization of the medical laboratories inside these hospitals. Often these organizational restructurings mean layoffs of lab managers and medical technologists.

Probably the more serious challenge is what will happen to all the rural patients who cannot get to larger health networks located in urban settings.

Hospital Closings Create Risks for Rural Communities

Experts say rural hospitals—especially providers serving small populations in southern and midwestern states—are in precarious positions going forward.

Kaiser Health News (KHN) reported in August that more than 100 rural hospitals closed since 2010, and these closures have serious implications for patients, such as a lengthy transport to another hospital’s emergency department.

“Across America, rural patients spend more time in an ambulance than urban patients after a hospital closes,” Alison Davis, PhD, Professor of Agricultural Economics at the University of Kentucky, and Executive Director of the Community and Economic Development Initiative of Kentucky, told KHN. Her team analyzed ambulance call and transport time data and found that a trip can grow from an average of 14 minutes before a hospital closed to 25 minutes after, KHN reported. (Photo copyright: Northern Kentucky Tribune.)

430 Rural Hospitals Likely to Close!

Rural hospitals usually do not have many nearby competitors. So, what brings so many  of them to the brink of closure? According to a Navigant (NYSE:NCI)) analysis of more than 2,000 rural hospitals, “21% are at high risk of closing based on their total operating margin, days cash-on-hand, and debt-to-capitalization ratio. This equates to 430 hospitals across 43 states that employ 150,000 people!”

Navigant identifies the following as factors in the decline of these struggling rural hospitals:

  • “Low rural population growth;
  • “Payer mix degradation;
  • “Excess hospital capacity due to declining inpatient care; and
  • “An inability for hospitals to leverage technology due to lack of capital.”

Also, a lack of Medicaid expansion has led to rural hospital closures as well, as Dark Daily reported earlier this year in “Rural, For-Profit Hospitals Closing at an Alarming Rate Putting Some Independent Clinical Laboratories and Pathology Groups at Risk,” February 8, 2019.

Navigant goes on to state, “Further review of the community essentiality (trauma status, service to vulnerable populations, geographic isolation, economic impact) of rural hospitals at high financial risk suggests 64% or 277 of these hospitals are considered highly essential to their community’s health and economic well-being. In 31 states, at least half of these financially distressed rural hospitals are considered essential.”

After reviewing the 2,000 rural hospitals Navigant’s analysts concluded that, unless trends reverse, one-in-five rural hospitals (21%) risk closing, a news release stated. And these hospitals are “essential” to the area’s residents.

“We show that two in three of these hospitals are considered highly essential to their communities: that’s 277 hospitals nationwide,” wrote David Mosley, Navigant’s Managing Director, in a STAT blog post. “Furthermore, if these hospitals close, already fragile rural economies will crumble while residents will be forced to travel long distances for emergency and inpatient care.”

Fierce Healthcare noted that “Of Montana’s 12 at-risk rural hospitals, all of them are considered essential to their communities. Kansas has 29 total at-risk rural hospitals with 25 of them—or 86%—considered essential to their communities. Georgia and Mississippi have seen 77% and 61% of their essential rural hospitals at financial risk, respectively.”

Navigant’s list of states with the highest percentage of rural hospitals at risk of closing includes:

  • Alabama: 21 hospitals (50%)
  • Mississippi: 31 hospitals (48%)
  • Georgia: 26 hospitals (41%)
  • Maine: eight hospitals (40%)
  • Alaska: six hospitals (40%)
  • Arkansas: 18 hospitals (37%)
  • Oklahoma: 17 hospitals (29%)
  • Kansas: 29 hospitals (29%)
  • Michigan:18 hospitals (25%)
  • Kentucky: 16 hospitals (25%)
  • Minnesota: 19 hospitals (21%)

Comparing Independent Hospitals to Health Networks

But it’s not just rural independent hospitals that are struggling. Modern Healthcare Metrics reports that 53% of all stand-alone hospitals in the US have suffered operating losses during each of the last five years (2012 to 2017). Conversely, about half (26%) of health system-affiliated providers have lost money.

Statistics compiled by the American Hospital Association (AHA) show there are approximately 5,000 non-federal acute care community hospitals in the US. In 2017, about 75% of them were part of multi-hospital systems, an increase from 70.4% in 2012, Modern Healthcare Metrics data indicated.

Modern Healthcare reported that during the period 2012 to 2017:

  • Average length of stay increased 6.4% at independent hospitals, while it decreased at health system hospitals by 23.5%;
  • Occupancy rates fell to 43.6% from 53.9% at independent providers, compared to rates falling to 53.7% from 61% at system-owned hospitals;
  • Independent hospitals seem to rely on patients having longer lengths of stay;
  • Hospices and skilled nursing facilities compete with stand-alone hospitals.

Change is coming to parts of the nation that depend on independent hospitals, and it’s not good. Medical laboratory leaders are advised to prepare for serving patients who may lose access to nearby tests and diagnostic services. On a positive note, medical laboratories in independent hospitals that consolidate with healthcare systems could bring expertise, adding value to their new networks.

—Donna Marie Pocius

Related Information:

Fewer Independent Hospitals Can Weather Operating Headwinds

The Effect of Rural Hospital Closures on Community Economic Health

American Hospital Association: Fast Facts on US Hospitals

After a Rural Hospital Closes, Delays in Emergency Care Cost Patients Dearly

Rural Hospital Sustainability  

One in Five U.S. Rural Hospitals at High Risk of Closing

Lawmakers Need to Act to Prevent Rural Hospitals Closing

More than One in Five Rural Hospitals at High Risk of Closing: Report

Rural For-Profit Hospitals Closing at an Alarming Rate, Putting Some Independent Clinical Laboratories and Pathology Groups at Risk