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.
“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:
- Chinese Hospital, San Francisco ($10,350,000)
- El Centro Regional Medical Center ($28,000,000)
- Hayward Sisters Hospital, dba St. Rose Hospital, Alameda County ($17,650,000)
- John C. Fremont Healthcare District, Mariposa ($9,350,000)
- Kaweah Delta Health Care District, Visalia ($20,750,000)
- Madera Community Hospital ($2,000,000)
- Martin Luther King, Jr. Community Hospital, Los Angeles ($14,000,000)
- Palo Verde Hospital, Blythe ($8,500,000)
- Pioneers Memorial Healthcare District, Brawley ($28,000,000)
- Ridgecrest Regional Hospital ($5,500,000)
- San Gorgonio Memorial Healthcare District, Banning ($9,800,000)
- Sonoma Valley Hospital ($3,100,000)
- Tri-City Medical Center, Oceanside ($33,200,000)
- Watsonville Community Hospital ($8,300,000)
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
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
