One in five California hospitals at risk of closing: Report

California hospitals have implored Gov. Gavin Newsom, state lawmakers and the state's congressional delegation to offer more aid to hospitals. A new report says one in five hospitals faces a risk of closure.

California hospitals have been urging federal and state lawmakers to pay attention to their dire financial problems, and healthcare leaders say a new report should serve as an urgent warning.

As many as one in five California hospitals are facing a risk of closure, according to an analysis by Kaufman Hall, a healthcare consulting firm.

California’s hospitals lost a combined $8.5 billion in 2022 alone, and they lost $12.1 billion in the previous two years.

Hospitals have sustained heavy losses during the COVID-19 pandemic, but they’ve also been hampered by inadequate federal and state funding, officials say.

Without action from policymakers, many California residents are going to have more difficulty in getting the care they need, said Carmela Coyle, president and CEO of the California Hospital Association.

“The real cost of this crisis — if help does not arrive soon — will be borne by the people of California, whose health care services will erode, slowly in some areas, and all at once in others,” Coyle said in a statement.

“For some, this will lead to longer emergency department wait times, farther distances to travel for care, and ‘care deserts’ for services like maternity care and behavioral health. For others, the change will be more severe with tragic examples where people can’t get to the next nearest hospital for care.”

California hospitals, along with hospitals around the country, are facing far higher expenses compared to pre-pandemic levels.

More than half (52%) of California’s hospitals had negative operating margins in 2022, as expenses outpaced revenues. For hospitals nationwide, 2022 was the worst year financially of the pandemic.

“Hospitals were able to weather the initial stages of the pandemic, but their situation has deteriorated quickly,” Erik Swanson, who leads Kaufman Hall’s data and analytics group, said in a statement. “The risk of hospital closures in California is the highest it has been since the pandemic began.”

Hospital officials in California say the threat isn’t hypothetical. They point to the closure of Madera Community Hospital in central California, which shut down in January.

California hospital officials have been pressing state and federal officials for help. Hospitals have sent appeals to California Gov. Gavin Newsom and U.S. House Speaker Kevin McCarthy, whose district is based in California. They’ve asked for a $1.5 billion lifeline for California’s Medi-Cal program, the state’s insurance program for people with lower incomes, and greater funding for Medicare.

Statewide, California hospitals had operating margins of -1.6% in 2022, and that’s factoring in a boost from the provider relief fund, the report stated.

The report says 71% of California’s hospitals are operating at margins of 3% or less, which is considered “unsustainably low.”

Total operating expenses for California’s hospitals reached $23.4 billion above pre-pandemic levels in 2022. The report cites higher labor expenses as well as inflation driving up the cost of supplies, including drugs.

Still, California’s hospitals are paying much more in labor than they did in 2019. The state’s hospitals spent $9.7 billion more in salaries in 2022, compared to 2019. The state’s hospitals also saw a $2.3 billion increase in benefits expenses in 2022, compared to pre-pandemic levels.

Like health systems in other states, California hospitals have spent far more in contract labor in the pandemic. California’s contract labor spending in 2022 was $3.8 billion higher than it was in 2019.

While California hospitals are spending more on expenses, they have yet to see volumes return to pre-pandemic levels. Emergency department visits and discharges remained lower in 2022 than in 2019. Patients were also staying longer in the hospital in 2022 compared to pre-pandemic levels, adding more strain on health systems.

Other states are facing severe pressures as losses mount in their hospitals.

In Texas, roughly one in 11 hospitals are facing a risk of closure, according to a Kaufman Hall analysis released in January. Alabama’s hospitals are facing “an existential crisis,” Donald Williamson, president and CEO of the Alabama Hospital Association, said in February.

Connecticut’s hospitals are struggling with “unprecedented financial challenges,” Jennifer Jackson, CEO of the Connecticut Hospital Association, said in March.