California Hospitals Seek a Broad Bailout, but They Don’t All Need It

SACRAMENTO, Calif. — One of many nation’s richest hospitals, which caters to Hollywood elites, accepted practically $28 million final yr from an uncommon supply: a charity that siphons cash from different California hospitals, lots of which serve the state’s poorest residents.

Cedars-Sinai Well being System in Los Angeles secured the grant underneath California’s recession-era financing scheme that permits rich hospitals to take worthwhile well being care tax cash from poorer ones. Hospitals throughout the state agreed in 2009 to the association in an effort to faucet billions extra per yr in taxpayer {dollars} to help the state’s Medicaid program, referred to as Medi-Cal.

Now, a few of these hospitals serving a better share of Medi-Cal sufferers are in dire monetary want and face cutbacks and potential closures. However as an alternative of asking for assist for under these at biggest threat, California’s highly effective hospital trade is placing the squeeze on Gov. Gavin Newsom and fellow Democratic lawmakers for an unprecedented bailout. And they’re doing it even because the state faces a nearly $32 billion budget deficit.

Hospitals argue that to avert a disaster, they want an emergency infusion of $1.5 billion. In addition they desire a regular annual stream of recent health care tax cash regardless of already having their very own devoted tax meant to help struggling amenities that serve a big proportion of the state’s low-income individuals, equivalent to Madera Neighborhood Hospital within the Central Valley, which closed earlier this year.

Advertisements by the California Hospital Affiliation paint a scary image: “1 in 5 Hospitals are vulnerable to closure.” Yet one more warns, “Well being care that hundreds of thousands depend on is in danger.” These claims are being repeated by state lawmakers as they debate monetary rescue for hospitals.

However a KFF Well being Information evaluation of state knowledge revealed that regardless of elevated labor prices and inflation, many California hospitals have been worthwhile in recent times. The trade earned roughly $131 billion final yr in affected person income, a key indicator of profitability — $7.3 billion greater than the earlier yr. After factoring in rising prices, the trade nonetheless turned a revenue of about $207 million final yr. State figures present the trade reaped $9.2 billion in affected person income in 2021, partly a mirrored image of massive swings within the inventory market.

Main well being care finance consultants and former state officers are urging Newsom and lawmakers to withstand the trade’s worry ways, saying that, although hospitals are nonetheless reeling from the covid-19 pandemic, many have plush monetary reserves.

“They’re large followers of those big bailouts, the place the comparatively wealthy hospitals profit in addition to those who actually need it,” stated Glenn Melnick, a well being economist on the College of Southern California. “A giant chunk of the hospitals, even when they’re dropping cash, don’t want taxpayer cash to assist them via this disaster.”

Melnick and others who’ve analyzed the monetary state of California hospitals say a sliver of California’s 368 normal hospitals are in disaster and that reduction needs to be given solely to those who can present they’re in quick peril. Many hospitals in underserved and rural communities are struggling financially, partly as a result of they’ve failed to draw sufficient sufferers with personal insurance coverage. And the price of offering care to lower-income sufferers who depend on Medi-Cal hasn’t saved tempo with authorities reimbursement charges.

However low Medi-Cal charges aren’t essentially a predictor of monetary catastrophe, based on a report released Thursday by the California Well being Care Basis. (KFF Well being Information publishes California Healthline, which is an editorially impartial service of the California Well being Care Basis.)

Well being economists discovered that hospitals “with the bottom margins have been no extra depending on Medi-Cal or Medicare than the typical California hospital.” And plenty of cash-strapped hospitals could also be sitting on huge wealth, a sign they don’t essentially want extra taxpayer cash.

“Many of the amenities which have damaging margins are part of bigger techniques, which means that they’ve the underlying wealth of these techniques to stabilize them,” stated Kristof Stremikis, director of market evaluation and perception for the muse.

Carmela Coyle, the influential chief of the state hospital foyer, stated California’s hospitals are within the worst disaster they’ve confronted in latest historical past, largely as a result of the state reimburses suppliers simply 74 cents on the greenback to look after Medi-Cal sufferers.

“You’ve got these underserved communities within the Central Valley, the place a hospital is available in, they’re doing their finest, and people underserved people will not be reimbursed the identical as everyone else,” Coyle informed KFF Well being Information. “The actual underlying situation right here is authorities underfunding.”

However Coyle isn’t disclosing the total image. Consultants agree that reimbursement charges in Medi-Cal — cash offered to medical doctors, clinics, and hospitals for taking good care of low-income sufferers — are too low to cowl the precise price of care. But the state and federal authorities give billions in bonus and incentive funds that may truly lead to increased reimbursements and even earnings.

After Madera Neighborhood Hospital reduce off companies and shuttered, Coyle warned that it was a “canary within the coal mine” for different hospitals unable to make ends meet due to its excessive proportion of low-income sufferers and reliance on authorities funds. However the hospital truly made practically $15 million from Medi-Cal in 2021, KFF Well being Information has gleaned from state hospital monetary information.

The overarching downside, according to emails obtained by KFF Well being Information, was an incapacity to demand increased funds from industrial medical insurance corporations, in addition to entice their sufferers — 70% of whom sought care exterior Madera County.

The hospital “doesn’t have the power to barter aggressive charges by itself,” based on an e-mail final June to the California lawyer normal’s workplace from representatives of Trinity Well being, a nationwide Catholic well being system, which backed off from buying the hospital.

The Madera hospital’s CEO, Karen Paolinelli, and different hospital leaders made one other last-ditch effort to maintain its doorways open: They requested for an advance cost of their hospital tax income — cash distributed via medical insurance plans and the state. The cost they sought was from the Hospital Quality Assurance Fee, which permits hospitals to tax themselves to attract in federal cash for Medi-Cal. Adopted in California in 2009 and later approved by voters via a poll initiative, the tax introduced in $8.4 billion final yr.

“We did ask earlier than we closed to receives a commission a few of the supplier cash owed to us,” Paolinelli stated. “However we weren’t profitable.”

She stated the hospital wanted $5 million to stay open and couldn’t safe funding in time.

Below the hospital tax income, the cash is unfold throughout California hospitals, however the system is designed to guard the wealthy hospitals and primarily assist them keep away from trade taxes.

Hospitals with a better share of low-income sufferers pay the next tax than wealthier techniques that don’t function many poor individuals. Nonetheless, they profit handsomely, in the end growing how a lot they’re paid to look after Medi-Cal sufferers. Then these hospitals surrender a portion of their tax cash to a charity that funnels it to better-performing hospitals in change for his or her political help for the hospital tax.

“The winner hospitals contribute cash to a fund that’s used to distribute cash to the loser hospitals,” stated Elaine Batchlor, CEO of MLK Community Health, which is asking for monetary assist as a result of roughly 70% of its sufferers are on Medi-Cal. “No hospital loses by being part of it. For those who have been going to lose cash, you’d be towards it.”

The transactions are routed via the California Health Foundation and Trust, the charity operated by the management of the California Hospital Affiliation.

For instance, Cedars-Sinai paid practically $172 million in taxes in 2022, eclipsing the $151 million it obtained again in further Medi-Cal {dollars}. To make up for the loss, it secured the practically $28 million in grant income — incomes practically $6.9 million from this system, its commissioned tax audit exhibits.

Cedars-Sinai spokesperson Duke Helfand acknowledged the profit from the taxing scheme however stated the well being system successfully subsidizes Medi-Cal enrollees and incurs losses of greater than $180 million yearly serving these low-income sufferers. “Over time, our groups at Cedars-Sinai have successfully managed our monetary sources, enabling us to offer distinctive affected person care,” Helfand stated.

By comparability, the faith-based Adventist Well being, which serves extra poor individuals and operates roughly two dozen hospitals in California, Oregon, and Hawaii, paid $148 million in taxes in 2022 and reaped $401 million in further Medi-Cal {dollars} via this system, based on its independent tax audit. It then contributed $3 million of that cash to the charity.

These kinds of financing preparations are underneath federal scrutiny. Officers with the Facilities for Medicare & Medicaid Providers have blasted “hold harmless” offers that can lead to wealthier hospitals receiving sufficient a refund that they in the end wind up paying little or no tax in any respect.

“A well being care-related tax can’t have a maintain innocent provision that ensures to return all or a portion of the tax again to the taxpayer,” Daniel Tsai, deputy administrator and director for the federal Medicaid company, wrote in February.

Dave Regan, president of Service Workers Worldwide Union-United Healthcare Staff West, which represents hospital staff, has lengthy lambasted California’s scheme as a ploy that lets rich hospitals siphon worthwhile well being care {dollars} from smaller, rural hospitals that want extra help for Medi-Cal sufferers.

“We consider the insurance policies and practices of the hospital trade, largely, contribute to the issues that Madera confronted,” Regan stated. “The hospital trade is richer than it’s ever been — and it’s being disingenuous, making an attempt to get the general public to fork over extra money at a time after they have extra money than they’ve ever had.”

California Hospital Affiliation spokesperson David Simon defended the charity, saying it helps “hospitals present well being care companies regardless of losses” from the tax.

Hospital leaders say exorbitant prices and inflation have created excessive monetary woes. Final yr, California’s hospitals paid at the very least $10 billion extra for labor, provides, and different bills than the yr earlier than, based on state hospital finance knowledge. And total, they noticed considerably smaller funding positive factors, reporting practically $119 million in non-operating income in contrast with $6 billion the yr earlier than — an enormous blow to their monetary cushion to make sure affected person care.

The trade factors out 200 hospitals had damaging working margins final yr, but KFF Well being Information discovered that, even earlier than the pandemic, about 160 hospitals reported dropping cash of their working budgets. Consultants say the discovering underscores the fact that hospitals function on slim margins.

And, credit score scores companies have not too long ago upgraded the bonds of plenty of hospitals and well being techniques, together with Sutter Health in Northern California and Loma Linda University Medical Center in San Bernardino County.

“We simply upgraded Sutter like two weeks in the past, so it will be very hard-pressed, for me, to have a look at California and say California is trying unhealthy,” stated Kevin Holloran, a senior director at Fitch Rankings.

A photo of Governor Gavin Newson speaking at a conference.
California Gov. Gavin Newsom speaks in the course of the Milken Institute International Convention in Beverly Hills, California, on Might 2, 2023.(Patrick T. Fallon / AFP by way of Getty Photographs)

Some Democratic lawmakers agree that not all hospitals want a bailout. As a substitute, they favor focused reduction equivalent to a $150 million loan program that Newsom signed into law earlier this month to assist struggling hospitals.

“I’m not an enormous fan of writing everyone a verify,” stated Democratic Assemblymember Jim Wooden, chair of the Well being Committee, who says hospitals should be extra clear about their funds earlier than state taxpayers give them any extra money. “For those who’re a hospital system that’s doing effectively, I don’t consider you ought to be getting any further sources from the state.”

KFF Well being Information senior correspondent Bernard J. Wolfson contributed to this report.

This text was produced by KFF Health News, which publishes California Healthline, an editorially impartial service of the California Health Care Foundation. 


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