Californian hospital leaders discuss operational challenges and financial pressures


Hannah Saunders


A handful of hospital leaders from California discussed how these facilities have attempted to recover from losses in revenues caused by the COVID-19 pandemic at the 2023 Northern California State of Reform Health Conference.

Primary topics of concern included decreased operating margins, workforce shortages, and the increased demand for care.

Anne McLeod, president and CEO of Private Essential Access Community Hospitals, was one of the panelists, and said the panel was taking up a sobering issue.


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“It really stems from decades-long exposure to abysmal government underfunding of both the Medi-Cal and the Medicare programs. Neither program has kept pace with inflation,” McLeod said. 

“They started out funding below the cost of providing care, and while we see that cost of care go up over decades, we see minimal increases, or no increases from Medicare and Medi-Cal down at this level, and so this gap between the actual cost to provide care and the amount of reimbursement provided to hospitals has grown just in California, to tens of billions of dollars.”

McLeod added that she’s seen the gaps between costs of providing care and hospital reimbursement amounts firsthand while working in the hospital. She said the lack of cash flow is a common issue for hospitals, which includes not being able to make payroll within 90 days. She expects the deficit between operating costs and reimbursement rates to worsen. 

During the earlier days of the pandemic, hospitals became full of patients with COVID-19, which resulted in more people staying at home and less people receiving regular healthcare services provided at hospitals. With less individuals receiving annual exams or pushing off surgeries, hospitals saw a decline in revenue, and some have since closed. While patients ill with COVID-19 were both resource and staff-intensive, McLeod said hospitals’ drug costs soared with an increase of 40% during the pandemic, while their supply costs increased about 30%. 

“The fees that we collect for Medi-Cal and Medicare do not cover the full cost of providing services,” said Cathy Martin, CEO of the Association of California Healthcare Districts.

Martin explained how taxes support local government entities, such as district hospitals, although on average for their revenues statewide, only one to three percent comes from taxes; the rest of the revenue comes from service fees they collect. Greater issues arise with hospitals having to cut service lines to reduce costs, and while closing a service line can assist with expenses in the short term, the facility may experience even greater revenue losses in the long term.

“In order to affiliate with another larger, maybe more well-resourced system, or to sell their hospitals, they have to go back to their voters,” Martin said. “The voters of that district own that hospital so they’re not very attractive for partnerships.” 

Ann-Louise Kuhns, president and CEO of the California Children’s Hospital Association (CHA), was another panelist who provided insight from a pediatrics perspective. She said that during the pandemic, community hospitals closed down pediatric units because the virus was primarily affecting adults and seniors, although the pediatric units didn’t always reopen.

“The reason is pediatrics tends to reimburse worse than any other type of age group segment … because pediatrics is so intensively Medicaid dependent,” Kuhns said. “Nobody goes into pediatric care thinking that they’re not going to be able to provide care to patients who need it. It was extremely distressing for people.” 

Kuhns cited additional issues that the pandemic worsened, such as increased violence and aggression towards healthcare workers: staff don’t feel as safe, they continue to experience burnout, and hospitals are hiring more travel workers. All of these factors increase costs, according to Kuhns, while pediatric beds become less available. 

“I want to be sensitive to the fact that we’re trying to manage a system where we don’t want healthcare costs to grow,” Kuhns said. “Families are finding it hard to pay for premiums now, but part of the difficulty is that nobody—and this includes voters—nobody wants to pay for anything anymore, unless they’re getting a direct benefit from it.” 

The California Hospital Association issued a press release on May 12th, highlighting concerns with the May Revision to Gov. Gavin Newsom’s proposed state budget. While the association states that they are grateful to the governor and legislature for putting $150 million towards “a small number of hospitals at imminent risk of closures,” said CEO and president, Carmela Coyle, dozens of more hospitals are at risk for closure. The press release said additional state budget support is immediately needed.

The $150 million Coyle referenced falls under the Distressed Hospital Loan Program, which provides interest-free cash flow loans to not-for-profit and public hospitals to help prevent closures and to facilitate reopenings. The May Revision also includes an allocation of $3.5 billion towards state hospitals. There are a total of five state hospitals in California, which are overseen by the Department of State Hospitals.

“At this point, we don’t believe there will be any additional funds included for distressed hospitals included in the new budget,” said Jan Emerson-Shea, vice president of External Affairs for CHA. 

The legislature and governor have been conducting budget negotiations for the past month, and the finalized 2023-24 budget will be implemented on July 1st.

McLeod said keeping hospitals open and functioning is a shared responsibility which cannot fall solely on the hospitals, counties, or state: together they must find ways to co invest in facilities to address the needs of patients. The panelists agreed that efforts should be placed on preserving access to the hospitals California currently has operating so that the issue doesn’t worsen.