California lawmakers greenlight $150M of emergency loans for struggling hospitals

California lawmakers have fast-tracked legislation to loan out $150 million to hospitals across the state struggling to stay open with promises to provide further support when finalizing the state’s budget next month.

The bill, passed Thursday in California’s senate and assembly, AB-112, would establish a Distressed Hospital Loan Program through Jan. 1, 2032. The program would provide interest-free loans to nonprofit and public hospitals “in significant financial distress,” as well as to “governmental entities representing a closed hospital to prevent the closure or facilitate the reopening of a closed hospital.”

If passed by Gov. Gavin Newsom, who has signaled his support, the bill instructs the state Department of Health Care Services and the state Department of Public Health to develop a methodology for handing out the loans “that shall consider factors” such as whether the hospital is small, rural, a critical access hospital or treating a disproportionate share of Medicaid patients, among other factors. Facilities will be excluded from consideration if they’re part of a system with more than two hospitals, investor-owned hospitals and free-standing inpatient psychiatric hospitals.

Hospitals that receive a loan will be required to begin monthly repayments after 18 months and settle their balance within six years, according to the bill.

One in 5 California hospitals is at risk of closure, according to an April Kaufman Hall report (PDF) prepared on behalf of the California Hospital Association.

Volumes across the state remain below pre-pandemic levels while raised expenses, workforce shortages and supply disruptions “underscore the existential financial and operational threats California hospitals continue to face more than three years after the beginning of the pandemic," the report said.

Carmela Coyle, president and CEO of the California Hospital Association, said in a statement that the state’s push to provide funds “holds the promise of pulling a small number of hospitals at imminent risk of closure back from the financial brink.”

“This rare measure is welcome news for those hospitals right on the edge of disaster,” she said.

Coyle also gave a nod to the additional $400 million annually for four years outlined in the Democrat-led Senate’s budget blueprint but said that “a sustainable and systemic solution” such as increased Medicare reimbursement is still needed.

State Sen. Anna Caballero—a Democrat representing rural Madera County, which declared a state of emergency when it lost its only general hospital to bankruptcy this past year—celebrated AB-112’s passage and said continued support for California’s endangered hospitals “has been priority number one for me this past year.”

“The hospital closure in Madera and other looming closures would be catastrophic in both rural and urban communities,” she said in a statement. “To ensure proper oversight of public funds, I will continue to seek more transparency and frankly more accountability on hospital operations to ensure California preserves health care access for all. I am thankful for the swift, collaborative action of my colleagues, and the support and work of Governor Newsom and his team to address this crisis before it is too late.”

During hearings, some lawmakers reportedly questioned how the Distressed Hospital Loan Program’s $150 million total was reached as well as why legislators didn’t yet know exactly which facilities would be receiving the emergency funds.

Of note, the program's $150 million would be transferred from California’s General Fund during the current and upcoming year. Under current budget proposals from Newsom’s office, California is currently projecting a $22.5 billion deficit through the 2026-27 fiscal year.

Caballero and Newsom are among those looking to make up the difference with a new tax on California’s managed care organizations that had recently expired. Those funds could be used to increase Medicare reimbursements to hospitals and other providers, advocates said.