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New CHCF Report Reinforces Need for State to Help Hospitals

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A report released earlier this week by the California Health Care Foundation underscores the depth of the financial toll COVID has wrought on California’s hospitals and the arduous recovery that lies ahead. 

While some conclusions are problematic because they are based on incomplete state data sources, the key findings, if pulled apart, are clear: COVID-19 has eviscerated hospitals’ budgets and will change the way you care for Californians for years, if not decades. 

One of the report’s high-level findings is: “After all revenues were aggregated and expenses were deducted, California hospitals reported a substantial decrease in total net income in 2020 compared to 2019. Still, net income remained positive in 2020 at $3.47 billion compared to $7.96 billion in 2019.” 

While positive net income is essential, this does not mean hospitals are well-positioned for recovery. The study shows that net income in 2020 was less than half of 2019 levels — a tremendous hit. And net income in 2020 only appears larger because of self-financed retroactive Medi-Cal supplemental payments and early confusion related to the accounting treatment of Medicare Advanced and Accelerated Payments. They were ultimately deemed loans (not revenue), which must be repaid. And of course, and unlike in 2020, so far no additional federal relief has been provided this year thus far (there was no state relief in 2020, and there will be none in 2021).   

On top of that, the $3.47 billion in net income may seem like a lot in a vacuum, but in context, it’s quite dismal — the last time California hospitals’ net income was this low was more than a decade ago, in 2010, when operating expenses were far less, only 61% of what they were in 2019.  

And as expenses continue to rise, especially when it comes to hiring traveling nurses to support the response to the COVID-19 surge, hospitals continue to lose money caring for patients — a predicament that threatens viability for hundreds of hospitals. This year alone, Kaufman Hall projects that California hospitals will lose between $600 million and $2 billion due to the pandemic, which means more than 200 of California’s hospitals will struggle just to break even. 

These conclusions make critically important the need for two things: First, we need to stop this pandemic at its source by getting as many Californians vaccinated as quickly as possible, and second, that the state and federal governments need to step up to support hospitals’ immediate needs — the cost of response to date, during the current wave of COVID-19, and the next waves to come. They must also support hospitals’ long-term needs during the hard process of rebuilding all the financial strength that you have lost.