SACRAMENTO (April 19, 2022) — Two years into the COVID-19 pandemic, California hospitals continue to face massive financial losses, with the 2021 shortfall triple initial projections, according to a new report by Kaufman Hall, a nationally respected consulting firm with extensive health care expertise. These losses mean that for the first time in recent history, more than half of California’s hospitals are now operating in the red — losing money on the patients they care for.
“The pandemic has continued to cause material and potentially damaging financial challenges for California hospitals,” said Ken Kaufman, Founder & Chair of Kaufman Hall. “Even as COVID-19 recedes, it is leaving dramatically higher costs in its wake that hospitals will likely feel for years.”
According to the study from Kaufman Hall, last year California hospitals lost nearly $6 billion, about three times more than the $2.2 billion that had been projected. The 2021 loss comes on top of more than $14 billion in losses in 2020, meaning that California hospitals have collectively lost more than $20 billion since the beginning of the pandemic. Even after accounting for federal relief through the CARES Act, California hospitals are still coping with a $12 billion hit.
The report, prepared by Kaufman Hall at the request of the California Hospital Association, shows that 51% of hospitals in the Golden State are operating in the red, compared to 40% before the pandemic. Higher expenses are the key factor behind the growing gap between revenue and expenses, the report notes. Total costs for California hospitals rose 15% in 2021, outpacing the 11% national average. These cost increases were largely driven by higher labor costs and medical supply chain shortages. Overall, California hospital margins — a measure of financial performance — were 26% lower on average than prior to the pandemic.
The report also shows that while hospitals took care of fewer patients in 2021 than prior to the pandemic, those patients who were hospitalized were sicker and required longer hospital stays. This is likely the result of hospitals caring for both extremely ill COVID-19 patients, and those patients who delayed non-COVID-19 care earlier in the pandemic. Because hospitals are commonly paid a fixed amount per admission, fewer admissions and longer lengths of stay create additional financial pressures for hospitals.
According to the report, the findings “underscore the broad and serious threats” California hospitals are likely to face over the long term.
“The pandemic has taken a devastating financial toll on the majority of hospitals in California,” said Carmela Coyle, President & CEO of the California Hospital Association. “In communities throughout our state, many hospitals are struggling to provide services for all who need care. It is going to take years for hospitals to recover from these losses, and the truth is some hospitals may not survive.”
For example, Emanate Health, a non-profit health system with three hospitals serving the East San Gabriel Valley, is among the organizations which was impacted significantly by the pandemic. The system, which serves a largely Hispanic community, receives 80% of its reimbursement from Medicare or Medi-Cal — governmental programs that pay hospitals far less than the actual cost of care. The COVID-19 pandemic has dealt Emanate Health a devastating financial blow, bringing a once-stable system deeply into negative territory.
The system lost $30 million in fiscal year 2020 and an additional $16.6 million in the first two months of 2022. To stay afloat, Emanate Health has been forced to take drastic actions such as making payroll and paying utility bills only by dipping deep into the system’s dwindling reserve funds; a year-long suspension of pension plan contributions from mid-2020 to mid-2021 (with only a 50% restoration from mid-2021 to now); and requiring all personnel at the director level and above to take a 20% pay cut by using one day of paid time off per week.
“In the last decade, we have never been in the red before,” said Roger Sharma, President & CEO of Emanate Health. “The pandemic might have clinically ended, but the economic disaster is continuing — even more severely today. If the current economic burden continues, we are worried about running out of funds to keep the hospital operational and expanding much-needed services for our community.”
Another organization on the financial brink is Madera Community Hospital, a 106-bed facility located in a largely rural, agricultural community in California’s Central Valley. More than 50% of the hospital’s patients are covered by Medi-Cal, another 30% by Medicare. In early March 2020, the small hospital became one of the first in the state to care for a COVID-19 patient when an individual who had recently disembarked from a cruise ship sought treatment at the facility. Like many hospitals, Madera Community Hospital has endured peaks and valleys throughout the pandemic — at one point, 65% of the hospital’s patients had a COVID-19 diagnosis.
Since the pandemic began, Madera Community Hospital has lost more than $15.6 million. Ongoing workforce shortages are forcing the hospital to pay more than $250 an hour for nursing professionals. As a result, the hospital is now losing between $1 million and $1.5 million per month.
“Before the pandemic, we were able to make ends meet, barely,” said Karen Paolinelli, CEO of Madera Community Hospital. “We’re now operating in the red. We are devastated financially.”