California hospitals ask for more money
May 28, 2023
California hospitals are asking for $1.5 billion of additional funding, even as the state projects a budget deficit forecast to be almost $32 billion. It appears that the trigger for the request was the recent closure of Madera Community Hospital. The dynamics seem to be such that the industry wants to make the closed hospital a poster child for what might happen to other hospitals if the state does not give more money, and hospitals probably feel that their request for additional funds is more likely to be heeded if they band together rather than having only select hospitals ask. KFF Health News reported on why the state probably should not simply accede to the request, even if it makes sense to bolster the finances of some hospitals -- namely that some of the financially better-off hospitals would benefit disproportionately.
Not surprisingly, a leader of the state hospital lobby said "The real underlying issue here is government underfunding." Given that reimbursements for serving Medi-Cal may be below the cost of the service, "government underfunding" is indeed likely an issue. However, the article points out that hospitals already receive bonus and incentive payments that can substantially change the profitability picture.
Interestingly, the article links to some financial reports of Madera Community Hospital, showing that the hospital actually made gross profit (profit before fixed expenses are subtracted) on serving Medi-Cal patients ($6.6 million from traditional plans and $8.4 million from managed care plans). While these reports provide some visibility into the hospital's finances, a big question is what is included in the $104 million of operating expenses (presumably fixed expenses such as building maintenance and administrator salaries). For example, a self-serving hospital administrator could advocate for more money from the state by showing a loss in order to increase his salary. Presumably, the leadership of Madera Community Hospital considered all possible options to trim expenses before deciding to close the hospital. However, who should scrutinize the financial reports for all state hospitals before deciding whether or not the state should give additional funding? It is not hard to imagine legislators deciding it easier and politically more expedient to simply grant the request for additional funding -- after all, which legislator wants to be known as the one who voted against maintaining hospitals?