States Eye Aid To Prop Up Distressed Hospitals Amid Federal Medicaid Cuts
LOS ANGELES — At Martin Luther King, Jr. Community Hospital, patients on stretchers line the emergency department hallways awaiting treatment, and overflow mental health patients are confined to outdoor tents.
The 152-bed hospital, located on a sprawling medical campus near Watts’ predominantly Latino and black neighborhood, is struggling for financial stability. Its patients are poorer and sicker than average, many of them are uninsured, and three-quarters of MLK’s patient care revenue comes from Medi-Cal, the state version of the Medicaid program, which pays low rates. By comparison, for the state’s hospitals, less than a third of patient revenue comes from Medi-Cal.
And MLK Community Healthcare, which includes the hospital and two neighboring clinics, is independent and therefore cannot rely on a larger chain to absorb some of the financial pressure.
Similar problems are hitting hundreds of financially vulnerable hospitals across the country, in rural and urban areas. And their financial woes are about to get worse.
The Republican budget measure known as the One Big Beautiful Bill Act, signed into law by President Donald Trump last July, is expected to reduce federal Medicaid spending by $911 billion over 10 years. And it could contribute to an increase of more than 14 million in the number of uninsured people, many of whom will visit already crowded emergency rooms to get care they can’t afford.
The law includes a special fund to boost rural health care, totaling $50 billion over five years. But that’s far less than the $137 billion expected to be cut from rural health care spending over the next decade. And the rural health fund does little, if anything, to help the many urban hospitals, like MLK, that also face serious financial difficulties.
MLK, like many other hospitals, is scrambling to secure outside funding to avoid serious disruptions to medical services when the weight of policies contained in federal law begins to hit early next year. The hospital’s management team projects a shortfall of $80 million to $100 million per year for the foreseeable future. This would be MLK’s largest budget deficit since it opened in 2015.
“Even if we cut the services our community needs – maternity care, behavioral health care, diabetes management – it would not significantly reduce the gap we face,” said Elaine Batchlor, CEO of MLK Community Healthcare. “Many of these same people would still come to us through our emergency department, but they would be in worse condition and may need more expensive care.”
Across the United States, hospitals and patient advocates are turning to state lawmakers and local officials to help shore up their precarious finances. In California, Assemblymember Esmeralda Soria, a Democrat representing Fresno, is pushing to expand a “distressed hospital loan fund” for 2023 that has allocated nearly $300 million in zero-interest loans to 16 hospitals in the state, including $14 million to MLK. The state would pay an additional $300 million under Soria’s bill.
At least two other states are considering similar programs. A bill in Pennsylvania would create a $100 million “troubled hospital grant” program. And a funding bill from the Illinois Department of Health and Family Services contains a provision to create an $85 million loan program for struggling hospitals.
Carmela Coyle, CEO of the California Hospital Association, said the $300 million initially disbursed by the state Legislature helped but wasn’t enough.
“This program is focused on those who are on the edge of that financial cliff, and it’s focused on giving them a little bit of space, getting them off the edge a little bit,” Coyle said. “But we have many other hospitals that are taking giant steps toward the edge of that cliff every day.”
Despite the association’s influence, an expansion of the loan program is far from certain, given budget constraints that have already prompted state leaders to roll back California’s ambitious health care program, with restrictions on coverage for immigrants and cuts in funding for community clinics. Democratic Gov. Gavin Newsom recently warned lawmakers to expect further cuts in his revised May budget — and that’s before major federal spending reductions take effect.
“This is a very challenging fiscal environment,” said Kristof Stremikis, director of market analysis and insight at the California Health Care Foundation, a nonprofit that advocates for improved health care. “It is difficult to find funding for new and even existing programs at this time. »
Some lawmakers noted with skepticism that the initial loans were now on track to result in at least partial debt forgiveness, which is allowed under current law. Soria’s bill lays out a clearer path to loan forgiveness.
“Are these loans or grants? Because they really seem to be turning into grants,” Assembly member Pilar Schiavo, a Santa Clarita Democrat, said during an April 21 hearing on the bill.
Ultimately, it may not be desirable to save struggling institutions by throwing money at them because care is increasingly offered outside hospitals, Stremikis said.
In the short term, however, the financial health of hospitals that received loans appears to have improved, according to an analysis of state data by KFF Health News. The average operating margin of the 15 loan recipients for which comparable data is available increased from a loss of 15.4% in the year before the program to a gain of 2.3% after the money was disbursed.
It is unclear how much of the improvement can be attributed to loans. Hospitals also secured other sources of funding and adopted efficiencies as a condition for receiving the interest-free money.
MLK reduced the use of costly temporary labor by hiring more permanent staff, reduced the average length of patient hospital stays to reduce work hours, streamlined billing and negotiated more favorable contracts with insurers, said Atul Nakhasi, a practicing physician who is also MLK’s vice president of government affairs and community relations. Batchlor said the loan helped MLK overcome a cash flow crisis and that a second loan, if it became available, would be used for the same purpose.
This summer, MLK plans to open a psychiatric assessment unit, where patients in mental distress can be stabilized in an environment filled with plush recliners and “calming” rooms. Hospital leaders hope the new unit will provide a significant new revenue stream, while easing pressure on the emergency department.
Batchlor sits on an ottoman in one of the “calming” rooms in MLK Community Hospital’s new emergency psychiatric assessment, treatment and recovery unit. (Bernard J. Wolfson/KFF Health News)
EmPATH’s main patient area contains large reclining chairs for individuals who need to be assessed and stabilized. Hospital officials say the unit will be a welcome new source of revenue and help ease pressure on MLK’s always-crowded emergency room. (Bernard J. Wolfson/KFF Health News)
Kaweah Health in Visalia, Calif., suspended some services, temporarily stopped contributing to its employees’ retirement and briefly froze salaries in exchange for a loan of just under $21 million, said the organization’s CEO, Marc Mertz.
Madera Community Hospital has secured a $57 million loan — the largest disbursement from the state fund — to reopen after being closed for more than two years. The hospital reopened early last year, but its financial situation is not yet stabilized, said Matthew Beehler, chief strategy officer at American Advanced Management, a private company that purchased Madera following its bankruptcy.
“It can certainly be said that the hospital would not have been open without the troubled hospital loan,” although the company also invested more than $50 million, Beehler said. He said Madera hopes to get another loan if the program is extended.
