June 4, 2023

By Samantha Younger and Angela Hart | KFF Well being Information

One of many nation’s richest hospitals, which caters to Hollywood elites, accepted almost $28 million final yr from an uncommon supply: a charity that siphons cash from different California hospitals, a lot of which serve the state’s poorest residents.

Cedars-Sinai Well being System in Los Angeles secured the grant underneath California’s recession-era financing scheme that enables rich hospitals to take precious healthcare tax cash from poorer ones. Hospitals throughout the state agreed in 2009 to the association to be able to faucet billions extra per yr in taxpayer {dollars} to assist the state’s Medicaid program, referred to as Medi-Cal.

Now, a few of these hospitals serving a larger share of Medi-Cal sufferers are in dire monetary want and face cutbacks and potential closures. However as an alternative of asking for assist for less than these at best threat, California’s highly effective hospital business is placing the squeeze on Gov. Gavin Newsom and fellow Democratic lawmakers for an unprecedented bailout. And they’re doing it even because the state faces a virtually $32 billion funds deficit.

Hospitals argue that to avert a disaster, they want an emergency infusion of $1.5 billion. Additionally they need a regular annual stream of recent well being care tax cash regardless of already having their very own devoted tax supposed to assist struggling amenities that serve a big proportion of the state’s low-income folks, akin to Madera Neighborhood Hospital within the Central Valley, which closed earlier this yr.

Advertisements by the California Hospital Affiliation paint a scary image: “1 in 5 Hospitals are liable to closure.” Yet one more warns, “Well being care that tens of millions depend on is in danger.” These claims are being repeated by state lawmakers as they debate monetary rescue for hospitals.

However a California Healthline evaluation of state information revealed that regardless of elevated labor prices and inflation, many California hospitals have been worthwhile in recent times. The business earned roughly $131 billion final yr in affected person income, a key indicator of profitability — $7.3 billion greater than the earlier yr. After factoring in rising prices, the business nonetheless turned a revenue of about $207 million final yr. State figures present the business reaped $9.2 billion in affected person income in 2021, partly a mirrored image of massive swings within the inventory market.

Main well being care finance consultants and former state officers are urging Newsom and lawmakers to withstand the business’s concern techniques, saying that, although hospitals are nonetheless reeling from the covid-19 pandemic, many have plush monetary reserves.

“They’re massive followers of those big bailouts, the place the comparatively wealthy hospitals profit in addition to those who actually need it,” mentioned Glenn Melnick, a well being economist on the College of Southern California. “An enormous chunk of the hospitals, even when they’re dropping cash, don’t want taxpayer cash to assist them by means of this disaster.”

Melnick and others who’ve analyzed the monetary state of California hospitals say a sliver of California’s 368 basic hospitals are in disaster and that reduction needs to be given solely to those who can present they’re in quick peril. Many hospitals in underserved and rural communities are struggling financially, partly as a result of they’ve failed to draw sufficient sufferers with non-public insurance coverage. And the price of offering care to lower-income sufferers who depend on Medi-Cal hasn’t saved tempo with authorities reimbursement charges.

However low Medi-Cal charges aren’t essentially a predictor of economic catastrophe, based on a report launched Thursday by the California Well being Care Basis. (California Healthline is an editorially unbiased service of the California Well being Care Basis.)

Well being economists discovered that hospitals “with the bottom margins had been no extra depending on Medi-Cal or Medicare than the common California hospital.” And lots of cash-strapped hospitals could also be sitting on huge wealth, a sign they don’t essentially want extra taxpayer cash.

“A lot of the amenities which have destructive margins are part of bigger programs, which means that they’ve the underlying wealth of these programs to stabilize them,” mentioned Kristof Stremikis, director of market evaluation and perception for the inspiration.

Carmela Coyle, the influential chief of the state hospital foyer, mentioned California’s hospitals are within the worst disaster they’ve confronted in latest historical past, largely as a result of the state reimburses suppliers simply 74 cents on the greenback to take care of Medi-Cal sufferers.

“You’ve got these underserved communities within the Central Valley, the place a hospital is available in, they’re doing their finest, and people underserved people should not reimbursed the identical as everyone else,” Coyle informed California Healthline. “The actual underlying problem right here is authorities underfunding.”

However Coyle isn’t disclosing the complete image. Specialists agree that reimbursement charges in Medi-Cal — cash supplied to docs, clinics, and hospitals for taking good care of low-income sufferers — are too low to cowl the precise price of care. But the state and federal authorities give billions in bonus and incentive funds that may really lead to increased reimbursements and even income.

After Madera Neighborhood Hospital reduce off providers and shuttered, Coyle warned that it was a “canary within the coal mine” for different hospitals unable to make ends meet due to its excessive proportion of low-income sufferers and reliance on authorities funds. However the hospital really made almost $15 million from Medi-Cal in 2021, California Healthline has gleaned from state hospital monetary data.

The overarching downside, based on emails obtained by California Healthline, was an incapacity to demand increased funds from business medical insurance firms, in addition to appeal to their sufferers — 70% of whom sought care exterior Madera County.

The hospital “doesn’t have the power to barter aggressive charges by itself,” based on an e-mail final June to the California legal professional basic’s workplace from representatives of Trinity Well being, a nationwide Catholic well being system, which backed off from buying the hospital.

The Madera hospital’s CEO, Karen Paolinelli, and different hospital leaders made one other last-ditch effort to maintain its doorways open: They requested for an advance fee of their hospital tax income — cash distributed by means of medical insurance plans and the state. The fee they sought was from the Hospital High quality Assurance Charge, which permits hospitals to tax themselves to attract in federal cash for Medi-Cal. Adopted in California in 2009 and later authorized by voters by means of a poll initiative, the tax introduced in $8.4 billion final yr.

“We did ask earlier than we closed to receives a commission among the supplier cash owed to us,” Paolinelli mentioned. “However we weren’t profitable.”

She mentioned the hospital wanted $5 million to stay open and couldn’t safe funding in time.

Underneath the hospital tax income, the cash is unfold throughout California hospitals, however the system is designed to guard the wealthy hospitals and primarily assist them keep away from business taxes.

Hospitals with a larger share of low-income sufferers pay a better tax than wealthier programs that don’t function many poor folks. Nonetheless, they profit handsomely, finally growing how a lot they’re paid to take care of Medi-Cal sufferers. Then these hospitals quit a portion of their tax cash to a charity that funnels it to better-performing hospitals in change for his or her political assist for the hospital tax.

“The winner hospitals contribute cash to a fund that’s used to distribute cash to the loser hospitals,” mentioned Elaine Batchlor, CEO of MLK Neighborhood Well being, which is asking for monetary assist as a result of roughly 70% of its sufferers are on Medi-Cal. “No hospital loses by being part of it. When you had been going to lose cash, you’d be towards it.”

The transactions are routed by means of the California Well being Basis and Belief, the charity operated by the management of the California Hospital Affiliation.

For instance, Cedars-Sinai paid almost $172 million in taxes in 2022, eclipsing the $151 million it received again in further Medi-Cal {dollars}. To make up for the loss, it secured the almost $28 million in grant income — incomes almost $6.9 million from this system, its commissioned tax audit reveals.

Cedars-Sinai spokesperson Duke Helfand acknowledged the profit from the taxing scheme however mentioned the well being system successfully subsidizes Medi-Cal enrollees and incurs losses of greater than $180 million yearly serving these low-income sufferers. “Through the years, our groups at Cedars-Sinai have successfully managed our monetary assets, enabling us to offer distinctive affected person care,” Helfand mentioned.

By comparability, the faith-based Adventist Well being, which serves extra poor folks and operates roughly two dozen hospitals in California, Oregon, and Hawaii, paid $148 million in taxes in 2022 and reaped $401 million in further Medi-Cal {dollars} by means of this system, based on its unbiased tax audit. It then contributed $3 million of that cash to the charity.

These types of financing preparations are underneath federal scrutiny. Officers with the Facilities for Medicare & Medicaid Providers have blasted “maintain innocent” offers that can lead to wealthier hospitals receiving sufficient a refund that they finally wind up paying little or no tax in any respect.

“A well being care-related tax can not have a maintain innocent provision that ensures to return all or a portion of the tax again to the taxpayer,” Daniel Tsai, deputy administrator and director for the federal Medicaid company, wrote in February.

Dave Regan, president of Service Workers Worldwide Union-United Healthcare Staff West, which represents hospital staff, has lengthy lambasted California’s scheme as a ploy that lets rich hospitals siphon precious well being care {dollars} from smaller, rural hospitals that want extra assist for Medi-Cal sufferers.

“We imagine the insurance policies and practices of the hospital business, largely, contribute to the issues that Madera confronted,” Regan mentioned. “The hospital business is richer than it’s ever been — and it’s being disingenuous, making an attempt to get the general public to fork over extra money at a time after they have extra money than they’ve ever had.”

California Hospital Affiliation spokesperson David Simon defended the charity, saying it helps “hospitals present well being care providers regardless of losses” from the tax.

Hospital leaders say exorbitant prices and inflation have created excessive monetary woes. Final yr, California’s hospitals paid not less than $10 billion extra for labor, provides, and different bills than the yr earlier than, based on state hospital finance information. And total, they noticed considerably smaller funding good points, reporting almost $119 million in non-operating income in contrast with $6 billion the yr earlier than — an enormous blow to their monetary cushion to make sure affected person care.

The business factors out 200 hospitals had destructive working margins final yr, but California Healthline discovered that, even earlier than the pandemic, about 160 hospitals reported dropping cash of their working budgets. Specialists say the discovering underscores the fact that hospitals function on slim margins.

And, credit score scores businesses have not too long ago upgraded the bonds of quite a few hospitals and well being programs, together with Sutter Well being in Northern California and Loma Linda College Medical Middle in San Bernardino County.

“We simply upgraded Sutter like two weeks in the past, so it might be very hard-pressed, for me, to take a look at California and say California is trying dangerous,” mentioned Kevin Holloran, a senior director at Fitch Rankings.

Some Democratic lawmakers agree that not all hospitals want a bailout. As an alternative, they favor focused reduction akin to a $150 million mortgage program that Newsom signed into legislation this month to assist struggling hospitals.

“I’m not an enormous fan of writing everyone a test,” mentioned Democratic Meeting member Jim Wooden, chair of the Well being Committee, who says hospitals must be extra clear about their funds earlier than state taxpayers give them any extra money. “When you’re a hospital system that’s doing nicely, I don’t imagine try to be getting any further assets from the state.”

California Healthline senior correspondent Bernard J. Wolfson contributed to this report.

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