California hospitals ask Newsom for $1 billion now, $3 billion later for coronavirus costs

California hospitals have suffered short-term losses of $10 billion to $14 billion in revenue alone and face long-term financial upheaval as a result of measures taken to prepare for a surge of COVID-19 patients, leaders of the California Hospital Association said Thursday.

CHA President Carmela Coyle said: “We emptied California’s hospitals to make way, canceling surgeries, procedures and more because it was and continues to be the right thing to do, but meeting that moment to address the COVID outbreak has come at a devastating loss and risk for California’s hospitals.”

The hospital association sent a letter to Gov. Gavin Newsom on Wednesday, asking for $1 billion in financial assistance out of the state’s current fiscal budget, said Coyle, who was joined on a conference call by CHA board members Diane Hansen of Escondido-based Palomar Health and Scott Reiner of Roseville-based Adventist Health.

They also are hoping that in the 2020-2021 budget, Newsom will seek a disaster waiver from the federal government that would secure matching funds that would go to hospitals, said CHA spokesperson Jan Emerson-Shea. They hope the state will pledge $3.1 billion to secure an equal amount from the U.S. Centers for Medicare and Medicaid Services.

Hospital association leaders are kicking off a conversation with the governor on this topic Thursday afternoon. So far, California’s hospitals have received roughly $3 billion under the federal stimulus package known as the CARES Act.

Statewide, Coyle said, hospitals prepared for the surge starting in mid-March by canceling elective procedures, even though, their leaders knew that this would result in devastating financial losses. They did so anyway, she said, because they were answering the call from county and state leaders to increase capacity for patients sickened by the coronavirus, the pathogen that causes COVID-19.

Around the world, the virus had killed thousands of people and had overwhelmed hospitals by the time preparations began in earnest in the United States.

“These are unprecedented times,” Coyle said. “None of us has been through anything like this in terms of this virus, our health, the death toll, the isolation, the economic downturn and all the rest, but it is these unprecedented times that call for unprecedented actions. “

Hospital losses piled up

Hansen and Reiner, both chief executive officers for their respective health systems, detailed how their organizations answered the call and the subsequent impact their efforts have had on financial outlooks.

Hansen runs the largest public health district in the state, caring for residents spread out over 850 square miles in Southern California. Palomar stopped doing elective procedures on May 18, re-opened a facility that had been shuttered because it didn’t meet 2030 seismic requirements, and set up and helped to staff a field hospital in two unoccupied floors of one of its hospitals.

California’s hospitals have taken steps like these despite severe financial costs and risks, Hansen said, and in mid-March alone, her health system posted about a 32 percent loss in terms of net revenue.

In aggregate, Coyle said, revenue losses to hospitals are within the 20 to 30 percent range, though as Palomar’s numbers show, some health systems are bearing a more sizable share of the impact. The losses for smaller, more rural hospitals is as high as 60 percent, Coyle said.

“Even the loss of one surgery, one procedure has such a dramatic impact on their revenue,” Coyle said. “All of that translates in short term losses to California’s hospitals, in $10-$14 billion range. That’s just in the short term.”

The not-for-profit Adventist Health serves 80 rural and urban communities on the West Coast and in Hawaii, including residents in and around the tiny town of Paradise, devastated by the Camp Fire in November 2018. Adventist’s hospital there was shuttered after the fire consumed most of its buildings.

“When our organization have economic challenges, it affects the entire community,” Reiner said. “When we are unable to sustain (operations) due to a financial situation, then all of the economy gets hurt. ... There are only so many hits a nonprofit organization can take and continue to provide care for our communities.”

Across the Adventist system, Reiner said, his team expanded capacity by 50 percent in hospitals and held physicians and staff in play. In Glendale, these moves paid off, he said, because it was in one of the areas of Los Angeles County that was hardest-hit by COVID-19.

But in many Adventist hospitals, he said, beds stood empty and the system’s overall revenue dropped 25 to 30 percent in March.

That “translates to around $60 million lost a month for our organization,” Reiner said. “Again, we’re a not-for-profit organization running at a 2-3 percent operating margin, as most systems are. In the state of California, we know 40 to 50 percent (of hospital systems) are negative to break-even.”

Layoffs, furloughs and more

To end the financial losses, Coyle said, hospital systems have resorted to laying off staff, furloughing them, requiring them to use up paid time off or other remedies. This comes at a time when many medical personnel expected to be working long shifts, but because California leaders implemented stay-home orders much earlier than other states, the need for beds, equipment and personnel diminished much faster than anticipated.

At Palomar, Hansen said started out in March by implementing temporary layoffs for about 21 days, but as financial reports came in, she decided just last week to permanently lay off 317 people. She has frozen hiring of nonessential positions, she said, and she’s asked exempt staff to take 80 hours of paid time off over the course of about six to eight weeks. (Vacation times sits as a liability on company’s books.)

Palomar closed some programs and consolidated others, Hansen said, and her leadership team also went to vendors and requested temporary rate reductions.

“Part of the challenge going forward is the cost of (personal protective equipment),” Hansen said. “We’ve seen 110 percent increase in the usage, and we’ve seen ... expenses two, three and four times what they used to be for certain personal protective items. It is absolutely a challenge.”

As for Adventist Health, Reiner said he’s also grappling with big increases in the cost of N95 respirators and other so-called PPE. He’s also moved to reduce staff because patient censuses are so low at hospitals.

“We’ve have had essentially a 20 percent reduction in staff time across the system, which translates into about 600 or so employees across the system that we’ve had to reduce their hours or put on the sideline while we are waiting to re-enter back into safely back into the market,” he said.

Big bills are coming due

Hansen said she’s “as disappointed as anyone” that her system and others in California are suffering these financial setbacks. Before the COVID-19 crisis, she said, Palomar had performed better than budgeted for about 26 months, and she had been expecting a strong performance this year.

Now, she said, she’s trying to figure out how she will make financial commitments to organizations that bought the bonds that funded a hospital Palomar built in 2012 to comply with changes in the state’s seismic requirements. Basically, the bill comes due June 30 at the end of Palomar’s fiscal year, she said, and her team is still figuring out how to fund that.

Hansen said that many hospital systems have such notes and that they all are going to be facing similarly hard questions. They are trying to preserve all of their core services and to preserve as many workers as they can to preserve the integrity of their organizations, he and Hansen said.

Did hospital leaders understand the potential for such losses as they prepared for the surge?

“The answer is yes, but that is not where we started,” Coyle said. “It is hospitals’ mission to care for the patient in front of us or the communities that we serve. This is a pandemic. This is a crisis, the proportions of which none of us has experienced before. We were heads-down and focused on the right thing, and that was preparing for and caring for these patients.”

Despite the price that Palomar is paying now, Hansen said her organization and others did the right thing by responding to what state and county officials asked of them.

“We really were in crisis operation that was unprecedented,” she said. “We were watching what was transpiring across the globe, trying to ensure that we as a community, as a region, were ready for whatever was coming our way.”