After 2 Years of Pandemic, CA Hospitals Face Massive Financial Losses

California hospital margins — a measure of financial performance — were 26% lower on average than before the pandemic.

The COVID-19 pandemic may be waning, but California's hospitals are still reeling from the economic fallout that has cost them $20 billion in the past two years and put more than half of hospitals in the red.

According to a Kaufman Hall study commissioned by the California Hospital Association, Golden State hospitals in 2021 lost nearly $6 billion, roughly three times the $2.2 billion that had been projected. In 2020, California hospitals lost $14 billion.

Federal CARES Act relief softened the blow somewhat, but California hospitals still took a $12 billion hit, the report says. 

"The pandemic has taken a devastating financial toll on the majority of hospitals in California," CHA President and CEO Carmela Coyle said at a media event detailing the report. "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."

The report shows that 51% of the state's hospitals are operating in the red, compared to 40% before the pandemic, with higher expenses such as labor costs largely to blame. 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 before the pandemic.

The report also shows that while hospitals took care of fewer patients in 2021 than pre-pandemic, those patients who were hospitalized were sicker and required longer hospital stays, which the report says likely is 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.

Roger Sharma, president and CEO of Emanate Health, says his non-profit, three-hospital system serving the East San Gabriel Valley was dealt a devastating blow by the pandemic.

The system, which serves a largely Hispanic community, gets 80% of its reimbursement from Medicare or Medi-Cal, lost $30 million in FY 2020 and an additional $16.6 million in the first two months of 2022. To stay afloat, Emanate Health has had to dip into reserves to make payroll and pay utility bills, mandate 20% payment cuts for managers, and suspend pension plan contributions from mid-2020 to mid-2021, with only a 50% restoration from mid-2021 to now.

"In the last decade, we have never been in the red before," Sharma says. "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."