Although the hospital sector has gained traction in recovering from the pandemic, smaller not-for-profit hospitals continue to struggle.
With that in mind, California lawmakers took action by approving a zero-interest loan program in May to serve not-for-profit hospitals and public hospitals in significant financial distress.
The two agencies charged with running the loan program announced in late August that 17 hospitals will receive loans. So, within days, those hospitals could be receiving the lifeline they need.
The funding that will be distributed comes with some of the hospitals in bankruptcy, recently closed, or on the brink of either.
“California’s network of hospitals plays a vital role in providing access to emergency services and acute care,” California State Treasurer Fiona Ma said in a statement. “The hospitals approved for this program have shown a detailed plan for financial recovery and these funds will help them keep the doors open, so they can keep serving their communities.”
In May, Kaufman Hall released a report, commissioned by the California Hospital Association, saying one in five of California’s roughly 400 hospitals are at risk of closure.
Municipal Market Analytics reported in its newsletter Wednesday that eight hospitals carrying municipal bond debt nationally are currently in default, or have at least disclosed it, while 35 more hospitals have a current, uncured technical default.
“MMA assumes the latter number in particular is higher in reality, but our data are limited to what has been posted to EMMA via an event notice,” MMA analysts wrote, referring to the Municipal Securities Rulemaking Board’s municipal bond disclosure website.
With the Chapter 11 bankruptcy filing by Trinity Regional Hospital in Sachse, Texas, the year-to-date default count among municipal bonds is now 36, affecting $2.04 billion of outstanding par, according to the MMA report.
MMA tallied 125 impairments in the first eight months of this year, compared to 82 at the same point last year, and 123 the year before.
The struggling California hospitals serve low-income and elderly patients or are located in underserved areas.
Lawmakers approved a $150 million loan fund in May through Assembly Bill 112, and Gov. Gavin Newsom doubled that amount to $300 million, tapping $150 million from the Managed Care Organization provider tax.
The program had 30 hospitals apply, but only 17 were selected to receive loans. Hospitals deemed to be in the greatest financial distress, or at risk of closing in the near-term and had a viable plan to remain open received loans, according to the state Department of Healthcare Access and Information, which administers the program with the California Health Facilities Financing Authority.
Altogether, they awarded $242.5 million of loans.
CHFFA and HCAI announced the following hospitals would be receiving loans: the bankrupt Beverly Hospital, for $5 million; Chinese Hospital, $10.3 million; Dameron Hospital Association, $29 million; El Centro Regional Medical Center, $28 million; St. Rose Hospital in Hayward, $17.65million; Hazel Hawkins Memorial, $10 million; John C. Fremont Healthcare District, $9.35 million; Kaweah Delta Health Care District, $20.75 million; Madera Community Hospital $2 million; Martin Luther King, Jr. Community Hospital, $14 million; Palo Verde Hospital, $8.5 million; Pioneers Memorial Healthcare District, $28 million; Ridgecrest Regional Hospital, $5.5 million; San Gorgonio Memorial Healthcare District, $9.8 million; Sonoma Valley Hospital, $3.1 million; TriCity Medical Center, $33.2 million; and Watsonville Community Hospital, $8.3 million.
The $5 million for Beverly Hospital in Montebello is a bridge loan to cover operational costs while the hospital is purchased out of bankruptcy. It has court authorization for a sale to White Memorial Medical Center, doing business as Adventist Health White Memorial, for $39.9 million, generating $23.5 million in cash, $14.1 million to repay the DIP facility, and $1.3 million in other costs, according to MMA. The hospital has $55 million of outstanding bonds.
Madera Community Hospital, which has been closed since December 2022 and filed for bankruptcy in March 2023, will receive a $2 million bridge loan to cover basic operational costs for the facility while Adventist Health, the hospital’s proposed administrator, provides a comprehensive turnaround plan.
Once the plan is provided, and approved, Madera Community Hospital can be eligible for an additional $50 million loan through the program, according to HCAI.
The new loan program adds additional strength to the work already being done by the CHFFA, an arm of the state treasurer’s office that is chaired by Ma.
Its primary function is to be a conduit bond issuer for not-for-profit hospitals.
CHFFA has also issued 292 loans totaling $131 million to 188 health facilities since its inception in 1995. None of those loans have defaulted. CHFFA’s Help II loan program provides low-interest rate loans to California’s nonprofit small or rural health facilities to purchase or construct new facilities, remodel or renovate existing facilities, and purchase equipment or furnishings, among other uses.
Last week, CHFFA announced the steps it will be taking to get money into the hands of the hospitals approved in the Distressed Hospital Loan Program.
The application period for hospitals to apply for loans closed on July 31. Loans are repayable over 72 months, with an initial 18-month grace period. The program will sunset on Dec. 31.
The loan security is 20% of the hospital’s Medi-Cal “checkwrite” payments. Medi-Cal is California’s Medicaid program.
The hospitals that qualified had to be a not-for-profit or public hospital in significant financial distress or a governmental entity representing a closed hospital, with the aim of reopening it.
Not-for-profit hospitals and public hospitals that belong to integrated health care systems with more than two separately licensed hospital facilities were ineligible for loans under the DHLP program.
“Today, we have provided much needed assistance to community hospitals across the state that desperately need financial help to provide the care their communities need,” HCAI Director Elizabeth Landsberg. “I’m grateful to the Legislature for spearheading this effort to help make sure these vital healthcare institutions are fiscally stable, so they can continue to provide quality, affordable health care for all Californians.”