One In Five California Hospitals At Risk Of Closing, Report Says

By Tom Joyce | The Center Square contributor, The Center Square California

April 13, 2023

(The Center Square) - "California hospitals are losing money and are in danger of closing," according to a new report.

"More than half (52%) of the hospitals in the state are not making money on patient care, and 20% of them are at risk of closing," the report commissioned by the California Hospital Association found.

Since the start of the coronavirus pandemic, hospitals in California have struggled to turn a profit. "Overall, California hospitals lost about $8.5 billion in 2022," according to the report.

One issue for hospitals is increased costs. Their operating costs were $23.4 billion higher in 2022 than before the coronavirus pandemic began.

These rising costs factor into why 52% of hospitals had a negative margin last year, while 19% had a profit margin below 3%. In 2019, just 28% of California hospitals had a negative margin, while 16% had a profit margin below 3%.

The largest expense increase for hospitals from 2019 to 2022 was labor costs; those costs increased by $9.7 billion over three years.

Additionally, hospitals have faced other rising costs. For example, supplies were 18% more expensive in 2022 than in 2019, and drug costs had increased by 19%.

So, while operating costs increased by 20%, revenue only increased by 12% in that same span, negatively impacting the industry.

Last year was the third straight year where hospitals in the state lost money. "California hospitals have lost $20 billion over the past three years," according to the report. Those losses factor in the money that hospitals received from the government due to the coronavirus pandemic.

“While California hospital net operating revenues have grown since the start of the pandemic, the gap between expense and revenue increase has grown each year since the start of the pandemic,” the report said. “Payments made to California hospitals in 2020 and 2021 from the PRF contributed to the increase in hospital net operating revenues and helped hospitals cover their increasing operating expenses.”

The focus of the work of The Center Square California is state and local-level government and economic reporting that approaches stories with a taxpayer sensibility.