California hospitals seek a broad bailout...

are in crisis and that relief should be given only to those that can show they are in immediate peril.

Many hospitals in underserved and rural communities are struggling financially, in part because they have failed to attract enough patients with private insurance.

And the cost of providing care to lower-income patients who rely on Medi-Cal hasn’t kept pace with government reimbursement rates.

But low Medi-Cal rates aren’t necessarily a predictor of financial disaster, according to a report released Thursday by the California Health Care Foundation. (KFF Health News publishes California Healthline, which is an editorially independent service of the California Health Care Foundation.)

Health economists found that hospitals “with the lowest margins were no more dependent on Medi-Cal or Medicare than the average California hospital.” And many cash-strapped hospitals may be sitting on enormous wealth, an indication they don’t necessarily need more taxpayer money.

“Most of the facilities that have negative margins are a part of larger systems, which suggests that they have the underlying wealth of those systems to stabilize them,” said Kristof Stremikis, director of market analysis and insight for the foundation.

Carmela Coyle, the influential leader of the state hospital lobby, said California’s hospitals are in the worst crisis they’ve faced in recent history, largely because the state reimburses providers just 74 cents on the dollar to care for Medi-Cal patients.

“You have these underserved communities in the Central Valley, where a hospital comes in, they’re doing their best, and those underserved individuals are not reimbursed the same as everybody else,” Coyle told KFF Health News. “The real underlying issue here is government underfunding.”

But Coyle isn’t disclosing the full picture. Experts agree that reimbursement rates in Medi-Cal — money provided to doctors, clinics, and hospitals for taking care of low-income patients — are too low to cover the actual cost of care. Yet the state and federal government give billions in bonus and incentive payments that can actually result in higher reimbursements and even profits.

After Madera Community Hospital cut off services and shuttered, Coyle warned that it was a “canary in the coal mine” for other hos- pitals unable to make ends meet because of its high proportion of low-income patients and reliance on government payments. But the hospital actually made nearly $15 million from Medi-Cal in 2021, KFF Health News has gleaned from state hospital financial records.

The overarching problem, according to emails obtained by KFF Health News, was an inability to demand higher payments from commercial health insurance companies, as well as attract their patients — 70% of whom sought care outside Madera County.

The hospital “does not have the ability to negotiate competitive rates on its own,” according to an email last June to the California attorney general’s office from representatives of Trinity Health, a national Catholic health system, which backed off from acquiring the hospital.

The Madera hospital’s CEO, Karen Paolinelli, and other hospital leaders made another last-ditch effort to keep its doors open: They asked for an advance payment of their hospital tax revenue — money distributed through health insurance plans and the state. The payment they sought was from the Hospital Quality Assurance Fee, which allows hospitals to tax themselves to draw in federal money for Medi-Cal. Adopted in California in 2009 and later approved by voters through a ballot initiative, the tax brought in $8.4 billion last year.

“We did ask before we closed to get paid some of the provider money owed to us,” Paolinelli said. “But we were not successful.”

She said the hospital needed $5 million to remain open and couldn’t secure funding in time.

Under the hospital tax revenue, the money is spread across California hospitals, but the system is designed to protect the rich hospitals and essentially help them avoid industry taxes.

Hospitals with a greater share of low-income patients pay a higher tax than wealthier systems that don’t serve as many poor people. However, they benefit handsomely, ultimately increasing how much they are paid to care for Medi-Cal patients. Then those hospitals give up a portion of their tax money to a charity that funnels it to better-performing hospitals in exchange for their political support for the hospital tax.

“The winner hospitals contribute money to a fund that is used to distribute money to the loser hospitals,” said Elaine Batchlor, CEO of MLK Community Health, which