The California Senate and Assembly passed a bill called AB 112 on Thursday. It establishes the Distressed Hospital Loan Program, which would provide interest-free cash loans to nonprofit and public hospitals undergoing significant financial distress.
The loan program would provide up to $150 million in funds over the next couple years. The bill is currently on the governor’s desk, and it is expected to be signed into law “without delay,” according to the California State Association of Counties.
Once established, the loan program would be administered by California’s Department of Health Care Access and Information (HCAI). Should the bill become law, HCAI would work with the state’s departments for healthcare services, managed healthcare and public health to develop a framework for evaluating at-risk hospitals’ potential eligibility for the program’s loan assistance.
In addition to providing cashflow loans to nonprofit and public hospitals, the program would also assist government entities representing shuttered hospitals in order to prevent those closures or facilitate reopening. Hospitals that belong to an integrated healthcare system with more than two separately licensed hospital facilities will not be eligible for the program’s assistance.
To apply for a loan, hospitals will need to provide HCAI and the California Health Facilities Financing Authority with their financial information, as well as a plan detailing how they expect to use the loan to regain financial stability.
Once a hospital is granted a loan, it will have to begin making monthly repayments after the first 18 months. Hospitals will be required to discharge the loan within 72 months of the loan being given.
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Hospitals will also have to submit additional data — such as revenues from commercial coverage and a balance sheet showing things like assets liabilities — in quarterly reports sent to HCAI.
The “driving force” behind the decision to pass AB 112 was an approaching deadline to renew Madera Community Hospital’s license with the California Department of Public Health, Assemblywoman Esmeralda Soria told Fresno based radio station KVPR. The rural hospital, which was the only one in Madera County, closed in January due to financial hardship.
Soria and the other legislators who passed AB 112 recognize that the bill isn’t a solution to the massive financial pressures that hospitals — especially rural ones — across the state are facing. But in a case like Madera Community Hospital — where entire communities have lost their access to care — something had to be done to incentivize an operating partner to take on the total costs of reopening.
About 30% of all rural hospitals are at risk of closing in the near future, according to a report from the Center for Healthcare Quality and Payment Reform (CHQPR).
A crucial reason for this is that it is more expensive to deliver healthcare in rural areas — usually because of smaller patient volumes and higher costs for attracting staff. Another factor is that the payments rural hospitals receive from commercial health plans aren’t enough to cover the cost of delivering care to patients in rural areas, CHQPR CEO Harold Miller told MedCity News earlier this year.
AB 112 isn’t the only bill California lawmakers have introduced to protect rural hospitals. This year, a state lawmaker proposed a bill that would require HCAI to provide grant funding to small and rural hospitals so they can achieve compliance with seismic safety requirements amid times of severe financial distress.
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