Existing federal law, the federal Patient Protection and Affordable Care Act (PPACA), requires each state to establish an American Health Benefit Exchange to facilitate the purchase of qualified health benefit plans by qualified individuals and qualified small employers. Existing state law creates the California Health Benefit Exchange, also known as Covered California, to facilitate the enrollment of qualified individuals and qualified small employers in qualified health plans as required under PPACA.

This bill would state the intent of the Legislature to enact legislation relating to health care.

Date of Hearing: May 10, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 1131

Author:(Garcia) – As Amended Ver:March 23, 2023

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill establishes the Hospitals First Revolving Fund, administered by the Department of Health Care Access and Information (HCAI), to provide grants and low-cost loans to hospitals in rural and medically underserved communities to prevent the closure of a hospital or facilitate the reopening of a closed hospital.

FISCAL EFFECT:

HCAI reports unknown, significant General Fund cost pressure, likely several million dollars, in fiscal year 2024-25 to develop and establish, as well as directly fund, the loan and grant program required by this bill. HCAI estimates needing an amount equivalent to 5% of the funds appropriated to the loan and grant program for administration and oversight of the program.

COMMENTS:

1. Purpose. According to the author:

There are several rural hospitals in California that are at risk of closing, one of them being located in my district in the Imperial Valley. The lack of access to medical care is increasing in our rural and medically underserved communities. This bill will create the Hospitals First Revolving Fund, which will help prevent the closure of a hospital or facilitate the reopening of one.

1. Rural Hospital Closures. According to an August 2019 National Bureau of Economic Research paper, “Impact of Rural and Urban Hospital Closures on Inpatient Mortality,” 92 rural hospitals closed in California from 1995 to 2011. The paper found that mortality rates rose nearly 6% when a rural hospital closed. The paper further reported rural closures increase inpatient mortality by 8.7%, whereas urban closures have no measurable impact on inpatient mortality.
2. California Hospital Association (CHA) Budget Request. CHA, working with Legislators, has requested a $1.5 billion relief package for hospitals. The CHA request notes the state has not increased Medi-Cal rates paid to hospitals for over a decade and even before that, Medi-Cal base reimbursement did not cover the cost of providing care to this population. CHA states California pays $0.74 on the dollar to care for Medi-Cal patients. CHA notes that Medi-Cal enrollment has grown from 21% to nearly 40% of the population, and costs have spiked, with large increase costs of labor, pharmaceuticals, and medical supplies. CHA proposes to disburse funds based on each recipient hospital’s Medi-Cal utilization, stating it will target funding to hospitals that provide a greater number of Medi-Cal services and will give relief to hospitals most impacted by the state’s systemic underfunding of Medi-Cal. However, the Assembly Health Committee analysis notes that CHA has not provided data to show the extent of financial need for each hospital in California, the amount of COVID-19 relief funds received, or exactly how hospitals’ Quality Assurance Fee money is spent.
   
3. Related Legislation.
   1. AB 412 (Soria, Garcia, and Wood) establishes the Distressed Hospital Loan Program, until January 1, 2032, to provide interest free cashflow loans to not-for-profit hospitals and public hospitals in significant financial distress, or to governmental entities representing a closed hospital. AB 412 is pending in this committee.
   2. AB 869 (Wood) requires the Small and Rural Hospital Program within HCAI to give first priority for planning grants to single- and two-story general acute care hospitals that meet specified criteria, and creates an additional grant program for rural hospitals with a seismic safety compliance assessment to apply for grants to come into compliance with 2030 seismic safety requirements. AB 869 also establishes a similar 2030 seismic compliance grant program for financially distressed health care district hospitals. AB 869 is pending in this committee.

Analysis Prepared by: Allegra Kim / APPR. / (916) 319-2081

Date of Hearing: April 25, 2023

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

ABPCA Bill Id:AB 1131

Author:((Garcia) – As Amended Ver:March 23, 2023

SUBJECT: Health care: Hospitals First Revolving Fund.

SUMMARY: Establishes the Hospitals First Revolving Fund (HFRF), administered by the Department of Health Care Access and Information (HCAI), to offer grants and low-cost loans to hospitals in rural and medically underserved communities to prevent the closure of a hospital or facilitate the reopening of a closed hospital. Specifically, this bill:

1. Establishes the HFRF in the State Treasury and requires, upon appropriation of the Legislature, moneys to be transferred to the HFRF to achieve the purposes described in 2) below.
2. Authorizes moneys in the HFRF to be used to support eligible activities by a publicly owned hospital in a rural and medically underserved community as follows:
   1. To provide loans to publicly owned hospitals that meet all of the following requirements:
      1. Are made at or below market interest rates;
      2. Require annual payments of principal and any interest, with repayment commencing not later than one year after completion of the activity for which the loan is made and full amortization not later than 30 years after the completion of the activity unless otherwise authorized by a federal grant deposited in the fund to the extent authorized; and,
      3. Require the loan recipient to establish an acceptable dedicated source of revenue for repayment of a loan.
   2. To provide grants to publicly owned hospitals;
   3. To earn interest; and,
   4. To pay the reasonable costs of administering the HFRF.
3. Authorizes HCAI to adopt regulations to implement the provisions of this bill.
4. Authorizes HCAI to, by contract or otherwise, undertake plans, surveys, research, development, and studies necessary or desirable to implement this bill, and to prepare recommendations, including the preparation of comprehensive statewide or area-wide studies and reports on the lack of adequate health care available to communities.
5. Requires a publicly owned hospital seeking assistance to demonstrate, to the satisfaction of HCAI, that an adequate opportunity for public participation regarding the activity has been provided.
6. Requires principal and interest payments received pursuant to loan contracts entered into pursuant to this bill to be deposited in the HFRF for the purposes of providing additional grants or entering into additional loans under this bill, and to not be transferred to the General Fund.
7. Defines “eligible activity” to mean an activity that prevents the closure of a hospital or facilitates the reopening of a closed hospital in a rural and medically underserved community.

EXISTING LAW:

1. Establishes HCAI in the California Health and Human Services Agency to expand equitable access to quality, affordable health care for all Californians through resilient facilities, actionable information, and the health workforce each community needs. [Health and Safety Code (HSC) § 127000, et seq.]
2. Defines, in federal regulations, the term "medically underserved community" to mean an urban or rural area or population that:
   1. Is eligible for designation as a health professional shortage area (HPSA);
   2. Is eligible to be served by a migrant health center, or a community health center, or is an eligible grantee under federal regulations relating to residents of public housing;
   3. Has a shortage of personal health services, as determined under criteria issued by the Secretary of the Health and Humans Services agency (relating to rural health clinics); or,
   4. Is designated by a State Governor (in consultation with the medical community) as a shortage area or medically underserved community. [295p of Title 42 of the United States Code]
      
3. Defines “publicly owned hospital” as a hospital owned by a city, county, or city and county, or a special district. Defines a “special district” to mean any agency of the state for the local performance of governmental or proprietary functions within limited boundaries. Includes in the definition of “special district” a county service area, a maintenance district or area, an improvement district or improvement zone, or any other zone or area formed for the purpose of designating an area within which a property tax rate will be levied to pay for a service or improvement benefitting that area. [Government Code § 16271]
   
4. Defines “rural area” to mean any open country or any place, town, village, or city which by itself and taken together with any other places, towns, villages, or cities that it is part of or associated with: a) has a population not exceeding 10,000; or, b) has a population not exceeding 20,000 and is contained within a nonmetropolitan area. “Rural area” additionally includes any open country, place, town, village, or city located within a Standard Metropolitan Statistical Area if the population thereof does not exceed 20,000 and the area is not part of, or associated with, an urban area and is rural in character. This definition may be changed by the Department of Housing to conform to changes in federal programs. [HSC § 50101]
   
5. Establishes the Small and Rural Hospital Relief Program within HCAI for the purpose of funding seismic safety compliance with respect to small hospitals, rural hospitals, and critical access hospitals. Requires HCAI to provide grants to small, rural, and critical access hospital applicants that meet certain criteria, including that seismic safety compliance, as defined, imposes a financial burden on the applicant that may result in hospital closure. [HSC § 130075, § 130076, § 130078]
   
6. Provides for the formation and administration of health care districts to provide medically underserved areas without access to hospital facilities the ability to form special districts that could be a source of tax dollars for constructing and operating community hospitals. [HSC § 32000 et seq.]
   

FISCAL EFFECT: Unknown. This bill has not yet been analyzed by a fiscal committee.

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, there are several rural hospitals in California that are at risk of closing, one of them being located in the author’s district in the Imperial Valley. The author states that the lack of access to medical care is increasing in rural and medically underserved communities. The author concludes that this bill will create the HFRF, which will help prevent the closure of a hospital or facilitate the reopening of one.
2. BACKGROUND. A number of hospitals in California, primarily those in rural areas but also some independent hospitals in urban areas, are in financial distress. Hazel Hawkins Memorial Hospital, a 25-bed facility in Hollister and the only hospital in San Benito County, declared a fiscal emergency last year, but has since taken steps to shore up its finances enough so that it was able to withdraw federally required notices that provided employees with 60 days of notice prior to layoffs. According to the Center for Healthcare Quality and Payment Reform (CHQPR), more than 600 rural hospitals across the country are at risk of closing in the near future due to persistent financial losses on patient services and low financial reserves. Of these, 200 are at “immediate risk of closing,” including six in California, according to CHQPR. CHQPR does not release names, and hospitals in general avoid publicizing financial distress, because it could lead to staff leaving and exacerbating the hospital’s situation.
   
   According to an April 6, 2023 article in CalMatters, among hospitals that have publicly talked about their troubles or attributed reductions in services and staff to their finances are Mad River Community Hospital in Arcata, Kaweah Health Medical Center in Visalia, El Centro Regional Medical Center in Imperial County (the author’s district), and Beverly Community Hospital in Montebello.

The California Hospital Association (CHA) is requesting $1.5 billion as part of the 2023-24 Budget process as a one-time emergency infusion of cash for California’s hospitals, to be proportionally disbursed based on Medi-Cal utilization.

• 1. HPSAs. The U.S. Department of Health and Human Services uses HPSAs to identify areas, population groups, or facilities within the United States that are experiencing a shortage of health care professionals. There are geographic HPSAs and population HPSAs. Geographic HPSAs have a shortage of services for the entire population within an established geographic area. Population HPSAs have a shortage of services for a specific population subset within an established geographic area. Frequently designated Population HPSAs include people who are Medicaid eligible, low income, migrant farmworkers, Native American or Alaskan Native, and people experiencing homelessness.
     
  2. Medically Underserved Areas (MUAs) and medically Underserved Populations (MUPs). MUAs and MUPs identify geographic areas and populations with a lack of access to primary care services. These designations help establish health maintenance organizations or community health centers. MUAs have a shortage of primary care health services within geographic areas such as:
     1. A whole county;
     2. A group of neighboring counties;
     3. A group of urban census tracts; or,
     4. A group of county or civil divisions.

MUPs have a shortage of primary care health services for a specific population subset within a geographic area. These groups may face economic, cultural, or language barriers to health care. Some examples include:

• • 1. People experiencing homelessness;
    2. People who are low-income;
    3. People who are eligible for Medicaid;
    4. Native Americans; and,
    5. Migrant farm workers.
       
  1. Impact of rural hospital closures. According to an August 2019 National Bureau of Economic Research paper, “Impact of Rural and Urban Hospital Closures on Inpatient Mortality,” 92 rural hospitals closed in California from 1995 to 2011. The paper found that mortality rates rose nearly 6% when a rural hospital closed. However, the closings of urban hospitals did not have a similar impact. In rural areas, ambulances have to travel further to patients after a hospital closes. The paper also found no measurable impact of hospital closures when all closures are considered alike, i.e. no distinction is made between a rural vs. urban hospital closure. When examining the differential impact of hospital closures, rural closures increase inpatient mortality by 8.7%, whereas urban closures have no measurable impact on inpatient mortality.
     
     In the last five years (since 2017), three small urban hospitals have closed: Menlo Park Surgical Hospital in 2021, Promise Hospital of East Los Angeles in 2017, and Fallbrook Hospital of Fallbrook in 2017. Since 2017, an additional four older small hospitals closed (three rural, one urban) and either consolidated services within another facility or were replaced with a new facility. In this timeframe, two small urban hospitals opened: Bakersfield in 2022 and Rancho Mirage in 2018.
     
  2. CHA Budget request. CHA is requesting a $1.5 billion relief package for hospitals. The CHA request notes that the state has not increased Medi-Cal rates paid to hospitals for over a decade and even prior to that, Medi-Cal base reimbursement did not cover the cost of providing care to this population. CHA states that California pays just 74 cents on the dollar to care for Medi-Cal patients. CHA notes that Medi-Cal enrollment has grown from 21% to nearly 40% of the population, and costs have spiked with a 16% increase in labor, a 41% increase in pharmaceutical costs, and a 19% jump in medical supplies. This cost growth coincides with the pandemic, which has led to a loss of more than $12 billion for hospitals. Funds are proposed to be disbursed based on each recipient hospital’s Medi-Cal utilization, stating that it targets funding to hospitals that provide a greater number of Medi-Cal services and will give relief to hospitals most impacted by the state’s systemic underfunding of Medi-Cal. However, no data has been provided to show the extent of financial need for each hospital in California, nor the amount of COVID-19 relief funds received, or exactly how hospitals Quality Assurance Feed money is spent.
     

1. RELATED LEGISLATION.
   1. AB 412 (Soria, Garcia, and Wood) establishes the Distressed Hospital Loan Program (DHLP), until January 1, 2032, which will provide interest free cashflow loans to not-for-profit hospitals and public hospitals, as defined, and in significant financial distress, or to governmental entities representing a closed hospital. Requires HCAI to administer the DHLP and to enter into an interagency agreement with the California Health Facilities Financing Authority to implement the DHLP. AB 412 is pending in the Assembly Appropriations Committee.
   2. AB 869 (Wood) requires the Small and Rural Hospital Program within HCAI to give first priority for planning grants to single- and two-story general acute care hospitals that meet specified criteria. Creates an additional grant program for rural hospitals with a seismic safety compliance assessment to apply for grants to come into compliance with 2030 seismic safety requirements. Establishes a similar 2030 seismic compliance grant program for financially distressed health care district hospitals. AB 869 is pending hearing in the Assembly Appropriations Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file.

Opposition

None on file.

Analysis Prepared by: Lara Flynn / HEALTH / (916) 319-2097