SACRAMENTO, California — When Gov. Gavin Newsom stepped in this month with $25 million in emergency funds for a few California hospitals on the verge of financial collapse, lawmakers and hospital executives around the state hoped it was a sign of more to come — a lot more.
They were disappointed when the governor followed up with a state budget plan that earmarks $50 million for hospitals struggling to pay their bills — a fraction of what industry experts say is needed to address the problem. Legislators were particularly deflated to see the governor hadn’t resurrected a loan program that had sent $300 million to cash-strapped hospitals a few years before.
The governor’s tepid offering comes at a precarious moment as a coming wave of funding cuts enacted by Congress threatens to undo gains made with money from the loan program and drag more of the state’s 400 hospitals into fiscal crisis.
“The Distressed Hospital Loan Program took hospitals that were one step away from falling off a financial cliff, and it brushed them back a little bit, it gave them a little bit of space,” said Carmela Coyle, president of the California Hospital Association. “And the federal legislation just came in like a gust of wind from behind and blew them not only back to the edge, but potentially over the edge.”
Legislators aren’t ready to let Newsom have the last word on the issue. On the same day the governor rolled out his budget plan, an Assembly committee voted to advance legislation to reopen the loan program with another $300 million — six times more than what Newsom is proposing, but still only enough to help a portion of the hospitals that would seek money. State senators, meanwhile, have a separate proposal for $200 million in their budget plan.
Newsom declined to comment for this story. The push for more money by lawmakers is forcing an uncomfortable showdown between a governor in his last year in office who is trying to leave the state on stable financial footing before a widely anticipated presidential run, and legislators who don’t want to have hospitals closing in their districts.
Those lawmakers, though, are not all in lockstep. While they have been willing over the years to foot the bill for partial, temporary fixes like the loan program, there’s growing discomfort with such stopgap strategies .
State Sen. Caroline Menjivar, chair of a budget subcommittee focused on health, said at a recent hearing she was frustrated by the repeated calls to send money to hospitals on the verge of collapse.
“We have to do it, I agree, but it can no longer be considered as short term funding to keep them afloat,” Menjivar said. “We need a more systemic approach.”
Hospitals in California have been sounding the alarm for years that the costs of labor, supplies and maintenance of facilities are outpacing what they bring in. The problem is particularly acute for hospitals in poorer communities that treat a high number of patients insured by Medi-Cal, the state’s Medicaid program, that pays for only about three-quarters the cost of a patient’s care. Hospitals typically pass as much of those costs as possible on to privately insured patients, but losses nonetheless add up.
The need for assistance has only grown since 2023, when the state launched the Distressed Hospital Loan Program and was inundated with loan applications from 30 hospitals seeking $940 million in assistance. There isn’t an exact count of how many of the state’s 400 hospitals meet the definition of “distressed,” but at least ten have recently applied for emergency funding and an independent study earlier this year found 83 hospitals in the state at risk of closing.
The demands for bail outs are daunting. The state’s 17 public hospitals, for example, have banded together with county and labor allies to seek $500 million in aid separate from the $300 million lawmakers are proposing for the new round of loans.
Sixteen hospitals at risk of insolvency were awarded loans in 2023. To be eligible for help, executives had to submit detailed plans for how they would turn their hospitals around, including projections for how much revenue they would be generating two years after receiving the infusion.
Among the recipients was Kern County’s Ridgecrest Regional Hospital, which had been pushed to the brink of bankruptcy by damage from a 2019 earthquake and the Covid-19 pandemic. The state loaned it $5.5 million, which along with a grant from the Navy, was used to hire seven new primary care doctors. The hospital, which serves families tied to a nearby Naval weapons station, has been more aggressive about billing and cut some specialty services that were losing money. In 2025, it broke even.
“That foundation that this loan gave us allowed us to keep operating,” said its president, Jim Suver. “Our cash flows go up and down depending upon if Medicare is getting behind in payment or the state budget isn't signed…giving us that cushion and foundation was key to our survival.”
While the finances for many of the hospitals that received loans remain tenuous, the program was considered a success. Collectively, they moved slightly into the black after posting steep losses, according to an analysis by the California Hospital Association.
Another of the hospitals to benefit from the program was Hazel Hawkins Memorial Hospital, a nonprofit operation that in late 2022 had “single-digit” cash on hand, recalled Mary Casillas, who at the time had recently taken over as CEO. The closing of another hospital about 100 miles away compounded Casillas’ worries as Hazel Hawkins was forced to absorb its patients.
A $10 million loan from the state together with some help from the county kept it afloat as Casillas oversaw major changes, including closing a program that sent health care workers to visit recovering patients at home and cancelling some expensive vendor contracts. The austerity measures worked, improving the hospital’s finances enough that it no longer met the state’s criteria for being “distressed.”
The hospital has spent less than a third of its loan. Casillas said the plan had been to use the rest of the money on updating the hospital's lab as part of a plan to cut down on costs and bring in more revenue. But with loan payments due and the coming federal cuts throwing the hospital’s new found stability into question, she’s held off on the improvements.
“We believe we’ll see our operating costs go up and our revenue come down, just those margins getting thinner and thinner,” Casillas said. “It’s like waiting for a tsunami.”
The sense of foreboding is due to H.R. 1, the sweeping spending and policy law President Donald Trump signed in July, which will bring a host of changes and cuts in health care, many of which won’t be fully felt by hospitals until 2027. The law narrows significantly who is eligible for Medi-Cal and imposes work requirements for eligibility, which are expected to drive millions in California off the rolls. All told, over 3 million Californians could lose their health insurance in the next few years and the California Hospital Association predicts its members will be saddled with a 40 percent rise in uncompensated care as the newly uninsured turn to hospital emergency rooms for care.
"It's all over the place. There are hospitals that are getting better that are going to be impacted by H.R. 1,” said Carolyn Aboubechara, the executive director of the California Health Facilities Financing Authority at the state treasurer’s office. “There are hospitals that are already on the verge of closing, and H.R. 1 maybe could take them out.”
Gene Ma, CEO of Tri-City Medical Center, said he projects H.R. 1 to deliver at least a $10 million hit next year to his hospital next year, about a third of its annual revenue.
The hospital is in better shape than it was three years ago, when Ma said it was “completely distressed" following a series of setbacks including a cyberattack and was buoyed by a $33 million loan.
“If we had not had that loan, I can comfortably tell you these doors would not have been open,” Ma said.
Similarly, Watsonville Community Hospital in Santa Cruz, which lawmakers and hospital insiders widely believe to be in line to receive a share of the $25 million emergency fund Newsom put forward this month, got $20 million through the loan program, but is believed to be at risk from H.R. 1. Luis Alejo, a supervisor in nearby Monterey County, said the hospital has run a $24 million deficit so far this year.
H.R. 1 isn’t the only problem as industry executives also point to challenges they say are created as much by state regulations as federal policies. Two of the main ones: reimbursement rates from Medi-Cal have been stagnant for years and hospitals are facing a 2030 deadline to make costly seismic upgrades required by the state.
The legislation that just passed the Assembly, AB 1923, would allow hospitals to make the case in their loan applications that H.R. 1 will hurt them. And loans from the first program’s first round of funding would be forgiven.
But no one is under any illusions that it offers a long-term solution.
“We are struggling, grappling with the same question,” said Khaim Morton, the state’s deputy treasurer. “Did we just get them out of this hole only to have to deal with this other problem now?”
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