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The State of California Hospitals after COVID-19 

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The COVID-19 pandemic disrupted operations and severely impacted the finances of California hospitals. Since then hospitals continue to grapple with strained profit margins, with some forced to shutter or declare bankruptcy.

Glenn Melnick, professor and Blue Cross of California Chair in Health Care Finance speaks on the current problem entrenched in the healthcare system. Melnick, who teaches in the Executive Master of Health Administration (EMHA) program, spearheaded a study published in Health Affairs Scholar, which analyzed the lasting financial strains on California’s hospitals years after the onset of the pandemic.

The initial financial impact of COVID-19 on hospitals

The pandemic prompted policymakers, including those in California, to urge hospitals to scale back elective procedures in preparation for an anticipated surge in COVID-19 patients. Consequently, hospitals, especially those with extensive outpatient surgery units, experienced a drastic reduction in patient volumes. Supply chain disruptions added to these challenges, further hindering hospitals’ ability to operate at full capacity. Additionally, widespread uncertainty among consumers deterred individuals from seeking healthcare services, exacerbating the financial strain on hospitals.

Despite a rebound in patient volumes, hospitals still face financial challenges. Disruptions in the labor market led to wage increases for non-physician workers, surpassing pre-pandemic levels. Moreover, changes in patient demographics, with a shift towards more severely ill patients, forced adjustments in staffing, operational costs, and overall management strategies.

Looking ahead

Constrained finances have led hospitals to implement cost-cutting measures, including reductions in non-nursing staff. Negotiations between providers and health plans are anticipated to become more volatile, with hospitals wielding greater negotiating power and potentially securing higher rate increases. While some hospitals have emerged relatively unscathed or even strengthened post-pandemic, a significant portion continue to grapple with financial pressures.

Policy Responses and the Role of the Office of Health Care Affordability

California’s provision of emergency loans to 17 struggling hospitals reflects a well-intentioned response to ensure continued access to essential healthcare services. EMHA Professor Melnick says he believes this instinct was correct, “We as citizens want access to needed services, there was a shock to the system. and this government money is our money. I have not been able to study exactly how the policy was implemented. We’re going to have to wait and see whether those 17 hospitals that got money are still in business a year from now or two years from now.”

California also established the Office of Health Care Affordability, which will set targets for healthcare spending in California. Melnick believes it’s opening at an interesting time as we are more focused on the financial aspects of our healthcare system.

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