By Madeline Ashley

As hospitals across the U.S. continue to feel financial strain from tightened margins, rising costs and workforce shortages, California has emerged as a hot spot, with rural facilities grappling with bankruptcies, emergency department shutdowns and increased uncertainty regarding their long-term survival.

“Hospitals throughout California — and across the country — are facing financial headwinds the likes of which have never been seen before,” a spokesperson for the California Hospital Association said in an Oct. 9 statement. “Driven by skyrocketing costs for labor, pharmaceuticals, medical equipment and unfunded governmental mandates, more than half of all California hospitals (53%) now lose money every day caring for patients. The costs of providing care have risen more than 30% in the past five years.”

CHA also pointed to Medicaid cuts under the recently passed One Big Beautiful Bill Act as more kerosene fueling the fire under hospitals’ feet and estimates that the cuts will result in California hospital revenue losses between $64 billion to $128 billion over the next decade.

“And this projection does not include the likely increases in uncompensated care due to an estimated 1.8 million Californians losing their Medicaid coverage due to work requirements, the elimination of ACA subsidies, more frequent Medi-Cal redeterminations and unsatisfactory immigration status,” the CHA spokesperson said.

California hospitals are also facing another costly challenge, seismic safety upgrades. By 2030, state law requires facilities to meet earthquake standards. While Gov. Gavin Newsom vetoed a blanket five-year extension, he approved limited relief for hospitals that are small, rural and financially distressed. The upgrades could reach as high as $143 billion statewide.

All of these issues are starting to emerge across multiple facilities in the state. In early October, the Palo Verde Healthcare District sought Chapter 9 bankruptcy protection amid ongoing financial instabilities at its Blythe, Calif.-based Palo Verde Hospital, which could result in closure.

The filing comes amid months of service cutbacks, cash flow issues and state loan deferrals. On Sept. 24, the district filed a “closure permanent” California WARN notice for 94 employees, effective Nov. 23. Palo Verde Hospital CEO Sandra Anaya wrote in the notice, that “the district will be closing Palo Verde Hospital due to lack of funds and will be permanently laying off all employees as a result.”

However, a spokesperson for the hospital said the notice was filed out of compliance with the WARN Act and Labor Code and while much has occurred, the district remains committed to keeping the hospital operational.

In late September, Lone Pine, Calif.-based Southern Inyo Healthcare District was down to just 12 days of cash on hand, but could fluctuate between two to three days, once payroll goes out.

Kevin Flaigan, MD, and CEO of the 37-bed critical access hospital, says that while staff received their most recent payroll, he could not confidently project how October’s first pay cycle would go.

He said it comes down to time and money to save the hospital, or the possibility of temporarily suspending its emergency department and acute care services. He also said the hospital will receive a $2 million supplemental payment in January, which he could use to reoperationalize any paused services.

“If I can get to 2026, I’m good. By 2027, those supplemental payments will increase to the point that I’m actually looking at the potential for a positive operating margin,” he said. “The light at the end of the tunnel is an opening at the end of the tunnel and not a train. I just need the locomotive to get me there.”

On Sept. 30, Willows, Calif.-based Glenn Medical Center fast-tracked the closure of its emergency department due to staffing shortages. Originally, the 25-bed hospital and ED were set to close Oct. 21 after CMS revoked its critical access designation.

The designation requires hospitals to be at least 35 miles from the closest hospital by primary roads or 15 miles by secondary or mountainous roads, but CMS determined Glenn Medical was 32 miles from Colusa (Calif.) Medical Center.

Lastly, in mid-August, Flint, Mich.-based Insight Health System backed out of negotiations on a proposed lease-to-purchase agreement with Hollister, Calif.-based Hazel Hawkins Memorial Hospital. Insight pointed to uncertainty around the OBBBA.

“OBBBA has created a level of uncertainty for us here in San Benito County that we have never seen before,” Hazel Hawkins CEO Mary Casillas said in a news release. “While we have yet to fully understand OBBBA’s impact, we know it has affected the potential transaction with Insight and is having similar consequences for rural hospitals across California and the nation.”

CHA leaders warn that without meaningful support, similar situations could occur not just in California, but nationally.

“California, like most other states, has a Medicaid financing proposal pending review and approval at CMS,” the CHA spokesperson said. “It is critical that this proposal be approved by federal officials. We also need Congress to restore funding for disproportionate share hospitals (many of which are at great risk of closure) and preserve the 340B discount drug program. Finally, we need to maintain high levels of insurance coverage to minimize uncompensated care.”