CSAC Bulletin Article

Legislature Approves Early Action Budget Trailer Bill Creating the Distressed Hospital Loan Program – Moves to Governor’s Desk for Signage

May 4, 2023

This morning, the Legislature unanimously passed AB 112, which establishes the Distressed Hospital Loan Program, to provide interest free cashflow loans to not-for-profit and public hospitals in significant financial distress, or to governmental entities representing a closed hospital, and authorizes a General Fund transfer of up to $150 million to support the program. The Legislature took early action on AB 112 along with four other budget-related bills (AB 100, AB 110, AB 111, AB 113). After legislative passage, the bills were immediately transmitted to the Governor’s desk, where they are anticipated to be signed into law without delay.

Debate on AB 112 was robust on both floors of the Legislature, with recognition of the urgency with which action in the near-term on the issue of distressed hospitals is needed, but acknowledgement that AB 112 is but a stop-gap measure to a much larger issue that requires swift analysis and a longer-term solution.

A summary of AB 112’s provisions:

  • Establishes the Distressed Hospital Loan Program to be administered by the Department of Health Care Access and Information (HCAI).
  • The Program will be implemented via an interagency agreement between HCAI and the California Health Facilities Financing Authority (Authority).
  • The Program will 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 to prevent the closure of, or facilitate the reopening of, those hospitals.
  • “Public Hospital” means a hospital that is licensed to a county, a city, a city and county, the University of California, a local health care district, a local health authority, or a municipal hospital.
  • Authorizes the Department of Finance to transfer up to $150 million from the General Fund to the Program Fund between state fiscal years 2022-23 and 2023-24.
  • In collaboration with the State Department of Health Care Services (DHCS), the Department of Managed Health Care, and the State Department of Public Health, HCAI is required to develop a methodology considering various factors to evaluate an at-risk hospital’s potential eligibility for state assistance from the Program.
  • A hospital or a closed hospital applying for aid is required to provide the Authority and HCAI with financial information demonstrating the hospital’s need for financial assistance due to financial hardship.
  • An eligible hospital is required to submit a plan to the Authority with projections detailing the uses of the proposed loan and strategies proposed by the hospital’s governing body to regain financial viability and continue to operate.
  • Not-for-profit hospitals and public hospitals that belong to integrated healthcare systems with more than two separately licensed hospital facilities are ineligible for state assistance under the Program.
  • HCAI, in consultation with the Authority, and upon approval of the Department of Finance, is required to develop an application and approval process for loan forgiveness or modification.
  • Unless the loan has been forgiven or loan terms modified, a hospital will be required to begin making monthly repayments of the loan after the first 18 months and will be required to discharge the loan within 72 months of the date of the loan.
  • To the extent permissible under federal rules, security for the cashflow loans will be Medi-Cal reimbursements due to the hospital from DHCS. Recoupment of these cashflow loans is not to exceed 20 percent of the hospital’s respective Medi-Cal checkwrite payments until the loan amount has been satisfied. If a 20-percent withhold will not result in full repayment of the loan within a 72-month period, HCAI may extend the repayment term of the loan.
  • Abolishes the Distressed Hospital Loan Program Fund effective December 31, 2031. Any remaining balance, assets, liabilities, and encumbrances of the Fund will revert to the General Fund.
  • Adds additional data (i.e., revenues from commercial coverage and a balance sheet detailing assets, liabilities, and net worth) to be submitted by hospitals in their quarterly reports of summary financial and utilization data to HCAI.
  • Includes uncodified language that it is the Legislature’s intent to find offsetting statewide General Fund savings to support the costs associated with the bill’s requirements.
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