California’s safety-net hospitals are facing a potential financial crisis as multiple pressures converge, according to Scripps Health CEO Chris Van Gorder and CFO Brett Tande. With a $100 million annual financial hit starting in 2027 from combined impacts including Medi-Cal reimbursement cuts, uncertain provider fees, changes to 340B drug pricing, and expiring ACA subsidies; Scripps challenges continue to highlight a common theme among health systems. California hospitals will likely face additional obstacles as the state grapples with an $18 billion budget deficit.
Safety-net hospitals like Scripps Chula Vista, which according to Becker’s Hospital Review, serves a large Medicaid population and already operates at a $40 million annual loss. Compounding these reimbursement challenges are California’s seismic safety mandates requiring expensive hospital rebuilds by 2030 (which Scripps says it cannot afford) and limited reimbursement growth from commercial insurers, eliminating hospitals’ traditional ability to cost-shift losses from government programs. Van Gorder warned that without policy changes, the result could be a “domino effect” of hospital closures, starting with rural and safety-net facilities, creating “hospital deserts” where vulnerable communities lose access to care entirely.
What this means and how to prepare: Health systems need to immediately engage in any necessary advocacy with state legislators and their communities, transparently communicating the cumulative financial impact of converging policy pressures rather than treating each issue in isolation.
This is especially important as state legislatures return from winter breaks or start new legislative sessions. Timelines will be especially tight for states with part-time legislative sessions while state’s like California can benefit from a longer legislative timelines through spring, summer budget and end of session in the fall.
Leaders can conduct detailed financial modeling to quantify their specific exposure, prepare contingency plans for potential service reductions or closures (particularly for facilities with unfavorable payer mixes), and join collective advocacy efforts with state hospital associations to push for solutions.