Bill Text – AB-1894 Designated public hospital financing advisory group. – California Legislative Information


 The Legislature finds and declares all of the following:

(a) The 21 Designated Public Hospital Systems (DPHs) in California play an outsized and essential role in the state’s health care delivery system. Though just 6 percent of all hospitals across the state, they provide care for nearly 40 percent of the state’s uninsured and 35 percent of Medi-Cal patients in their communities.

(b) DPHs collectively serve more than 3.7 million patients annually, regardless of ability to pay or insurance status. These systems include both county-operated or -affiliated facilities and the five University of California medical centers and are located in communities where more than 85 percent of the state’s population resides, including:

(1) The County of Alameda.

(2) The County of Contra Costa.

(3) The County of Kern.

(4) The County of Los Angeles.

(5) The County of Monterey.

(6) The County of Orange (UC Irvine Health).

(7) The County of Riverside.

(8) The County of Sacramento (UC Davis Health).

(9) The County of San Bernardino.

(10) The County of San Diego (UC San Diego Health).

(11) The County of San Francisco.

(12) The County of San Joaquin.

(13) The County of San Mateo.

(14) The County of Santa Clara.

(15) The County of Ventura.

(c) In addition to providing essential inpatient, emergency, specialty and primary care services to their communities, DPHs provide highly specialized and lifesaving services that are accessed by patients across the state. Together DPHs operate over one-half of the state’s top-level trauma and burn centers, and train one-half of all physicians in California.

(d) DPHs serve an increasingly diverse patient population and offer extensive translation services to ensure all patients can access the care they need. Nearly 60 percent of patients served at DPHs identify as persons of color, and many DPHs offer translation services in 98 languages.

(e) DPHs have been integral to the state’s COVID-19 response through efforts to increase surge capacity, rapidly expand and deploy testing, assist in the development and distribution of vaccines, and continue to serve vulnerable populations and communities of color. The role DPHs have played in their communities has never been more important.

(f) Historically, Medi-Cal payments have been insufficient to cover the cost of services provided to Medi-Cal beneficiaries. DPHs have had to rely on a patchwork of Medi-Cal supplemental payments to try to cover the cost of care.

(g) DPHs also play a significant role supporting the financing of the state’s Medi-Cal program. Specifically, these systems, rather than the state, provide billions of dollars for the nonfederal share of Medi-Cal expenditures annually, including disproportionate share hospital payments, which enable the corresponding federal funding to support care to Medi-Cal and uninsured patients. In 2021, DPHs provided the nonfederal share for 68 percent of their supplemental and base payments for Medi-Cal and uninsured care to draw down federal matching funds.

(h) Such self-financing structures result in the DPH and its affiliated county bearing the added costs of supporting the Medi-Cal program, putting them at a substantial financial disadvantage. If the state provided the nonfederal share, DPHs would receive the full benefit of the Medi-Cal payments.

(i) For more than a decade, DPHs have been leading efforts to evolve many of their Medi-Cal supplemental payments from volume to quality and value, transforming their delivery systems in the process. Each year, billions of dollars in supplemental payments are at risk for DPHs, contingent on meeting ambitious improvement targets in quality, care coordination, and outcomes. These efforts align closely with state and Medi-Cal managed care plan priorities, and support the state’s equity roadmap, with specific efforts to reduce health care disparities.

(j) Since 2005, DPHs have relied on supplemental payments through California’s Section 1115 Medi-Cal demonstration waivers to help narrow the gap between payments and the costs of providing care to a large Medi-Cal and uninsured population. It is anticipated that the CalAIM Section 1115 demonstration waiver will result in materially less funding for DPHs than prior waivers.

(k) Reduced waiver funding and the added cost of self-financing the nonfederal share of their payments has created a significant and growing deficit for DPHs that is becoming increasingly unsustainable. Despite recent state investments in Medi-Cal, DPHs are facing a financial crisis. Without additional funding, and a reduction in the burden of providing the nonfederal share, DPHs could be forced to significantly reduce services.

(l) A reduction of DPH services would disproportionately impact low-income communities of color, hindering statewide efforts to achieve equity and to promote access to high-quality, culturally competent care for patients.

(m) The strength and financial stability of DPHs is of critical importance to the health and welfare of the people of California. Given the severity of the fiscal concerns for all designated public hospital systems and the important role these systems play in the safety net, the state must play a role in assisting these systems with long-term policy and financial solutions to ensure their long-term viability and maintain critical access to care for millions of California residents.