After Madera’s hospital closure, could others follow?

In Madera County, one-fifth of residents live in poverty and many don't have health insurance.

The last thing this largely rural, Latino-majority part of the San Joaquin Valley needed was for its only general hospital to close its doors.

But years of financial struggles forced 106-bed Madera Community Hospital and its three clinics to shut down completely in early January. And state lawmakers and industry officials warn it could be only the first community hospital to close in California.

The COVID-19 pandemic pushed the 51-year-old hospital over the brink, hospital leaders said.

Now the hospital's board and local officials are scrambling for solutions, including searching for a new potential buyer. Madera Community is just one example of California hospitals in financial distress. State lawmakers and industry leaders caution that other nonprofit hospitals are also in a dire fiscal situation and without assistance could potentially close.

"It's a disaster. This is a facility that people depend on," said Democratic state Sen. Anna Caballero, who represents the Madera area. "This is a loss of services that is going to be really felt in many of our small communities."

Esther Vargas, 73, knows it. She said it was common for residents in her small community of La Vina to rely on physicians associated with Madera Community Hospital for a variety of health issues that many believe are linked to their area's exposure to frequent fumigation and crop burning.

On particularly bad air days, she said, she can barely go outside without her throat closing up. Now, if she has an asthma attack, she'll likely have to travel 20 miles further to an emergency room in Fresno. "I'm going to miss having the hospital," Vargas said in Spanish.

Madera Community, an independent nonprofit private hospital, was the only place adults could go for emergency services within the county. (Madera is also home to Valley Children's, a pediatric hospital). And until late December, the hospital was scheduled to be sold to Trinity Health, a nonprofit Catholic health care system that owns Saint Agnes Medical Center in Fresno. The state attorney general's office, which regulates health care mergers that involve a nonprofit, said Trinity Health pulled out of negotiations after refusing to meet important conditions, which included price caps, as well as maintaining language services, charity programs and privileges for existing staff.

"These minimal conditions were necessary because without them, the communities could not be assured of even basic essential services," the attorney general's office said in a statement.

The California Hospital Association has pushed back on the attorney general's conditions, arguing that some of the requirements were too strict in a situation where the goal was to save a hospital from financial collapse. These conditions are supposed to protect consumers, but in this case, the industry association argues, they did the opposite, forcing the hospital to close and leaving Madera patients with less access to care.

'At a tipping point'

Madera Community Hospital's financial records, as kept by the state, show the hospital had unstable years even prior to the pandemic. The hospital's recent losses were tied to increases in day-to-day costs, which are difficult to cover for long periods, especially for hospitals with limited reserves, according to one analysis prepared by health economists for the attorney general.

Caballero said Madera's hospital officials first approached her last July in search of help. The state promised the hospital $5 million to keep services running while it finalized its negotiations with Trinity Health. That money was supposed to go to Madera Community Hospital early this year, but that aid is no longer available now that the hospital is closed, Caballero said.

The hospital now would likely need a lot more than $5 million to reopen its doors.

"They're not the only hospital. There are other hospitals in very similar situations," Caballero said. "So my guess is that whatever solution we come up with for Madera has to be able to work for other hospitals as well."

Madera Community, like other hospitals that serve largely low-income patients, for years had been underfunded, said Carmela Coyle, president of the California Hospital Association.

Those hospitals depend largely on government-funded programs, such as Medi-Cal, the state's health insurance program for low-income residents, and Medicare, the insurance program for those 65 and older and those with disabilities. Those programs tend to pay providers below the cost of care and less than what private insurance pays. In addition, the significant expenses of responding to the COVID-19 pandemic, including paying for expensive travel nurses that came from out of state or other parts of California, overwhelmed the hospital, Coyle said.

Trinity Health officials did not answer questions about what specifically in the attorney general's conditions prompted it to pull out of the deal with Madera Community Hospital, but in a statement from Saint Agnes Medical Center, officials simply said they could not move forward given the "complex circumstances and the additional conditions imposed by the AG."

Coyle said the conditions that set price caps on contract rates and services for a period of five years were likely a major concern. If a buyer is limited in how it can renegotiate contracts with insurance companies because of price caps, then it would be difficult for Trinity Health to pull Madera Community Hospital out of financial trouble, she said.

Mirroring a national trend, half of California's 337 hospitals are operating in the red, Coyle said. And at least a handful of them could soon be in a situation like Madera's or, at the least, be forced to make significant cuts, she said.

"We are at a tipping point; Madera is just the first one," she said.

Late last year, 25-bed Hazel Hawkins Memorial Hospital in Hollister declared a financial emergency and announced it was running out of money. It implemented hiring freezes and wage reductions. The hospital recently received a $3 million loan from the California Health Facilities Financing Authority, allowing it to keep operating for at least a couple of months.

"With this loan and other operational savings endeavors, we have extended the date the District will run out of cash to mid-March" Mary Casillas, interim CEO of Hazel Hawkins, said in a statement. Casillas said the hospital's plan is to search for other funding opportunities and partnerships that could help it extend this date.

Gary Herbst, CEO of Kaweah Health Medical Center in Visalia — a 613-bed hospital that is Tulare County's largest — is another hospital official sounding the alarm.

In just the first half of the fiscal year that ends in June, Kaweah has lost about $37 million. If that trend continues, Herbst said he expects his hospital will see a record loss of about $75 million for fiscal year 2023. For comparison, in fiscal year 2019, prior to the pandemic, the hospital reported a net income of about $28 million, according to internal financial summaries shared with CalMatters.

Herbst noted that in the first years of the pandemic, some of the hospital's losses were offset by federal COVID relief dollars, but that aid is now largely gone. Yet some of his largest expenses, including contracted labor, are ongoing. "Two months ago I had 240 bedside (registered nurses) that were traveling, and I'm paying $200 or more an hour for them," Herbst said. "We've never been that high in contract labor."

Looking to save money, his hospital laid off 130 employees last year, largely administrative staff, Herbst said. Also, top officials have taken pay cuts, the hospital has frozen 401(k) contributions, and now it's looking to limit the number of elective surgeries it performs on Medi-Cal patients, Herbst said.

"I'm very frustrated with our state," Herbst said. "The governor and the Legislature were celebrating their record $100 billion dollar budget surplus last fiscal year, while hospitals have been pleading with the state for help."

But the state's financial outlook has changed dramatically, with the state now facing a deficit estimated at $22.5 billion. Still, the need is so great, Coyle said, that the hospital association is asking the state for $1.5 billion in one-time immediate financial relief.

While that money was not included in Gov. Gavin Newsom's recent budget proposal, hospitals will lobby so that it is prioritized in the May budget revision, Coyle said. For a longer-term solution, hospital officials want the Legislature to improve Medi-Cal reimbursement rates.

A community in need

Madera County is largely rural, stretching from thousands of acres of almond orchards on the San Joaquin Valley floor to the Sierra Nevada and Yosemite National Park in the east. Many residents in the majority-Latino county work in agriculture and the presence of thousands of indigenous Oaxacans helped elect the first person of Mixteca descent to the Madera City Council in 2021. Census data shows about 22% of county residents live in poverty and 60% of the 23,783 emergency room visits Madera Community Hospital recorded from January to September last year were Medi-Cal patients.

Research has shown the negative effects of hospital closures in rural communities, both on residents' health and the local economy, as hospitals also tend to be large employers. One 2019 study showed that hospital closures in rural areas increased mortality rates for medical emergencies, such as strokes and sepsis, by nearly 9%.

"I think it's going to lead to more death and more advanced disease that we will see in both the short term and the long term," said Susana Ramirez, a public health communication professor at UC Merced.

"We have all of these social, structural and environmental factors that contribute to bad health in this community and we have less infrastructure to help us get healthy," Ramirez said.

Pedro Dominguez, 80, struggled to hold back tears during a recent interview with CalMatters in the Madera offices of the Binational Center for the Development of Oaxacan Indigenous Communities as he described the situation facing the community. He wasn't worried for himself, he said, but for his wife, who has severe asthma and other health issues. While they could find new doctors or drive to emergency care in Fresno or Clovis, he also worries about people who don't have transportation or the money to do the same.

"Many people don't know who to turn to," Dominguez said in Spanish.

For primary care, some are turning to other local clinic systems like Camarena Health, another nonprofit that operates 18 health centers in the county. But those clinics can only absorb so many new patients.

Both Madera and Fresno counties have declared emergencies due to the strain on local hospitals and emergency services. Robert Poythress, a Madera County supervisor and secretary of the hospital's board of trustees, said the "domino effect" ranges from law enforcement increasingly leaving the county to take inmates to Fresno hospitals to Madera residents no longer being able to walk to the hospital for familiar medical assistance.

"There's certain people that, other than the ER, aren't going to miss Madera Community because they never used Madera Community," Poythress said, explaining that some residents who can afford private insurance already prefer to see doctors in Fresno. "It's the people who are the most disadvantaged, those are the people who are getting hurt the most."

The closure of Madera's only general hospital leaves the county's public health department without a primary tool. Most of the county's public health programs were in some way linked to the hospital, said Sara Bosse, public health director for Madera County.

"It impacts how referrals come to our programs," Bosse said. "Many families were identified through labor and delivery, for example, as needing WIC (Women, Infants and Children) services or home visitation services. We were able to connect with people who were in critical moments of life and health."

The department is now having to make those connections with hospitals outside of its county, primarily in Fresno and Merced.

There is also the issue of transportation, which was already a chief concern. Now it's going to be exacerbated as people will have to travel at least 30 minutes to the next closest hospital. People who relied on the hospital's clinics will also need to find other primary care providers, which could delay care.

Elsa Mejia, the Madera mayor pro tem, said she's been fielding questions from constituents, including many who are indigenous Oaxacans like herself and her family, who are shocked by the closure and looking for assistance. She said officials working to reopen the hospital need to remember how urgently an "already disadvantaged community" like Madera needs a hospital.

"We already have issues here like poverty, access and language barriers," Mejia said. "It was already very difficult for us and now it's just gone, we're stripped of it. It just makes everything a lot worse."