The Financial Impact of COVID-19 on California Hospitals

Glenn Melnick, Blue Cross of California Chair in Health Care Finance and professor of public policy at the University of Southern California
Susan Maerki, Independent Health Consultant


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In mid-March 2020, the world changed for Californians and their health care system. As COVID-19 infections began spreading across California, Governor Gavin Newsom announced a statewide shelter-in-place order and requested that the state’s hospitals increase their inpatient bed supply from approximately 80,000 to 130,000 — a 62% increase. Health care leaders and the state moved quickly to enhance capacity.

Before the pandemic, California’s hospitals collectively averaged nearly 257,000 inpatient and four million outpatient visits each month. As COVID-19 containment efforts took hold, patient volume fell precipitously as hospitals discontinued elective and nonurgent care at the urging of the US Surgeon General, professional organizations, and state officials.

With a decline in operating revenue and added COVID-19-related expenses, profitability at acute care hospitals in California has likely decreased substantially. This report provides initial estimates of some of the immediate financial and longer-term impacts of the COVID-19 pandemic on California’s hospitals and health care system. Data sources include California’s Office of Statewide Health Planning and Development and Collective Medical, a care coordination software company and investee of CHCF’s Health Innovation Fund.

In the medium and longer term, the authors project that hospitals in the state will experience significant downward pressure on revenue as more Californians shift from employer-based to public health insurance coverage. Meanwhile, absent additional public sources of funding, preparation for future pandemic and public health emergencies could add to underlying cost structures. These forces, along with ongoing pressure to reduce health system spending, will require hospitals to find new operational efficiencies to survive in a post-COVID-19 environment.

About the Authors

Glenn Melnick, PhD, is Blue Cross of California Chair in Healthcare Finance and professor of public policy at the University of Southern California. Susan Maerki, MHSA, MAE, is an independent health consultant and former director and health policy specialist at PwC.