Why California Hospitals Are Struggling Financially Vs. Other States

Hospitals across the United States are under pressure from tightening margins, inflation-driven cost increases, workforce shortages and evolving regulatory demands. But in California, the strain is particularly acute.

According to a statement shared to Beckers, the California Hospital Association (CHA) said that “more than half of all California hospitals (53 %) now lose money every day caring for patients.”

For nurses — whether in rural community hospitals, urban settings or specialty facilities — understanding the dynamics behind this distress can help make sense of evolving staffing, service-line and operational changes. Below are the key factors driving additional stress in California’s hospital environment.

Key Drivers of California Hospital Financial Strain

Rising costs of labor, supplies and infrastructure

Nurses know well the pressure of higher labor costs: travel nurse contracts, overtime, agency staffing, and burnout-driven turnover all increase expenses for hospitals. The CHA spokesperson noted: “Driven by skyrocketing costs for labor, pharmaceuticals, medical equipment and unfunded governmental mandates…” 

In addition, California has unique infrastructure requirements. For example, by 2030 many hospitals must meet stringent seismic (earthquake) safety standards which are estimated to cost “as high as $143 billion” statewide. These capital and operating cost pressures create a heavier burden than in other states without such regulatory mandates.

Medicaid (“Medi-Cal”) reimbursement and uncompensated care burden

Another major pressure point is how state and federal programs reimburse hospitals. California’s large share of patients on public-insurance programs (including Medi‐Cal) and its safety-net role mean many patients are under-insured or uninsured.

CalMatters reported that 17 financially distressed California hospitals — including three that filed for bankruptcy — received “close to $300 million in interest-free loans.” 

Beyond that: “CHA also pointed to Medicaid cuts under the recently passed One Big Beautiful Bill Act as more kerosene fueling the fire under hospitals’ feet and estimates that the cuts will result in California hospital revenue losses between $64 billion to $128 billion over the next decade.” 

For a nurse working in a hospital, this means the institution may have fewer resources available for staffing, equipment or non-revenue-generating services (such as education or community outreach).

Patient-mix changes and utilization shifts post-COVID

During the COVID-19 pandemic many hospitals saw dramatic shifts in inpatient volumes, cancellations of elective procedures and changes in patient acuity. While many states are recovering, California still shows signs of challenge.

According to a study of California hospital data: “While hospital overall utilization has largely returned to pre-COVID levels, patient mix has changed and financial performance still lags.” 

From a nursing-perspective, the implication is that although census may recover, the acuity may be higher, length of stay longer, and margins lower, increasing workload and reducing flexibility.

Rural and community hospitals especially vulnerable

Many small hospitals in rural or underserved regions of California are under particular threat. 

According to Becker’s: “In early October, the Palo Verde Healthcare District sought Chapter 9 bankruptcy protection.” In addition, a 37-bed critical access hospital reported being “down to just 12 days of cash on hand.” 

These hospitals often serve as the only local access point for emergency and inpatient care. For the nursing workforce this means smaller hospitals may face closures or service cutbacks (for example emergency department or maternity services), which in turn affects local staffing, patient transfer burdens and community health outcomes.

Workforce shortages, burnout and travel-nurse dependency

From the nursing viewpoint, the workforce side cannot be separated from the financial side. Scripps Health president and CEO Chris Van Gorder said: “More than half of California’s hospitals ended 2022 with a financial loss and 1 in 5 is at risk of closing. … ‘It sounds bad, because it is pretty bad.”

When hospitals are financially stressed they may delay hiring, lean heavily on overtime or travel nurses (which themselves cost more), or reduce support services, all of which impact the daily work of nurses: higher patient-to-nurse ratios, fewer ancillary supports, and greater burnout risk. These workforce pressures then feed back into financial distress (turnover is expensive, recruitment is difficult, morale suffers).

Spending caps add pressure

A new lawsuit filed by the CHA against the state’s Office of Health Care Affordability encapsulates the tensions over cost containment efforts. The CHA argues that California’s recently implemented health care spending growth limits—capped at 3.5 percent beginning in 2025 and dropping to 3 percent within four years—will devastate hospitals already battling financial losses. 

“The spending caps set by politically appointed bureaucrats could force cuts that result in many Californians traveling farther for care, facing longer emergency room wait times, experiencing more overcrowding, and losing access to critical services like maternity care, cancer treatment, behavioral health services, and surgical care,” said Carmela Coyle, CHA president and CEO.

The CHA estimates that three in four hospitals in the state will operate at a loss under the new rules, arguing that the policy “ignores the rising cost pressures on hospitals, including labor, pharmaceutical prices, and a rapidly aging population.”

What This Means for Nurses

Understanding the above dynamics helps frame some of the service-line and staffing changes nurses may currently be seeing in California hospitals:

• Hospitals may reduce or eliminate less profitable programs (for example rural maternity services, behavioral health units or full service emergency departments).
• Staffing models may shift: more reliance on temporary/travel nurses, higher use of overtime, or more cancelled shifts.
• Nurses may feel increased workload, more complex patients, fewer support resources or fewer opportunities for professional development.
• Some hospitals may negotiate mergers or affiliations, which can mean changing leadership, changes in unit structure or new policy mandates.
• For nurses interested in staying in California or who are being recruited to California facilities, it may be useful to ask questions about hospital financial health, staffing ratios, use of travel nurses and support for burnout or professional growth.

For nurses working in California, the operational environment is often more precarious than in many other states. By understanding the context and meaning of these pressures, nurses can better anticipate how units, hospitals and systems are responding, and then engage meaningfully in decisions about staffing, care models and patient-safety advocacy.

 

🤔 Are you a nurse working in California? What signs of financial stress are you seeing? Let us know in the discussion forum below.