Kaweah Health CEO Gary Herbst said the hospital system's cash reserves can withstand a bad year or two, but such conditions hamper investment in the future. Kaweah photo

published on June 30, 2022 - 12:32 PM
Written by The Business Journal Staff

Kaweah Health is heading into the next fiscal year with an $11.2-million deficit after its 2023 budget approval. 

The Kaweah Delta Health Care District board of directors approved the new budget that goes into effect Friday. The projected loss comes on the heels of the Covid-driven operating loss of $17.9 million for the current fiscal year ending today.

The operating loss for fiscal 2021-22 was actually $35.8 million, but that was cut in half thanks to CARES Act and American Rescue Plan Act funds. 

This is the first time in Kaweah Health’s history it is projected to operate in the red for a fiscal year. The losses last year were absorbed by the organization’s cash reserves. Similar measures would be taken if projected losses occur in the next fiscal year.

Projected general fund cash reserve levels as of July 1 are $292.7 million.

“Kaweah Health has a long history of great financial strength,” stated Kaweah Health CEO Gary Herbst.

Despite the operating loss, the board of directors and Herbst say Kaweah Health will still administer merit-based raises of up to 4%. 

“We are a compassionate and grateful organization. We want to continue to be a great place to work and we want to continue to attract and retain the very best employees to care for our community. The South Valley is already underserved medically, and we decided against closing services and further reducing access to care, even if some of those services lose money,” said Herbst. “While we have cash reserves to cover a bad year or two, it reduces our ability to invest in facilities and equipment, as well as our ability to borrow money. These losses are not sustainable in the long term.”

Kaweah Health is not alone, according to a news release. More than 51% of California hospitals are losing money. According to a recent study conducted by national consulting firm Kaufman Hall, California hospitals lost more than $20 billion in 2020 and 2021 due to COVID. These losses were only partially offset by $8 billion in federal provider relief funds.

The losses are largely attributed to decisions made in California during the pandemic that included shutting down non-emergent surgeries and procedures — a significant loss in revenue. In addition, hospitals bore the cost of caring for Covid patients with only a slight increase in Medicare payments and no increase in Medi-Cal payments. Hospitals were also challenged with increasing labor costs, most notably travel nursing.

Because of low staffing levels, Kaweah Health spent money on extra-shift incentive bonuses and overtime pay. Personal protective equipment and medications during the thick of Covid also fell on Kaweah Health and other California hospitals. 

“The pandemic has taken a devastating financial toll on the majority of hospitals in California,” said Carmela Coyle, president and CEO of the California Hospital Association. “In communities throughout our state, many hospitals are struggling to provide services for all who need care. It is going to take years for hospitals to recover from these losses, and the truth is some hospitals may not survive.”

According to consulting group Kaufman Hall’s national hospital flash report, “Gross operating revenues rose month-over-month and in comparison to May 2021. But expenses — especially labor costs — were elevated across nearly every metric month-over-month.”

“Concerned citizens can also reach out to their Federal and State representatives to let them know that your local hospitals need their support during these unprecedented times,” Herbst said.

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