Chapter 4 - Distressed Hospital Loan Program

California Health and Safety Code — §§ 129380-129387

Sections (8)

Added by Stats. 2023, Ch. 6, Sec. 3. (AB 112) Effective May 15, 2023. Repealed as of January 1, 2032, pursuant to Section 129387.

(a)This program shall be known, and may be cited, as the Distressed Hospital Loan Program.

(b)The purpose of this program is to provide interest-free cashflow loans to not-for-profit hospitals and public hospitals in significant financial distress or to governmental entities representing a closed hospital, except as otherwise provided, to prevent the closure of, or facilitate the reopening of, those hospitals.

§ 129381

Added by Stats. 2023, Ch. 6, Sec. 3. (AB 112) Effective May 15, 2023. Repealed as of January 1, 2032, pursuant to Section 129387.

For the purposes of this chapter, the following definitions apply:

(a)“Authority” means the California Health Facilities Financing Authority.

(b)“Closed hospital” means a hospital that closed after January 1, 2022.

(c)“Department” means the Department of Health Care Access and Information.

(d)“Not-for-profit hospital” means the same as a general acute care hospital described in paragraph (1) of subdivision (d) of Section 15432 of the Government Code that is organized as a not-for-profit entity.

(e)“Program” means the Distressed Hospital Loan Program.

(f)“Public hospital” means a hospital that is licensed to a county, a city, a city and county, the University of California, a local health care district, a local health authority, or a municipal hospital established pursuant to Article 7 (commencing with Section 37600) of Chapter 5 of Part 2 of Division 3 of Title 4 of the Government Code.

§ 129382

Added by Stats. 2023, Ch. 6, Sec. 3. (AB 112) Effective May 15, 2023. Repealed as of January 1, 2032, pursuant to Section 129387.

(a)The department shall administer the program, subject to subdivision (d) of Section 129385, for purposes of this chapter.

(b)The department shall enter into an interagency agreement with the authority to implement this chapter.

§ 129383

Added by Stats. 2023, Ch. 6, Sec. 3. (AB 112) Effective May 15, 2023. Repealed as of January 1, 2032, pursuant to Section 129387.

(a)In collaboration with the State Department of Health Care Services, the Department of Managed Health Care, and the State Department of Public Health, the department shall develop a methodology to evaluate an at-risk hospital’s potential eligibility for state assistance from the program.

(1)(A) The methodology shall consider factors, including, but not limited to, whether the hospital is in financial distress, as solely determined by the department, whether the hospital is small, rural, a critical access hospital, a trauma center, an urban hospital providing access for an underserved area, a hospital that serves a disproportionate share of Medicaid patients, or serving a rural catchment area, whether closure of

the hospital would significantly impact access to services in the region, and whether the hospital is publicly owned.

(B)The methodology for determining financial distress may consider such factors as the hospital’s prior and projected performance on financial metrics, including the amount of cash on hand, and whether the hospital has, or is projected to experience, negative operating margins.

(2)The methodology shall also be used for identification and monitoring of hospitals at risk of financial distress.

(b)A hospital or a closed hospital applying for aid under this program shall provide the authority and the department with financial information, in a format determined by the authority and the department, demonstrating the hospital’s need for financial assistance due to financial hardship.

(c)(1) Before receiving state assistance under this program, an eligible hospital shall submit a plan to the authority, which it shall share with the department, with projections detailing the uses of the proposed loan and strategies proposed by the hospital’s governing body to regain financial viability and continue to operate.

(2)Before issuing a loan under this chapter, the department shall review the plan submitted by an eligible hospital and make a determination that the plan is viable and there is a reasonable likelihood that the hospital will be able to regain financial viability and continue to operate as a hospital. The department shall not issue a loan award if the department is unable to make this determination.

(d)The department shall issue the loan award to a qualifying hospital as

soon as reasonably practicable following its eligibility determination.

(e)Not-for-profit hospitals and public hospitals that belong to integrated health care systems with more than two separately licensed hospital facilities shall be ineligible for state assistance under the program.

(f)The department shall, in consultation with the authority, determine the application process, underwriting review, and methodology for approval and distribution of the loans under the program.

(g)The department shall have the authority to determine service provision requirements in approving, and for the duration of, loans to eligible hospitals. In making its determination, the department shall consider the impact of any changes to the hospital’s service delivery on access to necessary medical care, particularly for beneficiaries

of the Medi-Cal program.

(h)The department shall make the methodology publicly accessible on its internet website.

§ 129384

Added by Stats. 2023, Ch. 6, Sec. 3. (AB 112) Effective May 15, 2023. Repealed as of January 1, 2032, pursuant to Section 129387.

(a)Notwithstanding Sections 15432 and 15451.5 of the Government Code, unless subdivision (c) applies, a hospital shall be required to begin making monthly repayments of the loan after the first 18 months and shall discharge the loan within 72 months of the date of the loan.

(b)Notwithstanding any other law and to the extent permissible under federal rules, security for the cashflow loans in this chapter shall be Medi-Cal reimbursements due to the hospital from the State Department of Health Care Services. The department’s or authority’s recoupment of these cashflow loans shall not exceed 20 percent of the hospital’s respective Medi-Cal checkwrite payments until the loan amount has been satisfied. In the event that a 20-percent withhold

will not result in full repayment of the loan within a 72-month period, the department may extend the repayment term of the loan.

(c)(1) The department, in consultation with the authority, and upon approval of the Department of Finance, shall develop an application and approval process for loan forgiveness or modification of the terms of the loan, including a delay of the beginning of the loan repayment period or an extension of the 72-month loan repayment term, or both. The process shall include, but is not limited to, eligibility criteria for an applicant for loan forgiveness or modification, including which portion of a loan may be forgiven or modified.

(2)The department shall provide loan forgiveness or modification of loan terms to an applicant based upon criteria determined by the department and subject to the approval of the department and the

authority. The Department of Finance shall be authorized to approve any loan forgiveness and any modification of loan terms that would result in the extension of the payback period by more than one year.

(3)The department shall also establish the terms and conditions associated with accepting loan forgiveness or modification of loan terms, subject to approval of the Department of Finance.

(4)Before any action on a request for forgiveness or modification of any loan that would result in the extension of the payback period by more than one year, and again not later than 60 days after final approval or denial of the forgiveness or modification, the department shall submit to the Joint Legislative Budget Committee and relevant policy and fiscal committees of the Legislature notice of the request and the subsequent action, including a summary of the request and reason for the denial,

approval, or modification.

§ 129385

Amended by Stats. 2024, Ch. 40, Sec. 21. (SB 159) Effective June 29, 2024. Repealed as of January 1, 2032, pursuant to Section 129387.

(a)The Distressed Hospital Loan Program Fund is hereby established in the State Treasury. The fund shall be administered by the department consistent with this chapter.

(b)Notwithstanding Section 13340 of the Government Code, all moneys in the fund are continuously appropriated, without regard to fiscal years, for the department and the authority to implement this chapter.

(c)The authority shall make secured loans from the Distressed Hospital Loan Program Fund to a hospital or to a governmental entity representing a closed hospital, for purposes of preventing the closure, or facilitating the reopening, of the hospital.

(d)The

department may allocate an amount not to exceed 5 percent of total program funds to administer the program, including, but not limited to, administrative costs to the authority. Any funds transferred shall be available for encumbrance or expenditure until December 31, 2031.

(e)(1) The Department of Finance may transfer up to one hundred fifty million dollars ($150,000,000) from the General Fund to the Distressed Hospital Loan Program Fund between state fiscal years 2022–23 and 2023–24 to implement this chapter.

(2)The Department of Finance may transfer, subject to Section 14105.200 of the Welfare and Institutions Code, up to one hundred fifty million dollars ($150,000,000) from the Medi-Cal Provider Payment Reserve Fund to the Distressed Hospital Loan Program Fund in state fiscal year 2023–24 to implement this chapter.

(f)All moneys accruing to the authority and the department under this chapter from any source shall be deposited into the fund.

(g)The Treasurer may invest moneys in the fund that are not required for its current needs in eligible securities specified in Section 16430 of the Government Code and may transfer moneys in the fund to the Surplus Money Investment Fund for investment pursuant to Article 4 (commencing with Section 16470) of Chapter 3 of Part 2 of Division 4 of Title 2 of the Government Code.

(h)Notwithstanding Section 16305.7 of the Government Code, all interest or other increment resulting from the investment or deposit of moneys from the fund shall be deposited in the fund.

(i)Moneys in the fund shall not be subject to transfer to any other

funds pursuant to any provision of Part 2 (commencing with Section 16300) of Division 4 of Title 2 of the Government Code, except to the Surplus Money Investment Fund.

(j)Effective December 31, 2031, the Distressed Hospital Loan Program Fund in the State Treasury, created pursuant to this chapter, is hereby abolished. After accounting for all final program transactions, any remaining Distressed Hospital Loan Program Fund reserves shall be returned to the source of origin, in the amounts of up to one hundred fifty million dollars ($150,000,000) to the General Fund, and up to one hundred fifty million dollars ($150,000,000) to the Medi-Cal Provider Payment Reserve Fund. Any other remaining balance, assets, liabilities, and encumbrances of the Distressed Hospital Loan Program Fund shall revert to the General Fund. The department shall deposit all subsequent loan repayments or Medi-Cal reimbursements withheld for due cause pursuant to subdivision

(b)of Section 129384 to the Treasurer, to the credit of the General Fund.

(k)The department and the authority may require any hospital receiving a loan under this chapter to provide the department and the authority with an independent financial audit of the hospital’s operations for any fiscal year in which a loan is outstanding.

§ 129386

Added by Stats. 2023, Ch. 6, Sec. 3. (AB 112) Effective May 15, 2023. Repealed as of January 1, 2032, pursuant to Section 129387.

(a)Notwithstanding the rulemaking provisions of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code), the authority and the department may implement, interpret, or make specific this chapter, in whole or in part, by means of information notices or other similar instructions, without taking any further regulatory action.

(b)For purposes of implementing this chapter, the authority and the department may enter into exclusive or nonexclusive contracts, or amend existing contracts, on a bid or negotiated basis. Contracts entered into or amended pursuant to this subdivision shall be exempt from Chapter 6 (commencing with Section 14825) of Part 5.5 of Division 3

of Title 2 of the Government Code, Section 19130 of the Government Code, Part 2 (commencing with Section 10100) of Division 2 of the Public Contract Code, and the State Administrative Manual, and shall be exempt from the review or approval of any division of the Department of General Services.

§ 129387

Added by Stats. 2023, Ch. 6, Sec. 3. (AB 112) Effective May 15, 2023. Repealed as of January 1, 2032, by its own provisions. Note: Repeal affects Chapter 4, commencing with Section 129380.

This chapter shall remain in effect only until January 1, 2032, and as of that date is repealed.