The California Legislature and Governor have proposed several measures to address the growing distressed hospital crisis in the state. Most recently, Governor Gavin Newsom signed Assembly Bill 108, which established a limited-term distressed hospital grant program administered by the California Department of Health Care Access and Information (HCAI). The measure appropriates $25 million in one-time funding for grants to eligible distressed hospitals. To qualify for funding under AB 108, a hospital must satisfy the following criteria:

1. The hospital must be a not-for-profit hospital or a public hospital.  
2. The hospital must have less than ten (10) days’ cash on hand, inclusive of investments and liquid assets available for operations, based on internally prepared financial statements for the most recently closed month and supported by the most recent audited financial statements.
3. The hospital must demonstrate that it used best efforts to exhaust other financial options, including seeking forgiveness or deferral of short- and long-term debt obligations.
4. At least 50 percent of the hospital payor mix must consist of government payers and uninsured patients.  
5. The hospital must satisfy any additional criteria established by HCAI in consultation with the Department of Finance.

Eligible hospitals were required to submit a completed application to HCAI yesterday, Monday May 18th.  

Senator John Laird, the Chair of the Senate Budget and Fiscal Review Committee, publicly noted during budget discussions that Watsonville Community Hospital could potentially benefit from the program. However, legislators from both parties expressed concern during budget hearings that the eligibility criteria are narrowly tailored and may exclude many financially struggling hospitals.

The $25 million grant program is not the only form of hospital relief currently under consideration. In the Governor’s 2026-27 May Revision, Governor Newsom proposed an additional $50 million in distressed hospital grant funding, utilizing substantially similar eligibility criteria as those established under AB 108. However, the Governor’s proposal remains significantly lower than the funding level proposed in Assembly Bill 1923, authored by Assemblymember Esmeralda Soria and sponsored by the California Hospital Association.

Under existing law, California’s Distressed Hospital Loan Program provides interest-free loans to nonprofit and public hospitals experiencing significant financial distress in order to prevent hospital closures or facilitate hospital reopenings. Cal. Health & Safety Code Section 129380.  AB 1923 would substantially expand the scope of Distressed Hospital Loan Program by permitting hospitals of any ownership type or system affiliation to qualify for state assistance if HCAI and the California Health Facilities Financing Authority determine that the hospital is experiencing financial distress. Among other provisions, AB 1923 would:

1. Expand the definition of “financial distress” to include both prior and projected financial performance metrics, including credit ratings and debt capacity. The bill contemplates consideration of impacts associated with federal and state policy changes affecting reimbursement and coverage.
2. Require applicant hospitals to submit financial reports and consolidated financial statements from associated entities, where applicable, for HCAI review.
3. Limit eligibility for hospitals with associated entities unless those associated entities are determined to lack the financial capacity necessary to resolve the hospital’s distress.
4. Impose additional limitations on loans to hospitals with associated entities, including reducing loan amounts by amounts distributed to investors, shareholders, or management companies during the preceding three years.
5. Define “associated entities” broadly to include affiliates, subsidiaries, and other entities exercising financial or governance control over the hospital, whether foreign or domestic.
6. Require HCAI to consider imposing conditions on loans, including maintaining labor and delivery services, Medi-Cal participation, Medi-Cal managed care participation, county contracts, and community benefit or charity care obligations.
7. Appropriate $300,000,000 from the General Fund to the Distressed Hospital Loan Program Fund to support additional rounds of hospital stabilization funding.

Since the creation of the Distressed Hospital Loan Program, the program has assisted fourteen hospitals in remaining operational and facilitated the reopening of one hospital. With the Governor now proposing an additional $50 million in distressed hospital grant funding, the Legislature may consider whether additional appropriations are justified as part of ongoing budget negotiations. The Legislature must pass the state budget by June 15, 2026.