New Regulation Will Take Health Care Money From Those in Need

California CA Money Map Cash Economy Dollars 3d Illustration

A new proposal tucked away in Governor Newsom’s 2022-23 budget plans to divert health care funds to pay for new projects such as housing, transportation, and food security in low-income communities.

It’s true that the cost of living in California has ballooned to unsustainable levels and innovative solutions are needed. However, this ill-conceived regulation would increase health care costs for everyone and may even reduce access to care for Medicare patients.

The budget’s proposed regulation would require a quarter of all non-profit hospital community benefit dollars to go toward “social determinants of health.” So-called social determinants of health (SDOH) include categories such as transportation, housing, racism, job opportunities, and safety. Advocates of SDOH use the framework to justify spending health care dollars in ways that are not related to health care services in the name of social equity. As LA County’s website explains, “addressing social determinants of health will help us achieve health equity, making sure that everyone can reach their full health potential.”

Currently, California non-profit hospitals generate approximately $6 billion in community benefit dollars. Most of those dollars are needed to offset the cost of Medicare patients and provide financial assistance or subsidized care for those in need.

Non-profit hospitals presently can only afford to allocate a little less than 5% of their community benefit dollars to pay for non-healthcare services related community projects. But the new 25% requirement means that California’s non-profit hospitals will have to move at least 20%, or anywhere from $1.2 to $1.5 billion, away from Medicare costs, subsidized care, and direct financial assistance to comply with the new rule.

The regulation will force these hospitals to push the added costs onto those with private insurance or those who pay cash.  A new study from the RAND Institute demonstrates that fact. Throughout 2018-2020, California’s health care outpatient costs for patients with private insurance were almost four times the cost of Medicare. Because the government dictates how much they are willing to pay for specific procedures, what Medicare pays often does not reflect the true cost of service. As a result, those deficiencies are then passed onto cash-pay or private insurance patients. We can reasonably expect that trend to worsen with how community benefit dollars will be allocated.

Perhaps most troubling, individuals who truly need financial assistance or subsidized care will lose out. Many non-profit hospitals will lack the financial leeway necessary to be able to provide those services to the poor since such a large proportion of community benefit dollars will be moved to pay for “social determinants of health.” Ironically, one social determinant of health is access to care – but in practice, the regulation will surely reduce access.

Yes, non-profit hospitals have been frequently criticized for sometimes behaving like for-profit hospitals. But many non-profit hospitals believe in their mission to support communities and provide care to those in need. Some non-profit hospitals may feel that the new regulation distracts and inhibits them from focusing on their specialized mission.

Obviously, hospitals specialize in health care – not housing or transportation. Hospitals may not know which projects would be best to invest in for their communities. Because hospitals lack the expertise, it seems likely that those dollars spent will be very ineffective. Even the state of California, with its many specialized departments and spending experts, constantly mismanages project funds.

Still approved in the Governor’s May Revise, the proposed statutory change requires enforcing authority from the Department of Health and Care Access and Information. The state legislature is currently poised to approve over $2.5 million to fund five new positions for the proposal change over the next three years, and $861,000 to continue its funding every year thereafter. Furthermore, to effectively comply, non-profit hospitals may need to hire specialized staff, which will further increase health care costs or waste those community benefit dollars.

Instead, communities concerned with the social determinants of health should turn to local institutions that already specialize in meeting those needs.

McKenzie Richards is a policy associate at the Pacific Research Institute

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

Scroll to Top