More than a year after California’s healthcare minimum wage law took effect, health systems are navigating its effects alongside broader labor cost pressures.
The law took effect in October 2024, establishing a higher wage floor for workers at hospitals, health systems, clinics and other covered healthcare facilities, including those who provide or support patient care. Minimum wages vary by facility type, with large health systems moving toward a $25 hourly minimum by 2026, while safety-net hospitals and some rural and county-based providers have extended timelines reaching into the early 2030s. The policy was delayed ahead of implementation amid state budget concerns, though some organizations proceeded with planned increases ahead of the final effective date.
While the law set new minimum pay thresholds, its implications vary based on organizations’ starting wage levels, workforce structure and financial flexibility. Systems that were already paying above the minimum have seen more limited disruption, while others — particularly those with tighter margins, including many rural providers — are navigating ripple effects across pay structures, labor costs and workforce strategy.
Becker’s spoke with leaders from Scripps Health in San Diego, Keck Medicine of USC in Los Angeles and John C. Fremont Healthcare District in Mariposa, Calif., along with San Diego-based ECG Management Consultants, about how the law is shaping compensation and workforce strategy.
Where the real impact is: Compression and pay structure
For many systems, the most immediate effect of the law has been on pay structure, particularly wage compression, as increases at the lower end of the pay scale extend across roles.
Organizations have adapted to the law from different starting points, a factor that has largely determined how significantly it reshaped workforce strategy.
At Keck Medicine, which includes an academic medical center and operates more than 100 clinics and four hospitals, the law affected about 3% of employees — 259 out of 8,111 — when it took effect in October 2024. The next phase of the California healthcare minimum wage increase, scheduled for July 1, is expected to affect about 2% of employees — 219 out of 10,281.
Because of that, workforce strategy has not been driven primarily by the legislation, Ekta Vyas, PhD, chief human resources officer, said, noting that only a small share of employees was affected and that the system does not base its pay programs on minimum wage. Rather, she said workforce strategy at Keck is shaped more by broader market dynamics — including regulatory changes, new technology, evolving payment models and other factors that influence jobs’ value positioning in the market — than by minimum wage requirements.
“As an employer, especially in healthcare in California, you want to be very competitive in the market,” Dr. Vyas said. “You don’t want to be at minimum wage; you want to be way above it so you’re not always in a catch-up mode.”
Still, the law required targeted adjustments to maintain internal equity across roles, particularly among leveled positions.
“If the baseline position is adjusted to minimum wage, then elevated positions are subsequently adjusted to maintain that 5% differential,” Dr. Vyas said.
For leaders, that creates a practical question with respect to how far those adjustments need to extend to maintain differentiation without significantly increasing labor costs.
How strategies diverge across systems
Organizations are taking different approaches to managing workforce and financial pressures — particularly wage compression and rising labor costs. Approaches range from systemwide wage adjustments across roles to more incremental, phased strategies.
At Scripps Health, a $5 billion nonprofit integrated health system, leaders approached the law as a long-term compensation strategy question rather than a series of incremental increases.
“We did not want the minimum wage increase to jeopardize differentiation in pay due to experience and performance,” Eric Cole, corporate senior vice president of human resources, said. “We are a merit-based system.”
Instead of limiting increases to employees below the threshold, Scripps adjusted wages across roles — from front-line staff through the supervisor level — to maintain pay differentials.
“Every time the rate increased — from $23 to $24 to $25 — we did not only adjust those below the minimum. We scaled the increases through the workforce,” Mr. Cole said.
Wage compression — when pay differences between roles narrow regardless of experience or tenure — became a central issue as base wages rose.
“We extended decompression through the supervisor level because we did not want employees with several years of experience to be paid only slightly more than those with minimal experience,” he said.
Scripps implemented changes ahead of the law’s effective date and incorporated them into its annual merit and market cycle to simplify communication and reduce disruption.
“Managing two increases per year for part of the organization is much more difficult, so we chose to consolidate them,” Mr. Cole said. “It was more expensive, but we felt it was the right thing to do to treat employees fairly.”
He added that the law may widen differences between larger systems and smaller providers that lack the financial flexibility to adjust wages across roles.
While larger systems and academic medical centers may have more flexibility to adjust wages across roles, rural providers are navigating the same changes with tighter margins and fewer options.
At John C. Fremont Healthcare District, which operates a 34-bed hospital with 18 acute care beds and 16 long-term care beds and employs about 220 people, increases at the lower end of the pay scale have required leaders to evaluate how changes affect relationships across roles, tenure levels and supervisory positions, Rachel Jones, chief human resources officer, said.
Because of those dynamics, the organization has approached the law as a multi-year financial and workforce planning exercise, analyzing downstream effects across both union and non-represented pay structures.
Leaders are evaluating how entry-level wage increases influence compression, span of control and compensation relationships across roles, while pacing decisions to align with the organization’s financial capacity.
“As a rural critical access hospital, we operate with limited margin for variability,” Ms. Jones said. “This has meant balancing near-term compliance with longer-term viability, ensuring today’s decisions remain manageable as future phases approach.”
That approach has required coordination across leadership, the board and employee representatives, along with ongoing communication with staff.
“We have worked closely with our recognized employee representatives to ensure a transparent and thoughtful approach, while also maintaining open communication with our teammates,” she said.
Like many rural systems, John C. Fremont leaders are balancing those adjustments with longer-term workforce challenges, including recruitment and retention in smaller labor markets, while strengthening partnerships with schools, government and regional organizations to support workforce development.
“Building those connections locally helps us develop future healthcare professionals while supporting long-term workforce stability in rural communities,” Ms. Jones said.
Leaders are also evaluating how wage changes intersect with other requirements, such as California’s exempt salary thresholds, which are tied to minimum wage levels and influence broader compensation structures.
The work is also being aligned with longer-term capital planning at John C. Fremont, including efforts to develop a new hospital and future care delivery models.
With less financial flexibility than larger systems, those decisions are often made incrementally as leaders balance near-term wage changes with longer-term financial constraints, Ms. Jones said.
Rising costs and operational pressure
The healthcare minimum wage law in California is compounding financial pressure that was already building across the industry, as labor costs continue to rise faster than reimbursement.
Hospital margins remain thin. Kaufman Hall reported an adjusted year-to-date operating margin of 1.3% to close out 2025, based on data from more than 1,300 hospitals. At the same time, Medicare reimbursed hospitals at just 83 cents on the dollar in 2024, resulting in more than $100 billion in underpayments, according to the American Hospital Association.
More recent data suggests those pressures are continuing into 2026. Average year-to-date operating margins improved slightly from -0.6% in January to -0.3% in February, according to Strata Decision Technologies, though most systems remain in the red. A handful of organizations — including for-profit operators and nonprofits such as Clearwater, Fla.-based BayCare and Rochester, Minn.-based Mayo Clinic — reported stronger early-year performance.
Labor costs are also consuming a growing share of expenses. Labor accounted for 56% of total hospital expenses in 2024, and advertised salaries for registered nurses have grown 26.6% faster than inflation over the past four years, according to AHA analyses.
Those pressures are not limited to California. Becker’s has reported on a number of health systems raising wages and investing heavily in workforce compensation — in some cases committing hundreds of millions of dollars to pay increases.
In California, the minimum wage law adds another layer to that trend by pushing up wages at the lower end of the pay scale — and, in many cases, across the workforce.
According to Darin Libby, a partner at ECG, the effects extend beyond entry-level roles.
“From my experience, the mandated minimum wage did not just raise wages for low-wage earners but also resulted in a general upward shift across health system hourly positions,” he said.
That upward shift, he said, is forcing organizations to make decisions about staffing levels, workflows and how to manage rising labor costs.
In some cases, leaders may look to reduce headcount to offset higher wages. But without broader operational changes, that approach can leave remaining staff overextended.
“The misstep is when management reduces the workforce without transforming and redesigning workflows,” Mr. Libby said. “This results in staff becoming overburdened and leaving for new opportunities.”
He added that organizations that perform best pair those changes with growth, increasing volume while maintaining staffing levels.
What comes next
With California’s healthcare minimum wage law set to continue phasing in higher wage thresholds over the next several years, leaders said the focus is shifting from reacting to individual increases to planning more deliberately across the workforce.
That includes anticipating how each phase will affect pay structures beyond entry-level roles, particularly as wage increases ripple across classifications and require adjustments to maintain differentiation.
For some organizations, including Scripps Health, that is already influencing how care teams are structured.
“Ensure licensed staff are practicing at the top of their license and support them with less costly but equally important clinical support roles,” Mr. Cole said.
Leaders also said communication has become more important as the law progresses and its effects extend across a broader share of the workforce.
“Employees need to understand what we are doing, why we are doing it and how we are doing it,” he said.
For rural and smaller systems such as John C. Fremont Healthcare District, the phased approach is reinforcing the need for longer-term planning rather than one-time adjustments.
“The first year reinforced the importance of analyzing workforce impacts in advance,” Ms. Jones said.
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