How systems are preparing for California's new minimum wage

About 455,000 healthcare workers in California are set to see wage increases as a result of a new minimum wage law signed by Gov. Gavin Newsom.

That's according to a UC Berkeley Labor Center June report looking at the effects of the minimum wage change. The average wage increase will result in an estimated $10,352 hike for each worker, the report says.

Mr. Newsom on Oct. 13 signed a new law that will gradually raise healthcare workers' hourly minimum wage to $25.

The new law comes after union and hospital representatives reached agreement on how such a minimum wage could be addressed.

Under the new law, cities and counties are blocked from increasing pay via ballot measures for 10 years. 

Workers at healthcare facilities with 10,000 or more full-time equivalent employees will earn $23 per hour starting in 2024, with pay increasing to $24 an hour in 2025 and $25 an hour in 2026. Smaller facilities and hospitals with a high governmental payer mix will have until 2028 or 2033 to reach the $25 minimum, depending on the type of facility. 

The new law allows some healthcare facilities to apply for a temporary pause or alternative phase-in schedule of the minimum wage requirements if they have documentation proving financial distress. 

Chicago-based CommonSpirit, whose Northern and Southern California divisions reported more than one-third of the system's operating revenues of $34.5 billion in fiscal 2023, said it had been actively engaged in the process discussing the wage increase, mainly because much of its workforce in the state is unionized.

"We were at that level already, so the impact for us really is minimal," John Petersdorf, senior vice president of operational finance at CommonSpirit, said on an investor call Oct. 12.

Chris Van Gorder, president and CEO of San Diego-based Scripps Health, told Becker's the health system is always in favor of increasing the salaries of employees as long as the cost of doing so is covered. 

"Since we have not received a Medi-Cal base rate reimbursement increase in a decade and we do not negotiate rates for Medicare, that leaves the commercial payers," Mr. Van Gorder said. "The final [wage legislation] amendments, while not perfect, give us a phase-in period of a couple of years. We will already be at $21 an hour by January at Scripps, and that will now increase to $23 by June 2024. So, we need to start renegotiating higher reimbursement from the payers." 

He also noted that Scripps recently completed negotiations with several Medicare Advantage payers and had to cancel its MA contracts as the reimbursement will not cover operating costs associated with the new minimum wage law or other unfunded mandates like SB 1953, which requires hospitals to meet seismic strengthening requirements.

"At Scripps, we are continually working with our medical staff and affiliated medical groups to identify how best to manage our costs and lower them whenever possible while delivering needed care — including a significant amount of charity care and underfunded care. We are doing that while we face increased costs for supplies, labor, pharmaceuticals, energy, unfunded government mandates and inflation overall," Mr. Van Gorder said.

He added that he spoke to the CEO of a major payer earlier this year and told him the same thing — "that the commercial payers will have to pay for this and premiums will have to increase. Hospitals don't print money, and government payers don't cover the total cost of care — and don't negotiate rates. Therefore, the commercial payers will have to pay."

Roseville, Calif.-based Adventist Health said the legislation would affect about 8% of its employees.

"Adventist Health has been actively working to develop a systemwide wage grade structure that responds to market changes for all of our associates," the 26-hospital system said in a statement provided to Becker's. "As leaders in California's rural health care, we hope that this legislation will encourage and inspire healthcare associates to look to our organization to join, improving staffing and access to care in these critical areas of the state."

Edward Mirzabegian, CEO of Antelope Valley Medical Center in Lancaster, Calif., told Becker's: "Hospitals negotiated and came to a consensus long before it was announced. We're prepared and okay with this decision."

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