SACRAMENTO, Calif. — Nearly a half-million health workers who stand to benefit from California’s nation-leading $25 minimum wage law could be in for a rude awakening if hospitals and other health care providers follow through on potential cuts to hours and benefits.

A medical industry challenge to a new minimum wage ordinance in one Southern California city suggests layoffs and reductions in hours and benefits, including cuts to premium pay and vacation time, could be one result of a state law set to begin phasing in in June. However, some experts are skeptical of that possibility.

The California Hospital Association brought a partly successful legal challenge to Inglewood’s $25 minimum wage ordinance, which barred employers from taking those sorts of steps to offset their higher costs.

“Layoffs, reductions in premium pay rates, reductions in non-wage benefits, reductions in hours, and increased charges are consequences of an employer having less money to spend—which will necessarily be the case given the significant increase in spending on wages due to the minimum wage,” the association said in its lawsuit. Additional examples include reducing health coverage and charging for parking or work-related equipment.

Inglewood voters approved the ordinance in November 2022, nearly a year before California legislators enacted a $25 minimum wage for health workers. Those statewide higher wages are to be phased in starting in June under California’s first-in-the-nation law, but Gov. Gavin Newsom has since said they are too expensive as the state faces a deficit estimated between $38 billion and $73 billion. It’s unclear if lawmakers will agree to a delay or take other steps to reduce the cost.

U.S. District Judge Dale S. Fischer agreed with the hospital industry in a March 11 tentative ruling when he shot down the portion of Inglewood’s ordinance banning layoffs and clawbacks by employers, while allowing the rest of the ordinance to remain in effect. He gave the sides time to object to his preliminary decision, though none did.

The California Hospital Association represents more than 400 hospitals and was a key backer of the state’s carefully crafted compromise law, which notably contains none of the employee safeguards included in the Inglewood ordinance.

Spokesperson Jan Emerson-Shea said the association doesn’t know how providers will react once the state law takes effect. “We don’t have any insights,” she said.

“The challenge for any health care organization is figuring out how to pay for the higher wages,” said Joanne Spetz, director of the Philip R. Lee Institute for Health Policy Studies at the University of California-San Francisco. “Since labor costs are the largest part of any health care organization’s costs, it’s hard to figure out how to reduce spending without looking at labor costs.”

Providers can try to increase revenues by bargaining for higher reimbursements from commercial insurers, she said. Public hospitals, nursing homes, and community clinics get most of their money through Medi-Cal, the state’s Medicaid program.

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