Health Chains May Keep 3 Bankrupt California Hospitals Alive in Health Care Starved Regions

Hospitals have already asked for $125 million in emergency state loans.

PUBLISHED AUG 14, 2023 1:34 P.M.
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The fate of three community hospitals may lie in the hands of California's largest health care chains.

The fate of three community hospitals may lie in the hands of California's largest health care chains.   12019 / Pixabay   Pixabay License

BY ANA B. IBARRA, CalMatters

Three California hospitals that declared bankruptcy earlier this year are hashing out deals that could bring back or save much-needed health care services for their communities. 

Defunct Madera Community Hospital in the San Joaquin Valley, cash-strapped Beverly Community Hospital east of Los Angeles and Hazel Hawkins Memorial Hospital in rural San Benito County are trying to clinch lifelines in deals with health chains that have a reputation for revitalizing distressed hospitals.  

The proposals are far from the finish line, but they present a glimpse of hope for residents who face longer journeys to emergency rooms and increased risk when local medical centers close. 

The proposals are far from the finish line, but they present a glimpse of hope for residents who face longer journeys to emergency rooms and increased risk when local medical centers close. Two of the three—Madera Community and Hazel Hawkins— are the only hospitals in their counties.

“This is really great news. There will be a number of stages, and the first stage is for (partnering chains) to indicate their interest,” said state Sen. Anna Caballero, a Democrat whose district includes Madera and San Benito counties. “Now there’s a lot of work that has to happen in a very quick period of time.”

Madera Community, which shut down at the start of the year, is trying to secure a management agreement with Adventist Health, the seventh largest health system in the state. As proposed, Adventist would take over operations of the closed hospital and its affiliated rural clinics. If all goes according to plan, Madera Community could reopen in six to nine months.

Adventist Health is also a candidate to buy Beverly Community Hospital in the city of Montebello outside of L.A. That hospital has to secure a deal ahead of a key bankruptcy court deadline this week.  

Meanwhile, Hazel Hawkins Memorial Hospital in Hollister recently announced a proposed “lease to own” partnership with American Advanced Management, a company that operates six other California hospitals. 

The three are among a handful of hospitals that in the past year or so publicly announced their financial troubles. The state responded this spring with a $300 million interest-free loan program that can provide emergency funds to hospitals. The state is expected to distribute the money later this month. The three bankrupt hospitals have already asked for $125 million.

Saving Madera Community Hospital

The proposed partnership in Madera is largely dependent on Madera Community securing an $80 million loan from the state’s Distressed Hospital Loan Program

Karen Paolinelli, chief executive of Madera Community Hospital, told CalMatters that while she recognizes the requested amount is substantial, her hospital is the only one that is currently closed. “It is very expensive to reopen a hospital,” she said. “We don’t want to just reopen, we want to be sustainable; we don’t want to be back here in a couple of years.”

This month will be key for the hospital. Beverly is losing about $5 million a month and projects to run out of cash by September, court documents show. 

Madera is also awaiting another $5 million in state funding that was granted in last year’s budget but placed on hold when the hospital closed. 

In a letter outlining its terms, Adventist Health said it will require at least $55 million to fund staffing, supplies, maintenance, training and services in the first year, and another $30 million in the second year. Madera Community Hospital would have to pay Adventist a management fee. 

In exchange, the health system would provide its management expertise and personnel to support Madera’s reopening. According to the proposal, Adventist would have the option to purchase the hospital after three years.

Paolinelli said a management agreement is the hospital’s best bet at reopening. It has not found a buyer for a straightforward sale. Paolinelli said she has not discussed with Adventist whether she will stay on as head of the hospital.

Adventist Health has experience reopening closed hospitals. For example, five years ago Adventist reopened and rebranded what was once known as Tulare Regional Medical Center. That hospital is now Adventist Health Tulare.

Obstacles to Beverly Hospital’s Sale 

Beverly Community, a 202-bed hospital in Montebello east of Los Angeles, filed for bankruptcy in April. It suspended a number of services by June, including maternity, pediatric and outpatient radiology. 

The Attorney General’s office last month announced the conditional approval of the hospital’s sale to a Glendale-based chain called American Healthcare Systems. That proposed deal is quickly dissolving.

According to bankruptcy court documents, bondholders raised concerns about American Healthcare Systems’ ability to support the hospital financially. Recent filings show that Beverly Hospital is now exploring an alternative transaction with Adventist Health. 

“Given Beverly Hospital’s critically low cash position and as of now uncertainty about state funding (from loan program), the bid from Adventist Health represents Beverly’s greatest chance of continuing to serve the community it has served for the past 75 years,” said Justin Bernbrock, a lawyer for Beverly Hospital. 

This month will be key for the hospital. Beverly is losing about $5 million a month and projects to run out of cash by September, court documents show. The hospital applied for $35 million from the Distressed Hospital Loan Program. 

On Thursday, the hospital is due to present a deal proposal to a bankruptcy court judge. 

Hazel Hawkins Takes First Step With Potential Partner 

Twenty-five bed Hazel Hawkins Memorial Hospital is San Benito County’s sole hospital. After months of looking for potential partners, management at Hazel Hawkins recently announced that it received a “letter of intent” from Modesto-based American Advanced Management. 

The small chain is a private, for-profit company that operates six other hospitals in the state. It’s proposing to lease Hazel Hawkins for five to 10 years before having the option to purchase the hospital.

American Advanced Management has taken over a handful of distressed or closed hospitals in rural parts of the state, according to its website. These include Coalinga Regional Medical Center, Glenn Medical Center and Colusa Medical Center. 

Hazel Hawkins is part of a publicly governed health care district, and the deal would need to be approved by the district’s board and by county voters.  

Hospital leaders sought a partner that, among other things, “possessed the resources to guarantee a continuum of care delivery for the future needs of our county,” Mary Casillas, interim CEO at Hazel Hawkins, said in a statement. 

Hazel Hawkins declared a fiscal crisis late last year, and in May filed for Chapter 9 bankruptcy, but has continued to provide services. Last month, the hospital applied for $10 million from the state’s Distressed Hospital Loan program. If the hospital is approved for this loan, it would be in addition to a separate $3 million loan it received from the state in January. 

In its May bankruptcy filings, the hospital said it expected to run out of cash in November 2024.  At least one group, the California Nurses Association, has questioned whether the hospital filed for bankruptcy prematurely. The nurses union said it has asked the hospital to explain how it calculates its projections but has not received answers.

According to its financial statements, the hospital reported earnings of just over $2 million in calendar year 2022.

The union represents about 120 nurses at Hazel Hawkins. Filing for bankruptcy, according to the union, has prompted nurses to leave for jobs in other hospitals, leaving staff there shorthanded. 

The article titled "3 California hospitals declared bankruptcy this year. Health chains could keep them alive" appeared first at CalMatters here:

CalMatters is a nonprofit, nonpartisan media venture explaining California policies and politics.

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