Watsonville Community Hospital.
(Kevin Painchaud / Lookout Santa Cruz)
Civic Life

Ailing Watsonville Community Hospital receives $8.3M rescue from state to ease cash crunch

Annual losses of $20 million or more have been trimmed to a $5 million operating loss under the nonprofit health care district that now runs Watsonville Community Hospital, and a no-interest loan from the state’s Distressed Hospital Loan Program will help with financial flexibility as officials work on other measures.

To view a $5 million operating loss as successful might be a stretch, but for the now-nonprofit Watsonville Community Hospital, it’s an exponential improvement for a medical center that, less than two years ago, was bankrupt, losing more than $20 million per year and hurtling toward an increasingly familiar fate for California’s rural hospitals: shutdown.

The herculean effort required across the civic stratum to raise more than $65 million to pull the hospital from bankruptcy and out of private hands — as well as piece together a governing structure to run the facility — is already the stuff of lore. So, yes, after all the community has been through, Marcus Pimentel, treasurer for the hospital’s governing Pajaro Valley Health Care District, views a $5 million annual loss as progress, if not success.

“We knew once we acquired it it would be expensive and difficult to operate,” Pimentel said. “The hospital has been on a better path month after month.”

But a loss still makes for a precarious financial position, especially as the system continues to serve its overwhelmingly government-insured population (Medicare and Medi-Cal) and endure the government’s fractional reimbursement rates. On Thursday, however, the state came through with a major cash injection to help keep the hospital on its upward trajectory.

The Watsonville Community Hospital will receive a no-interest $8.3 million loan from the state’s Distressed Hospital Loan Program, a $300 million effort that sent money to 17 such hospitals throughout the state. After the closure of the rural Madera Community Hospital in December, Merced Assemblymember Esmeralda Soria drafted legislation creating the program. A news release announcing the loans said the program is “the result of an urgent and coordinated effort to bolster distressed hospitals operations and improve regional health care services.”

Pimentel said the money comes at a time when the hospital’s cash flow is “desperately low.” He said the hospital has been operating with enough cash on hand to cover only weeks, not months, of expenses. Despite the current struggles, Pimentel said the hospital’s financial situation is improving and on track.

“It doesn’t necessarily scare us, but it is something that keeps us up at night,” Pimentel said. “We’ve had some really desperate moments of barely making payroll. Our priority is making sure our employees are financially unharmed.”

The hospital’s financial struggles center on two realities: rent and an imbalance of government-insured patients. When the community cobbled together $65 million, it was only enough to purchase the hospital’s assets and pay for attorneys fees related to the deal. The Pajaro Valley Health Care District does not yet own the building or the land underneath it. WCH spokesperson Nancy Gere said the cost to lease the building/land from Alabama-based owner Medical Properties Trust adds up to around $4 million a year. Those costs, combined with the low reimbursement rates for government-insured patients who make up about 80% of the hospital’s patient base, puts WCH on difficult financial footing. (Gere said the hospital is reimbursed only about 14 cents for every dollar spent caring for these patients.) However, there have been recent discussions about a possible 2024 bond aimed at raising enough money to buy the building and land outright.

Gere said the $8.3 million offers a cushion for payroll and allows the hospital some financial flexibility to finally invest in developing a cardiac catheterization lab, a specialized area of the hospital that will focus on tests and diagnosis of cardiovascular diseases. Gere said the lab will also help bring in more money for the hospital, and plays an important role in the long-term plan for solvency.

Although he wouldn’t directly correlate the two, state Sen. John Laird, who represents Santa Cruz and Monterey counties, said WCH’s ability to secure the funding was not hurt by the fact that new Assembly Speaker Robert Rivas, now the second-most-powerful elected official in Sacramento behind the governor, represents WCH’s region.

“Watsonville has been a textbook case in how to deal with a [financial] situation like this,” Laird said. “They really mobilized the community and are on a path to real sustainability.”

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