$16 million in 90 days: What’s needed to close public purchase of Watsonville Community Hospital

Watsonville Community Hospital.
(Hillary Ojeda / Lookout Santa Cruz)

Watsonville Community Hospital — which declared bankruptcy in December — is at risk of closure. To save the hospital, a local nonprofit is scrambling to raise money to purchase it. With more than $25 million raised so far and a commitment of $20 million from the state, the Pajaro Valley Healthcare District Project is making a wide appeal to help bring in the final $16 million needed by Aug. 31. 

An Aug. 31 deadline is bearing down on the newly formed Pajaro Valley Healthcare District Project. The effort — a coalition of Santa Cruz County nonprofits and government agencies — must still raise $16 million to purchase Watsonville Community Hospital.

“Anything and everything is open. No one solution is the solution,” project board member DeAndre James told Lookout recently. “It’s multiple solutions to $16 million, and we just have to figure out how to get there.”

The hospital has spent much of the past year in limbo. Its for-profit management finally declared bankruptcy in December, after years of much executive turnover. As the hospital’s fate spun toward bankruptcy, community leaders moved into action to “save the hospital,” the second major hospital facility in the county, after Santa Cruz’s Dominican Hospital, and the only one serving south Santa Cruz County, north Monterey County and parts of San Benito County.

“There are two emergency rooms in this county, one being at Dominican Hospital and one being [at Watsonville]. So if [Watsonville] hospital closes, and that emergency department closes, you have one emergency department for over 200,000 people,” James said. “Not a good idea.”

Earlier this year, a combination of state and local efforts convinced a San Jose-based bankruptcy court to sell the hospital to the fledgling health care district, one formed by unusually quick agreement in the California legislature. That action bought community leaders time, but the clock now ticks toward the deadline, a little more than three months away. The court set a purchase price of $63 million. With over $46 million committed so far, about $16 million remains to be raised.

That $46 million includes about $26 million raised through donations from local governments, the Community Health Trust of Pajaro Valley, the Central California Alliance for Health, and a range of individual donors and organizations.

In addition, the nonprofit has a commitment of $20 million from the state. State Sen. John Laird and Assemblymember Robert Rivas, whose district includes the Pajaro and Salinas valleys, are optimistic about the funding. Still, the fund isn’t guaranteed until the budget process is finalized.

“Nothing is certain until the budget is approved, and the governor signs and that’s the issue,” said Laird. “I’m feeling really good about it. But nothing’s done until it’s done when you’re doing the budget.”

He added that legislators are at a crucial point right now because they have to deliver a budget to the governor by June 15. If the state funding — and the $16 million — come through, the nonprofit will have the approximately $63 million it needs to purchase the hospital and to operate through the end of the year.

James said the point is to show the court it will be successful coming out of the bankruptcy.

“So the idea is to get to $16 million so we can show the court that we have a pathway for success,” he said. “If you don’t get that, then you’re at the mercy of the court.”

The health care district project is made up of leaders from the county of Santa Cruz, the city of Watsonville, the Community Health Trust of Pajaro Valley and Salud Para La Gente. As CEO of the health trust, James represents the nonprofit health care foundation, which offers a variety of health and wellness services to Pajaro Valley residents.

Those agencies have contributed some of the largest donations to the purchase of the hospital, including $5.5 million from the county of Santa Cruz and $6 million from the health trust. The health trust was formed when Watsonville Community Hospital was sold in 1998, and continues to receive funding from grants, donations and the investment market.

What happens if the district can’t raise the $16 million? Bankruptcy court judge Mary Elaine Hammond would then decide how to proceed. Clearly, with so much government and public interest in taking over and running the hospital, the district should have the inside track on securing the transaction — if it has the funding, or close to it.

James said there was a list of individuals who were interested in purchasing the hospital, but the bankruptcy court ruled the nonprofit the only qualified bidder.

“We’re the only qualified bidder. I think there’s others that would come in and we’d be right back in the same situation,” he said. “Or, something else. Who knows what it would be? So I have no idea, but those ideas and those thoughts are pretty scary.”

It’s not something James wants to imagine.

Toward the $16 million fundraising goal, the project has obtained these commitments:

  • Stanford Children’s Hospital: $1 million-plus.
  • Blue Shield of California: $1 million.
  • Chinese Community Association of Watsonville: $50,000.

Driscoll’s, a major South County employer and community presence, has put forward a $1.75 million matching gift drive through May 31. James said $400,000 is still needed to meet Driscoll’s match.

Still, the effort is closer to the beginning than to the end of the $16 million goal.

“We’ve had a lot of success but it’s not done,” James said. “We need anyone and everyone’s help. This is not just a South County or Watsonville issue. This is a whole Santa Cruz County issue.”

Companies across the county should be concerned, he said, because they have workers and their families who live in Watsonville.

“That employee will be impacted, and it will impact your business,” he said. “It is an issue for everyone.”

Local entities form around purchase

The Pajaro Valley Health Care District Project formed in 2021, with the mission of purchasing the hospital; the nonprofit’s members were the leaders of each of the entities that make up the group. If the purchase is finalized, the board that will run Watsonville Community Hospital will be the Pajaro Health Care District.

On Feb. 4, Gov. Gavin Newsom signed legislation creating that district. Laird gathered widespread support to push for the legislation as the way forward to save the hospital.

“Doing a bill in 19 days doesn’t usually happen,” said Laird. “It speaks to why there was urgency in doing the bill and it speaks to the credibility of this offer.”

The project and its supporters say local ownership and accountability are what is needed to keep Watsonville Community Hospital open long term.

In March, the Santa Cruz County Board of Supervisors selected the first members to serve on the Pajaro Valley Health Care District board. Members Marcus Pimentel, Dr. Katherine Gabriel-Cox, Jasmine Nájera, John Friel and Tony Nuñez will make decisions about the hospital, including managing the acquisition and operations.

The next members will be selected in elections within the next five years.

Nuñez, managing editor of the Pajaronian and Press Banner newspapers, recently wrote about his new role and how he aims to avoid conflicts of interest. In an opinion column, he wrote that editor-in-chief Steve Palopoli and managing editor Adam Joseph will manage coverage of the health care district and he won’t cover or edit stories related to it.

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

He also wrote about why he feels he is a good fit for the board.

“A recurring concern I have heard from our readers about the purchase of the hospital is that the process has not been as transparent as they would’ve liked,” he wrote in an opinion column. “As someone who believes that strong public engagement and accountability are essential to the success of an organization, I hope to improve the transparency of the ongoing purchasing process.

Nájera is a licensed clinical social worker with 20 years of experience working for the Santa Cruz County Health Services Agency while Gabriel-Cox is the OB/GYN chief of Watsonville Community Hospital and with Salud Para La Gente.

Pimentel is budget manager for Santa Cruz County and a board member of Salud Para La Gente. Friel is a former CEO of Watsonville Community Hospital and has overseen California health care district hospitals.

Financial modeling for the hospital

Given the hospital’s poor track record of financial management, the financial modeling of how it would operate under new ownership has become a top priority.

Leading that modeling is consultant Cecilia Montalvo. She said during a May 5 meeting that financial modeling for the hospital isn’t going to be a fixed document but an evolving tool.

“We believe financial turnaround is possible, but it is going to take a lot of work,” she said. “We’ve identified some initiatives that could bring the hospital to a near break-even cash flow in the very first year that the district takes over. But there is much more to be done to achieve a positive operating margin.”

That work includes improving insurance contracts and building patient volume.

“The most positive way to make the hospital more financially successful is to build volume. The only way to do that is through your partnership with physicians and for some additional recruitment,” Montalvo said. “The hospital needs more physicians, it’s lacking in certain specialties. Physicians, for the most part, other than the emergency room, bring patients into hospitals. They don’t generally walk in on their own.”

For more information on the Pajaro Valley Health Care District and to donate, click here.

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