Quick Take
Watsonville Community Hospital CEO Stephen Gray will be stepping down from his role in early July, according to hospital leadership. The search for an interim replacement is currently underway.
Watsonville Community Hospital CEO Stephen Gray will step down from his position in early July, according to hospital leadership.
Gray’s last day will be July 10, according to a media release Monday. The governing board of the Pajaro Valley Health Care District, which manages the Watsonville hospital, has already started the process to identify an interim CEO, which will be followed by a search for a permanent CEO in the fall.
Gray took the helm of the hospital in 2023, when the facility became publicly owned after facing bankruptcy in 2022. He previously told Lookout that his priorities were ensuring the hospital becomes financially stable, and that staff and patients were happy.
During his tenure, the hospital has experienced financial highs and lows. In 2024, Measure N, a voter initiative to generate funding for infrastructure needs, passed, which led to the health care district buying the building and the 27-acre property the hospital sits on later that year.
Gray called the milestone the hospital’s final threshold to pass to be “truly owned by the community.” The hospital saved itself nearly $3 million a year in lease and insurance payments. Money from Measure N has also been used for much needed infrastructure improvements and renovations to the hospital’s CT and MRI machines.
The hospital was close to breaking even for 2024, cutting its losses to nearly $100,000. However, that fall, Watsonville Community Hospital fell victim to a cyberattack, impacting its finances because the hospital could not bill patients right away. Staff had to work on a paper system for more than a week. The hospital has only just recovered financially from the incident.
In 2025, the hospital reported a nearly $23 million loss after facing a flurry of challenges, including a decline in the number of patients and changes to state and federal funding. Hospital leadership also began its search last summer for an external partner to help manage the facility’s day-to-day operations.
Gray told Lookout the hospital expects to lose between $4.5 and $10 million over the next three years, largely due to the budget reconciliation bill passed last year, which cut nearly $1 trillion in funding for the Medicaid reimbursements that public hospitals rely on.
Just days before Gray announced his departure, Watsonville Community Hospital received a $10.6 million state grant from a fund aimed at stabilizing hospitals in financial distress. He told Lookout via email that the grant is “a crucial funding bridge during a challenging financial period.”
“This community’s always been challenged, and we always came through collectively together,” said hospital board member Marcus Pimentel. “That being said, I’m super grateful to Steve.”
Pimentel told Lookout Monday afternoon that Gray came on board with the focus of serving the Watsonville community, which he says distinguished him from other candidates seeking the role. He added that Gray was stepping away from his position to prioritize more time with his family.
“He chose to be part of our progress, and we made a lot of progress,” Pimentel said. “Had it not been for federal policy changes and other unintended changes, 2025 would have been a very successful year that we could be proud of.”
The hospital board expects to name an interim CEO at its meeting later this month, in order to have someone ready to work on July 11, Pimentel said. He added the board already has a list of candidates.
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