Quick Take
Watsonville Community Hospital CEO Stephen Gray says the search for a financial partner is ongoing, with the hospital still months away from a decision. He also told Lookout that the hospital is still recovering from the costs of a cyberattack last year.
Watsonville Community Hospital (WCH) continues to search for a financial partner to help with operational costs as it braces for a probable drop in Medicaid and Medi-Cal reimbursements and continues to recover financially from a cyberattack last year.
Added to the hospital’s problems is that fewer patients are getting treated. The hospital has seen a gradual increase in “no-shows” for appointments, according to WCH CEO Stephen Gray, who said the decline is connected to ongoing immigration fears and upcoming changes to Medi-Cal requirements. The hospital continues to do community outreach, he said, to reassure the community that its staff is there to serve the immigrant population.
Earlier this year, the Pajaro Valley Health Care District board of directors – which oversees the hospital and its operations – directed the hospital’s leadership to explore a financial partnership with other health care providers in the region to share its operational costs.
Gray said conversations are ongoing with UC San Francisco, CommonSpirit Health (managers of Santa Cruz’s Dominican Hospital) and Sutter Health, along with other regional health care providers.
The hospital expects to lose between $4.5 and $10 million over the next three years in large part because of the Republican budget reconciliation bill passed in July that cuts nearly $1 trillion in funding for Medicaid reimbursements. The hospital and its board expect to have an outline of next steps by January, Gray said.
However, choosing a financial partner is still months away, Gray said. A partnership would help the hospital with recruiting physicians and expanding services, such as surgeries. And he previously told Lookout that partnering with a larger health care provider would also allow the hospital to negotiate better reimbursement rates with insurance companies and lower prices for supplies – something much more difficult to do as a small, independent hospital.
Beyond the building pressure to find a financial partner, the hospital awaits a decision by the federal Centers for Medicare and Medicaid Services (CMS) on whether the agency will cut its hospital fee program, which provides supplemental payments to hospitals that serve Medicaid and uninsured patients.
The federal government shutdown delayed a decision on the program, Gray said, which now might not come until after the new year. WCH receives about $16 million from the program, which helps offset the losses for taking care of patients insured under Medi-Cal.
“If the hospital fee program revenues for us are the same or lower next year than they were this year, that will be really bad for us,” he said. “If they go up, then that might help us offset some of the losses and some of the challenges that are coming.”
The hospital is continuing to recover from a cyberattack last year, which caused a delay in how it sent bills to and received payments from insurance companies and patients since hospital staff had to work with paper charts for several weeks. Gray said the hospital had to use money from its emergency fund, which was already low when the health care district was established in 2022 when the hospital was purchased from a for-profit private company.
“You … need a ‘rainy day’ fund or some emergency cash, and if you don’t have it, you have to just fund operations with debt,” he said. And when there’s no emergency fund to fall back on, any setback — like the cyberattack — gets magnified over time: “That’s what we’ve been dealing with over the last 12 months.”
Additionally, shortly after the cyber incident, half of the hospitalists – physicians who take care of patients staying at the hospital overnight – quit, said Gray. He added that physicians from Kaiser Permanente, which already partners with the hospital, were able to step in and help with taking care of patients. The hospital hired more physicians to fill the empty roles over the summer, he said.
The hospital also faces several lawsuits as a result of the cyberattack, which compromised personal information of patients and employees. Patients were notified last December that their personal information could have been compromised.
Earlier this year, several employees reported that they’ve become victims of identity theft; hospital officials say those incidents have not been confirmed to be connected to the cyberattack. Gray declined to comment on the pending lawsuits.
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