Watsonville Community Hospital may close maternity services to avoid shutting down

➤ Para leer el artículo en español, haga clic aquí.

Watsonville Community Hospital leaders say they’re facing difficult decisions in the next few weeks that will determine whether the struggling facility can remain open long term.

Between now and April 1, “something significant” is going to need to happen or the hospital will not be able to continue operating, according to interim Watsonville Community Hospital CEO Tim Moran. 

Moran told Lookout that the Pajaro Valley Health Care District board of directors, which oversees the hospital, had tasked staff to put together an analysis of the facility’s service lines and how they operate. At the board’s Sept. 22 meeting, hospital staff outlined several options the board could take to prevent a full closure of the facility. 

Among the options presented to the board: permanently shutter the neonatal intensive care nursery (NICU) — hospital leadership temporarily closed the unit in July due to staffing issues — and its women’s and children’s services, including labor and delivery; reduce the services in both areas; or restructure staffing in the intensive care unit. 

“I didn’t come to the board and say, ‘I recommend you close women’s services.’ I’ve never done that,” said Moran. “What we’ve done is said here’s how we are … and the service line that sticks out in terms of operating losses is labor and delivery.” 

Why are labor and delivery and the NICU potentially on the chopping block?

As of publication time, no formal proposals to close either unit have been brought forward to the hospital board. 

However, Moran and hospital board chair Tony Nuñez have told Lookout that a decision regarding the future of Watsonville Community Hospital could be made at its next board meeting, scheduled for Oct. 28. 

Together, the two units lose roughly $10 million a year, or nearly $27,000 a day, Moran said. Other services, including the surgery and emergency departments, generate more revenue than they cost to operate.

According to hospital financial reports, the emergency department generates nearly $40,000 a day and surgery brings roughly $30,000 per day in revenue. Moran told Lookout in August that one of his priorities as interim CEO is to increase the number of surgeons at the hospital. 

“It helps us,” Moran said of growing the surgery department. “The operating room service contributes a profit margin to the hospital. The more that grows, the smaller that cash loss becomes.” 

The NICU and labor and delivery departments are very labor-intensive, according to Moran. There are roughly 58 nurses working in both departments, in addition to contracts with nonprofit clinic Salud Para la Gente and Stanford University’s Lucile Packard Children’s Hospital to provide obstetrician-gynecologists, midwives and pediatricians. 

Moran did not share how much the hospital spends on each contract with its partners. He added that the hospital pays nearly $4,000 a day to have a nurse anesthetist in the labor and delivery unit. 

Watsonville Community Hospital’s emergency department sees nearly 35,000 patients a year, Moran said, and it’s “super busy and profitable.” The revenues generated from services in the emergency department are higher than the expenses incurred from paying doctors and nurses who work there, he said. 

“That money is available for paying bills elsewhere,” Moran said. 

At its next meeting, the hospital board will most likely decide how to proceed, said Moran. The board could decide to keep things as they are and hope that something “financially significant” happens. But that approach carries a risk, he said. 

The risk at hand is running out of money and ending up in a situation where the hospital would have to declare bankruptcy again, Moran said. “The board doesn’t want that. Nobody wants that,” he said. 

In 2021, the hospital declared bankruptcy under previous ownership, and also reported more than $20 million in annual losses for fiscal years 2021 and 2022. Local government agencies and community organizations worked to raise money and create a healthcare district with the help of state Sen. John Laird to buy the hospital out of bankruptcy in September 2022. 

The hospital currently has only eight days of cash on hand, which is far below the average for hospitals, according to Nuñez. Former hospital leadership previously told Lookout that the facility didn’t have much cash on hand when the healthcare district was established in 2022. 

But closing the labor and delivery unit would mean ending services that the hospital has long provided throughout the Pajaro Valley. 

Moran said the hospital’s executive team put a lot of time into anticipating whether the board ends up deciding to close labor and delivery. “Where do these babies go? Where are these babies going to be delivered?” he said. 

Currently, the hospital has transfer agreements with all hospitals in the region, including Santa Cruz’s Dominican Hospital, said Moran. There’s been a lot of planning already, and Moran told Lookout that Dominican leadership is ready to accommodate more births and have the capacity to handle them. 

A Dominican spokesperson said in a statement to Lookout that the hospital is “fully committed to ensuring a seamless transition for the expectant mothers and families of Santa Cruz County.” The spokesperson added that the facility is working with Watsonville Community Hospital leadership to ensure that the community has uninterrupted access to labor, delivery and neonatal care. 

Expectant mothers are already saying they’re opting to give birth at Dominican Hospital following the temporary closure of Watsonville’s NICU in July due to staffing issues. The unit remained closed as of publication time. 

Roughly 31% of babies born in Santa Cruz County are delivered at Watsonville Community Hospital, just ahead of Dominican’s 29%. A large portion of the hospital’s birthing mothers are Latina, Spanish-speaking, with low-to-moderate incomes, primarily based in Watsonville and the Pajaro Valley. 

The average birth rate is declining, said Moran. For 2026, the hospital estimates there will be between 750 to 800 births, averaging two to three deliveries per day. 

If the board ultimately decides to close both the NICU and labor and delivery, Moran said the hospital would have to give the state a 120-day notice. Within those four months, the units would remain open for mothers while the facility notifies local government agencies and other healthcare facilities in the region, he said. There would also be public hearings scheduled during that time period. 

Additional challenges to Watsonville Community Hospital’s money issues

For nearly two years, Watsonville Community Hospital has experienced a flurry of challenges, including a decline in patients, falling victim to a cyberattack in late 2024 and ongoing changes in state and federal funding. 

The facility reported a nearly $23 million loss in 2025 and generated $137 million in revenue, $35 million less than hospital leadership had anticipated. 

Moran said on average the hospital is losing $85,000 a day in revenue due to its diverse payer mix (patients with Medi-Cal, Medicare or private insurance). Nearly 80% of patients at Watsonville Community Hospital are covered by either Medi-Cal or Medicare. 

Watsonville Community Hospital has been dependent on government programs — the quality assurance fee (QAF) and intergovernmental programs — that provide additional funding for facilities that have a higher burden of patients covered by government health insurance.

Funding from both programs has been delayed for quite some time. Earlier this year, former hospital CEO Stephen Gray told Lookout that money from the quality assurance fee had been delayed, despite the hospital being told it was going to receive it. 

Moran said that an intergovernmental program, if approved, would help the hospital with $2 million. However, the state hasn’t been authorized to release that money by the federal Centers for Medicare and Medicaid Services (CMS). 

Money from the two programs would help reduce the hospital’s operating costs, but still wouldn’t eliminate the financial shortfall, Moran said. 

“It helps us to keep our head above water,” he said. “But, it doesn’t provide us with enough dollars to pay all of our bills that we experience every month.” 

Even if those funds are approved by the federal government, Moran said hospital leadership would not know when the money would become available to the facility. 

Last summer, the hospital also began its search for an external partner to help manage the facility’s day-to-day operations. Nuñez previously told Lookout that hospital leadership believed that they were “very close” to presenting a formal proposal, but ultimately the match did not work out. 

What happens next?

Watsonville Community Hospital will be hosting a town hall this Thursday, Oct. 22, in the community room in Watsonville’s city hall, where residents can hear from hospital leaders about the facility’s financial condition. 

Nuñez said the hospital will continue to be transparent with its financial status. One of the reasons why the board held multiple meetings in September was to explain to the community, which is heavily invested in the hospital, where the facility is financially and what challenges it is facing. 

“We’ll continue to push out information for folks to understand exactly where we’re at in the process,” Nuñez said.

Have something to say? Lookout welcomes letters to the editor, within our policies, from readers. Guidelines here.