Quick Take
Watsonville Community Hospital reported losses of nearly $23 million in 2025 following a challenging year of fewer patient visits and changes to federal and state funding. Hospital leadership expects to have an update by March on its search for a private partner to help shore up its finances.
Watsonville Community Hospital is reporting a nearly $23 million loss in 2025, following a flurry of challenges including a decline in the number of patients and changes to state and federal funding.
“2025 has been a really challenging time for our community for a ton of different reasons,” said hospital board chair Tony Nuñez. “Everything that has happened around us and to us has made it a difficult time for the hospital as well.”
WATSONVILLE COMMUNITY HOSPITAL: Read Lookout’s news and Community Voices opinion coverage
The hospital generated $137 million in revenue in 2025, which is about $35 million less than anticipated, CEO Stephen Gray said. He added that last year, the hospital was able to save $9 million in its expense budget by cutting supplies and more efficient staffing, but those savings still weren’t enough to make up for revenue loss.
In total, the Pajaro Valley Health Care District, which includes the hospital and its clinics, reported around $24 million in financial losses last year, said Nuñez. The majority of the losses comes from the hospital, with an additional $1 million coming from the public clinics the health district also operates, he said.
Gray previously told Lookout the hospital expects to lose between $4.5 and $10 million over the next three years, largely due to the Republican budget reconciliation bill passed last year, which cut nearly $1 trillion in funding for the Medicaid reimbursements that public hospitals rely on.
Hospital leadership will continue its search for potential partnerships with regional health care providers, such as UC San Francisco, CommonSpirit Health (manager of Santa Cruz’s Dominican Hospital) and Sutter Health, to help manage the hospital’s day-to-day operations. Gray promised an update on those conversations by the end of March.
Gray said the hospital is also struggling with a drop in patients seeking care there, so it’s encouraging more residents and primary care physicians to use services provided by the public hospital and the Pajaro Valley Health Care District. “We have the capacity to take care of more people,” he said.
The health care district recently recruited new general and orthopedic surgeons to its network, and the hospital will get new MRI and CT machines in the next few months, Gray said.
The hospital is also getting less funding from the federal Centers for Medicare and Medicaid Services (CMS). Last year’s “quality assurance fee,” which provides supplemental payments to hospitals that serve Medicaid and uninsured patients, was delayed indefinitely.
The hospital is also working to get a federal grant through the Rural Health Transformation Program, which helps rural health facilities.
Both Gray and Nuñez said they feel increasing pressure to find a financial partner and other solutions to the hospital’s financial challenges. “The path to breaking even or making some money is very challenging on our own, and so that financial imperative to do things differently is definitely on the board and myself’s mind,” Gray said.
Nuñez added that the hospital board has talked about next steps — likely making painful cuts — if the search for a financial partner doesn’t work out. “We have to be good stewards of our hospital,” he said. “We have to make sure that we’re not back to where we were in 2021,” when the hospital flirted with bankruptcy and closure.
In early January, Nuñez, Gray and the rest of the hospital board faced a room full of nurses demanding clarity on the state of the hospital’s intensive care unit after talks of its possible closure spread among staff. Hospital leadership denied any plans to close the department, and added that such a decision could take months.
Gray said the hospital will continue to be transparent with its staff about any updates to its financial status and on solutions, such as ongoing community outreach. “The more I can be transparent and communicate with our staff and our physicians, the better,” he said.
He added that Watsonville Community Hospital is not alone in its financial struggles, and other independent hospitals and health care districts are also struggling. “We are taking solace in the fact that it’s not just us, but also knowing that we’ve got to make sure that we come together as a community to make it work,” Gray said.
Have something to say? Lookout welcomes letters to the editor, within our policies, from readers. Guidelines here.