Quick Take
Watsonville Community Hospital leadership says it's closer to finding a potential health care partner to help manage the facility’s day-to-day operations, and hopes to bring options forward in April.
Watsonville Community Hospital leaders say they are closer to finding a potential health care partner to help manage the facility’s day-to-day operations, and hope to bring options forward in April.
“Although we’ve had very good discussions with potential partners, I remain optimistic that we will have something to come before the board for review and input,” hospital board chairman Tony Nuñez said Wednesday evening. “We don’t have something here tonight, but we are continuing to get closer to ensuring that we follow through on the vision that the board had.”
The search for an external partner began last summer as the hospital started to brace for a severe drop in revenue, largely due to the Republican budget reconciliation bill passed last year, which cut nearly $1 trillion in funding for Medicaid reimbursements that public hospitals rely on.
The cuts, according to hospital CEO Stephen Gray, are creating massive funding gaps for hospitals that serve patients insured by Medicaid and are already operating on thin financial margins, such as Watsonville Community Hospital.
Establishing a partnership with a large health care provider could also help improve the hospital’s balance sheet by allowing it to negotiate better rates with insurance companies and better prices for supplies, things that are harder to do as a small independent hospital, according to Gray.
Nuñez said he’s hopeful to bring potential options forward to the rest of the Pajaro Valley Health Care District board “sometime next month, if not, even sooner.” He added that hospital leadership has been working with Zephyr, a consulting firm, to figure out better strategies to connect with potential partners.
“I really wish we were moving forward sooner, but everything goes slower than we want,” said board member Alexandra Friel. “I am coming here this month feeling very optimistic, and I think that we are on a good path. So, I’m hoping to share that path in April.”
If the hospital were to close, Santa Cruz County would be left with only one hospital – Dominican in Santa Cruz – and residents in the Pajaro Valley would have to travel farther for health care.
Nuñez previously told Lookout that hospital leadership had received proposals from health care providers in the region, such as Salud Para La Gente, Sutter Health, Kaiser Permanente and CommonSpirit Health, which manages Santa Cruz’s Dominican Hospital. Watsonville Community Hospital has also had conversations with UC San Francisco.
As the search for an external partner continues, Watsonville Community Hospital continues to see slight improvements in its finances throughout the first few months of 2026. In January, the hospital reported a nearly $23 million loss in 2025, generating $137 million in revenue for the year. Gray told Lookout the revenue last year was about $35 million less than anticipated.
“In the month of February, we actually had a favorable bottom line,” said Julie Peterson, the hospital’s chief financial officer. “We made almost $250,000.”
Peterson said the first two months of the year have shown that the net operating revenue is getting closer to aligning with the budget. She said the hospital’s decision to be more conservative with its budget projections so far seems to be paying off.
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