California hospital board takes step toward Chapter 9 bankruptcy
3 min read
The board of a public hospital in California has voted to declare a fiscal emergency, a move that would allow it to declare Chapter 9 bankruptcy.
The San Benito Health Care District board of directors, which oversees the 25-bed Hazel Hawkins Memorial Hospital in Hollister, approved the resolution in a 3-0 vote Friday, said Frankie Gallagher, the hospital’s associate director of marketing, adding that the other two board members were out of town.
The board said the district will not be able to pay its obligations within the next 60 days and determined it is in the best interest of the district, its patients, creditors, citizens, taxpayers and employees to file the petition.
“A bankruptcy filing would allow the district to optimally restructure its finances,” the district said in a news release. “Hazel Hawkins Memorial Hospital management and board has taken significant steps to reduce expenses over the past years, but record inflation, shrinking reimbursements, and the process of recuperating post-COVID have restricted cash flow, a situation that could jeopardize patient safety if not addressed.”
The board delegated to Mark Robinson, chief financial officer, the authority to execute and file the Chapter 9 petition with the U.S. Bankruptcy Court for the Northern District of California by Dec. 31, and to continue negotiations with creditors, according to an article in BenitoLink, a local online news website.
Robinson told the board that Medicare had determined the hospital was overpaid $5.2 million and would have to pay it back over the next year. Medicare also informed the hospital it would be reducing payments for both in- and out-patient care for another $5.2 million, according to the website.
The board, which fired CEO Steve Hannah less than a month ago, determined the district is insolvent on a cash flow basis in the current fiscal year, and will be insolvent in the following fiscal year, as well, BenitoLink reported.
Mary Casillas, the chief operating officer, was appointed as interim CEO.
Board members declined comment through Gallagher as to whether the decision would put bond payments at risk.
The directors have no plans to close the hospital, curtail services or layoff staff, but approved the resolution to give “representatives the flexibility to file bankruptcy, if needed,” to enable it to “restructure its finances to get the best guarantee continuity of care for our community and keep vital health services intact,” according to a FAQ sheet that was part of board documents for the special meeting.
The district had $38 million in outstanding bond debt, according to its audited financial statement for the fiscal year ending June 30, 2021.
That includes $25.17 million of general obligation refunding bonds approved by voters in 2005 and repaid through a dedicated tax levy. The 2014 GO refunding was placed directly with TPB Investments, a wholly owned subsidiary of Western Alliance Bank, according to documents filed with the California Debt and Investment Advisory Commission.
The remaining $12.75 million of insured refunding revenue bonds were issued in January 2021 to refund 2013 bonds. S&P Global Ratings assigned the revenue bondsits AA-minus rating with a stable outlook partly based on theirbeing insured by the California Office of Statewide Health Planning and Development, according to the offering documents.
The revenue bond debt is”fully and unconditionally guaranteed by the State of California,” the official statement says.
Hazel Hawkins is the only acute-care hospital serving the 62,000 residents of San Benito County. County seat Hollister is about 48 miles southeast of San Jose.
