Bankrupt public hospital in California inks deal with private operator

A bankrupt public hospital in California is near a deal with a private operator that officials hope can keep the facility open.

Hazel Hawkins Memorial Hospital is the only acute-care hospital serving the 67,000 residents of San Benito County.

Its managers are pinning their hopes on American Advanced Management, a small Modesto, California-based hospital chain.

AAM, which operates six hospitals and other medical facilities across the state, has written a letter of intent to operate Hazel Hawkins.

The agreement represents a first step toward a strategic partnership, and could result in AAM leasing the Hollister, California-based hospital’s assets for several years prior to purchasing them outright, according to a Thursday press release from Hazel Hawkins.

“Rural communities across the state, and the nation, are at high risk of losing access to quality healthcare,” said AAM President Gupreet Singh, MD. “It’s why we have focused on this model for AAM and why we feel we are a great fit for residents of San Benito County.”

The letter of intent is the first step in a detailed and public process, according to the release. Any eventual agreement must be approved by the San Benito Health Care District, the public entity that runs the hospital.

“The LOI comes after months of effort by the district and HHMH to stabilize its finances,” the release said. “While those efforts have proven fruitful, finding a partner or buyer was the only way to ensure that San Benito County residents have access to quality healthcare services for the long term.”

The San Benito Health Care District board voted in May to file Chapter 9 bankruptcy.

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 bonds its AA-minus rating with a stable outlook partly based on their being 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.

Hollister, the seat of San Benito County, is about 48 miles southeast of San Jose. That location helped drive the county’s population up more than 16% between 2010 and 2020, but it also means the local hospital faces competition from bigger operators nearby.

State lawmakers approved a $150 million low-interest loan fund to aid struggling not-for-profit hospitals and government hospitals in May.