Residents are scrambling to raise $70 million to buy the city’s only hospital in California out of bankruptcy

Daniel Brothman with Watsonville Community Hospital (LinkedIn, Yelp, iStock)

Residents are scrambling to raise $70 million to save California’s only one-city hospital, which went bankrupt less than two years after a real estate investor bought it in 2019.

Medical Properties Trust, a Birmingham, Alabama investment trust that manages more than $20 billion and is among the nation’s largest hospital real estate owners, helped a group buy Watsonville Community Hospital in struggling, 127, the Wall Street Journal reported. The hospital, a nonprofit for most of its history, has incurred significant debt and changed hands several times over the past two decades.

By using trust money up front, some investors have been able to avoid risking their own capital, meaning MPT and hospitals will have to deal with the consequences if the deal fails.

Halsen Healthcare, led by former Orange County Hospital Director Daniel Brothman, purchased the hospital. Controversy surrounding Brothman and Halsen over company finances and the arrest of a doctor who spoke out led some in the community to push back on the deal. The local non-profit Community Health Trust of Pajaro Valley tried unsuccessfully to block the takeover.

MPT contributed $40 million to the $46 million sale and provided an additional $15 million loan to Halsen to fund operations. Operational problems, including a faulty billing system, contributed to the hospital’s woes and six months later it was in default on rent payments.

When it filed for bankruptcy in December 2020, the hospital had lost more than $32 million in one year, double what it had lost under a previous owner reported in 2019. At the time of bankruptcy, the hospital owed more than $40 million to MPT.

Former local healthcare worker Mimi Hall opposed the Halsen takeover in 2019 and is now partnering with local nonprofits to buy the hospital. “I don’t want to see the slow dissolution of our healthcare system here,” she said.

Hall’s group agreed to buy the hospital out of bankruptcy in exchange for MPT reducing lease payments to $250,000 per month from $353,000. While MPT would lose money on the deal, it would keep the hospital alive because there are no other qualified buyers.

Hall said the biggest problem with the deal was the money. While companies such as local berry seller Driscoll’s have pledged millions of dollars, the majority of capital will have to come from the government.

Santa Cruz County has committed about $5 million for the sale, and the state legislature will fund the rest.

“I don’t know if we’ll be successful,” Hall said. “I believe we will be. I want to believe that we will be.

[WSJ] — Victoria Pruitt

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