The board of a California public hospital has voted to declare a tax emergency, a move that would allow it to file for 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 on Friday, said Frankie Gallagher, deputy director. of hospital marketing, adding that the other two board members were out of town.
The board said the district would not be able to pay its obligations within the next 60 days and determined it was in the best interests of the district, its patients, creditors, citizens, ratepayers 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. “The Hazel Hawkins Memorial Hospital management and board have taken significant steps to reduce expenses over the past several years, but record inflation, shrinking reimbursements and the post-COVID recovery process have limited cash flow, a situation that could compromise patient safety if left unaddressed.”
The Board has delegated to Mark Robinson, Chief Financial Officer, the authority to execute and file the Chapter 9 petition in the U.S. Bankruptcy Court for the Northern District of California by December 31 and to pursue the negotiations with creditors, according to an article by BenitoLink, an online local news site.
Robinson told the board that Medicare determined the hospital had overpaid $5.2 million and would have to repay it over the next year. Medicare also told the hospital it would cut payments for inpatient and outpatient care by an additional $5.2 million, according to the website.
The board, which fired CEO Steve Hannah less than a month ago, determined the district was insolvent based on cash flow in the current fiscal year and would be also in the following fiscal year, BenitoLink reported.
Mary Casillas, chief operating officer, has been named interim CEO.
Board members declined to comment via Gallagher on whether the decision would jeopardize bond payments.
The directors do not intend to close the hospital, reduce services or lay off staff, but approved the resolution to give “representatives the flexibility to file for bankruptcy, if necessary”, to allow him to “restructure its finances to obtain the best guarantee of continuity of care”. for our community and keep vital health services intact,” according to an FAQ sheet that was part of the board documents for the special meeting.
The district had $38 million in outstanding bond debt, according to its audited financial statements for the year ending June 30, 2021.
This includes $25.17 million in general reimbursement bonds approved by voters in 2005 and reimbursed through a dedicated tax levy. The 2014 GO refund was made directly to TPB Investments, a wholly owned subsidiary of Western Alliance Bank, according to filings with the California Debt and Investment Advisory Commission.
The remaining $12.75 million of redemption-assured revenue bonds were issued in January 2021 to redeem the 2013 bonds. S&P Global Ratings assigned the revenue bonds its AA-minus rating with a stable outlook in part on the basis of their insurance by the California Office of Statewide Health Planning and Development, according to the offering documents.
The bond debt is “fully and unconditionally guaranteed by the State of California,” the official statement said.
Hazel Hawkins is the only acute care hospital serving the 62,000 residents of San Benito County. The Hollister County seat is approximately 48 miles southeast of San Jose.