A bankruptcy petition by Hazel Hawkins Memorial Hospital, the only hospital in San Benito County, California, has been dismissed by a judge who declared the facility is not eligible for such protection.

HHMH, which is managed by the San Benito Health Care District (SBHCD) public agency, declared a fiscal emergency in November 2022 and filed for Chapter 9 bankruptcy in May 2023, saying that it was seeking to restructure its finances after finding that it would be low on cash starting in early 2024 and run out by September.

But Judge Stephen Johnson told the hospital this past week that while he acknowledges that “the district has faced an enormous financial challenge in the past several years,” it failed to prove that the hospital is insolvent and unable to pay its debt, a requirement for maintaining bankruptcy status, reported local news outlet BenitoLink.

“This ruling is not a judgment on the hospital’s current solvency, and we are not out of the woods on our financial crisis,” said HHMH in a statement.

HHMH is a full-service, public agency hospital offering hundreds of health services across multiple locations, including top-tier specialists, a modern emergency department, and a state-of-the-art women’s center.

In court documents, SBHCD said that despite saying that it took “significant” steps to reduce its expenses, inflation, shrinking reimbursements, and COVID-19 recovery continued to sustain the hospital’s cash flow problem. It also said that HHMH was unable to expand services to compete with larger Bay Area healthcare providers, forcing the district to rely on one-off payments, government loans, and payment advances to keep net operating revenue stabilized.

The healthcare unions objected to the bankruptcy filing, saying that the facility had a positive net working capital and was “more than” able to pay its current debts over the next 12 months, leading to the current trial, reported BenitoLink in another article.

The hospital mulled over ideas for improving its financial situation, including adjusting contracts and revising agreements with vendors, insurance companies, unions, and other contracted groups.

It also received four letter of intent proposals by entities wishing to take over the hospital, including Ovation Health, American Advanced Management, Insight Foundation, and San Benito County, the last of which proposed a Joint Powers Authority plan. Formed with the help of healthcare consulting firm ECG, the JPA plan calls for an overhaul of the district and HHMH administration and for a Joint Powers Authority to be formed in its place, led by San Benito County, the SBHCD, and other local governmental entities.

SBHCD would maintain ownership of all hospital assets, skilled nursing facilities, and rural clinics, while the JPA would provide it with between $10 million and $15 million as a public line of credit. An additional $5 million would be “contributed” and a $10 million Distressed Hospital Loan from the state would be provided to stabilize the hospital’s finances, according to SanBenito.com.

The aim behind the proposal would be to expand the hospital's services without a private sale, keeping it within the public sector.

“The County was able to elaborate on its proposal based on work completed by the nationally recognized healthcare consulting firm, ECG,” said San Benito County in a statement. “The firm had been engaged to develop a strategic business plan that would restore the hospital to financial health and improve access to medical care.”

Hospital administrators say they are consulting their legal and financial advisors to analyze the procedural and financial impact of the ruling.

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