The San Benito Health Care District board of directors on April 8 voted not to pursue an appeal in Hazel Hawkins Memorial Hospital’s Chapter 9 Bankruptcy case. Instead, the board will continue to focus on finalizing a deal with Insight Health, district officials said in a statement.
The district board in early 2023 declared a fiscal emergency for the Hollister hospital. In May 2023, the board filed for Chapter 9 bankruptcy—a step that HHMH officials said was taken to “preserve essential healthcare services for the residents of San Benito County and to ensure the long-term viability of (the hospital),” says the April 10 statement from the district.
The district’s bankruptcy filing has been tied up in the courts until last month. In March 2024, the U.S. Bankruptcy Court struck down the Chapter 9 filing by SBHCD.
The district appealed that ruling, and on March 21, 2025, the Appeals Court upheld the Bankruptcy Court’s decision, according to the local district. That led the SBHCD board to its April 8 decision to abandon further appeal efforts.
The district argues the process was not in vain, as the courts confirmed that HHMH was “financially distressed.”
“The Chapter 9 process allowed us to achieve critical milestones, including maintaining full hospital operations, preserving jobs, strengthening our cash position and extending the time needed to identify a long-term partner,” says a March 25 statement from HHMH. “Both the Appeals Court and Bankruptcy Court decisions observed that the District was financially distressed before bankruptcy and pointed to the success of the district’s turnaround efforts as the reason bankruptcy was no longer eligible.”
And while the district and HHMH partially blamed labor costs for the hospital’s financial problems, a representative of one of Hazel Hawkins’ biggest unions said the bankruptcy effort was merely a ruse to back out of previous agreements.
““It’s been long clear to nurses that this claim of bankruptcy was not in response to the fiscal challenges on the ground, but rather an effort to bust the unions and disregard the collective bargaining agreements,” said Diane Beck, RN, a spokesperson for the California Nurses Association. “This long-overdue decision by the San Benito Health Care District board to abandon these expensive legal maneuvers is welcomed by the nurses who are devoting their energy to the health and well-being of the community.”
The district last week released a summary of financial events and operational decisions that led to its bankruptcy filing, culminating in current ongoing voter-approved negotiations to sell HHMH and its assets to a private company.
‘A perfect storm of financial pressures’
Between July and December 2022, according to the timeline released by SBHCD, the district experienced a combination of unexpected financial setbacks that impacted cash flow and operational stability.
These include:
• A $5.2 million Medicare recoupment, enforced by Noridian over a 12-month repayment schedule, requiring payments of $440,000 per month.
• An additional $5.2 million annual reduction in Medicare reimbursements.
• A delay of $4 million in claims payments due to Anthem out-of-network issues and withheld Medi-Cal reimbursements.
• A $1.1 million CARES Act tax repayment due December 2022.
• Ongoing cost pressures from post-COVID labor shortages, heavy use of registry staff, and inflation in supply and labor markets.
By Nov. 30, 2022, the district said it had only $5.05 million cash on hand, which was equivalent to 12 days of operating expenses.
Concerned that it may not be able to fund basic operations if payments were made, as well as the cost to close district facilities and safely transfer patient care—estimated to cost $8 million—the board declared a fiscal emergency, says the district’s statement. This enabled the district to prepare for bankruptcy if needed, though it did not file immediately.
Short-term recovery efforts
From December 2022 to May 2023, the district said, it launched a series of urgent measures to stabilize finances.
These include:
• Secured $4 million in bridge funding via a $1 million property tax advance and a $3 million CHFFA loan from the State of California.
• Implemented cost reductions: a hiring freeze, reductions in registry, wage increase deferrals and issuance of WARN notices to prepare for potential closures.
• Enforced strict cash management and spending protocols, improving short-term cash flow by $1.9 million.
• Negotiated extended repayment terms with Noridian, reducing monthly Medicare recoupment payments from $440,000 to $60,000.
• Entered into a new provider agreement with Anthem, increasing annual revenue by $2 million.
• Deferred the $1.1 million CARES Act repayment.
• Sold surplus property.
Despite these improvements, the district was still faced with labor costs, which ate up 70% of HHMH’s net patient service revenues, says the April 10 press release.
The district then began negotiating with its unions, hoping to avoid court intervention, the press release continues. Three of the unions—the California Nurses Association (CNA), the National Union of Healthcare Workers (NUHW), and California Licensed Vocational Nurses Association (CLVNA)—refused to negotiate.
“This stalemate left the district unable to meaningfully adjust labor costs or close its long-term budget gap. Its principal expenses could not be modified, forcing bankruptcy,” says the district’s statement.
HHMH CEO Mary Casillas added, “Filing Chapter 9 was never our first choice. But with labor negotiations stalled and operational losses growing, we had no path forward that didn’t risk care delivery or closure.”
The Chapter 9 process not only allowed the district to renegotiate labor costs and maintain operations, it also gave hospital officials the ability to explore a partnership or sale—a necessary step given the district’s inability to finance the $100 million in infrastructure upgrades needed to grow services, says the district’s statement.
Although labor unions challenged the bankruptcy filing, both the Bankruptcy Court and District Court recognized the hospital’s financial distress, SBHCD added.
In its ruling, the Bankruptcy Court said, “The court is mindful that the district has faced an enormous financial challenge… Its board of directors, officers and staff responded to that challenge with innovative solutions and a sense of resilience.”
Beck said the CNA, a subsidiary of National Nurses United, says the employees are still hoping that HHMH will remain in public hands instead of being sold to a private company like Insight.
“We now hope we can get back to the work at hand to ensure that the San Benito Health Care District maintains a publicly owned full-service acute care hospital for years to come,” Beck said.
