Hospital board discusses partnership offer

The San Benito Health Care District (SBHCD) convened for a special meeting Aug. 7 to discuss the Letter of Intent sent by American Advanced Management (AAM) to Hazel Hawkins Memorial Hospital (HHMH) CEO Mary Casillas. The letter outlined AAM’s intent to enter into a “strategic partnership” with the embattled hospital, the details of which were a cause of confusion for many in the community.

The Horizon Room at HHMH’s Women’s Center was packed with roughly 50 people as residents, nurses and physicians sought to have their concerns addressed by the district board.

Special counsel to the district Robert F. Miller of Hoopman Lundy & Bookman was on hand to walk the district board and the attendees through the letter. 

The meeting began with Casillas discussing the process leading up to the hospital receiving the letter from AAM. She assured the public that the letter is a non-binding document that merely requires HHMH to agree to begin talks of a partnership.

“I want to remind everybody, this is the very beginning, very beginning of this process.This will be a long process as we go through letters of intent that might come in and exploring and negotiating as we move forward,” Casillas said. “So, again, this is a non-binding letter.”

The Terms

Casillas informed the attendees about the criteria HHMH and the district board used to qualify a potential partner, or buyer, for the hospital. According to Casillas, the prospective partner must meet the following before initial consideration:

• A demonstrated and long-standing history of experience of healthcare administration. 
• The ability to mitigate some of the risks and liabilities while further developing assets.
• Provide plans for expansion of care.
• Provide proof of funds necessary to meet the bidder’s purchase price.
• Provide evidence of adequate liquidity and financing to meet all post transaction obligations to the hospital such as future lease payments.
• A proven record for stabilizing distressed rural hospitals.
• No track record of rapid asset liquidation. 
• Understands specific terms and conditions as well as the general obligation of bonds and payoffs.

Casillas stated that three district board members had already visited Central Valley Specialty Hospital in Modesto, AAM’s flagship facility, and liked what they saw.

“Three board members were able to go visit that particular site, were able to see them and really talk to them about their pride for quality care,” Casillas said.

AAM is a Modesto-based private healthcare company that operates six hospitals and other medical facilities in central and northern California. Founded in 2012, the company specializes in buying struggling rural hospitals and not only rescuing them, but expanding their services, according to their website.

Questions over the language of the Letter of Intent and the time frame stipulated by AAM to get a response from the district board still loomed. In order to assuage concerns, Miller, attending via teleconference, went through the letter as attendees followed along on printed paper copies.

Miller addressed the audience and clarified that the special meeting was put together to receive feedback from the public regarding the initial terms of AAM’s letter.

“The term sheet lays down some very high level perimeters for a potential transaction. And it’s an agreement by the parties to continue negotiating,” Miller said.

Both parties will have to exercise due diligence in order to verify that a potential transaction, or buyout, can move forward if it gets to that point. As of now, AAM is looking to lease HHMH and eventually purchase it outright after 10 years. According to Miller, any future decision to partner with AAM and have it lease the hospital would be put up for a public vote.

HHMH filed for Chapter 9 bankruptcy this past May and it is the underpinning issue of the current buyout talks. Michael Sweet of Fox Rothschild, who is the district’s bankruptcy advisor, was also present via teleconference. Sweet stated that it is likely the U.S. Bankruptcy Court, which is overseeing HHMH’s case, will approve a transaction between the two parties and that the hospital’s bankruptcy status will not affect it.

A Public Option

Dr. Natalie Lacorte and Dr. Nick Gabriel spoke during public comment at the Aug. 7 meeting on behalf of their organization San Benito Health Care Alliance (SBHCA). The nonprofit was founded by physicians at HHMH to seek alternatives for the future of the hospital.

According to Lacorte, they were inspired by the Pajaro Valley Health Care District Project, which is currently seeking to purchase Watsonville Community Hospital and bring it into public ownership after years of corporate mismanagement.  

The organization has engaged in talks with HHMH administration and Salinas Valley Memorial Hospital, which is interested in a partnership with Hazel Hawkins. Salinas Valley has yet to make an offer.

“I’m hopeful that we do not close the door on accepting offers and that we wait for the submission of others that might be coming soon,” Lacorte said.

Gabriel presented what he referred to as a “memorandum of understanding” on behalf of the alliance, which outlined their goals for HHMH. Among those terms were:

• That the assets of the SBHCD be kept by the residents of San Benito County now and in the future.  
• That all current and future HHMH workers reside locally.
• To remove barriers that prevent  health insurance providers from covering San Benito County residents.

SBHCA has not presented a Letter of Intent to HHMH. 

“Our community deserves nothing but the very best and I’m hopeful that we’re on the path to provide that. Thank you for all of your efforts,” Lacorte said, addressing the district board.

The district board, in two unanimous roll call votes, voted to dissolve the current temporary advisory committee charged with qualifying potential partners for HHMH and subsequently voted to form another temporary committee to explore potential terms with AAM.