The Board of Directors of the San Benito Health Care District, which oversees Hazel Hawkins Memorial Hospital, will decide whether to file a Chapter 9 bankruptcy case at the next board meeting at 5pm May 22.
The agenda item and supporting documentation were noticed to the public on May 16, and can be viewed online at https://bit.ly/3MhdswA.
Chapter 9 is a special chapter of the U.S. Bankruptcy Code that allows cities, hospital districts and other public entities to adjust their debts in a bankruptcy case, says a press release from Hazel Hawkins Memorial Hospital. In a bankruptcy case, the district can continue operations without disruption, including caring for patients, operating its facilities and making payroll at HHMH.
The decision to put the Chapter 9 filing on the agenda is part of the hospital’s continued efforts to shore up finances ahead of a possible strategic partnership with a larger organization, says the press release. The district has been in negotiations with key constituents, and will continue this process of finding a partner.
“Right now, we are at a point where we need to tackle a few items that have been systemically complicating our financial health that we have not been able to solve outside of bankruptcy,” said Mary Casillas, interim CEO of Hazel Hawkins Memorial Hospital. “These include the district’s self-insured status for employee healthcare benefits as well as some vendor contracts which are not aligned with where we are today as an organization. Chapter 9 is a tool for us to address those issues more comprehensively to place the district in a healthier financial position for the long term.”
The board in November 2022 declared a fiscal emergency, which authorized a Chapter 9 filing. At that time, the district did not pursue bankruptcy and instead opted for short-term financial stabilization efforts and creditor negotiations. Since then, the district has saved more than $11 million due to cost savings, loans and early revenue payments to support the district through the end of this summer, says the press release.
In a May 19 press release, HHMH staff said filing for Chapter 9 bankruptcy next week is “the best path forward” for the hospital’s long-term viability, as well as its ability to continue offering healthcare services without significant cuts.
The press release listed four benefits of filing for bankruptcy:
– Doing so would allot the hospital to “resolve contract agreements that are adversely impacting Hazel Hawkins including its current self-insured status for employee healthcare benefits.” That status is costing the district $15 million per year in premiums and payouts, says the press release.
– A bankruptcy filing “allows Hazel Hawkins to remain open to care for the community just like it is today.” If the district does not file for bankruptcy now, the hospital would likely begin cutting services for patients as soon as November 2023.
– A filing “will help accelerate the strategic partnership or sale process as the district’s finances will be in better shape as a result of the filing,” says the press release.
– And after filing Chapter 9, the court could appoint an ombudsman to make sure that patient care continues through the process.
During the last board meeting, Seth Freeman, Managing Director for B. Riley Advisory Services, mentioned during his presentation to the board that “while much had been done to shore up finances, the efforts would fall short of saving the district as early as September of this year.”
“Our goal has always remained the same—to preserve healthcare in our community,” said Casillas. “Our primary objective is to find a partner and we only have a limited amount of time to do that. In the absence of that, we still need to restructure to maintain some level of independent operations. Either way, addressing our long-term liabilities in bankruptcy will serve our community’s interest in continued access to health care.”
