Amid rumors of an interested buyer, Hazel Hawkins Memorial Hospital spokesperson Frankie Gallagher confirmed that the facility has signed a nondisclosure agreement with another health care organization. Gallagher said if the transition moves forward, a sale will take six to nine months.
At an Intergovernmental Committee meeting on Feb.2, interim-CEO Mary Casillas said the hospital now has enough funds to carry it into April after receiving a property tax advance of $1.1 million from the county and a $3 million loan from the state.
Casillas did not respond to BenitoLink’s request for specifics on how the hospital would continue to fund operations while waiting to see if the unnamed organization would agree to buy it. She did, however, go over some details of the business plan she referred to as “Operational Savings” during the Feb. 2 meeting.
Casillas said the hospital board has been meeting with bankruptcy and regulatory consultants, as well as investment bankers, since the November emergency declaration of a possible need to file for bankruptcy.
“We have stayed out of bankruptcy and it’s because of the work that we are doing with the slew of individuals that are working as a team with this hospital,” she said, adding the takeaway from those meetings is the need for a plan and to be transparent about the hospital’s goals to the community and the media.
Supervisor Kollin Kosmicki, who chaired the meeting, said the hospital needed to present a clear plan on how it intended to move forward. He said they need to be prepared to start cutting jobs.
Casillas said at the meeting that the bankruptcy and regulatory consultants are helping with the process, should the hospital have to close. She said they are evaluating seven clinics in Hollister and San Juan Bautista. Those clinics are:
- The Barragan Family Diabetes Center
- Focus Sports Therapy Specialty Service
- Hazel Hawkins Community Health Center
- Hazel Hawkins Physical Therapy & Rehabilitation Service
- Mabie 4th Street Health Care Center Clinic, Laboratory
- Mabie First Street Health Care Center Clinic
- Hazel Hawkins Community Health Center
“We have made adjustments as part of our business plan,” Casillas said. “We have to look at those [clinics] and evaluate everything because we don’t want to close the hospital.”
Casillas said the purpose of Operational Savings is to extend the “runway,” before having to file bankruptcy. She said Hazel Hawkins also needs to renegotiate all contracts with unions and insurers.
Now that the COVID crisis has calmed, she said the hospital is cutting back on the number of registry or traveling nurses it brought onboard during the pandemic. She said there are only three or four registry nurses left now.
On April 28, 2022, prior CEO Steve Hannah told the board that the financial situation was not good.
“The financial performance of the hospital needs to be significantly improved,” he said, further explaining the issue was that the labor burden, as a percentage of net revenue, was too large and that adjustments were needed in the cost structure. He explained some wage categories were over-compensated and others were under-compensated. Both required corrections, he said.
In particular, he said of the top 10 highest-paid employees, including the executives, six were non-management nurses and some of those nurses earned more than some of the executives.
“Of the top 30 highest-paid employees, 18 are non-management nurses,” he said. “While historical labor cost trends were not in line with the organization’s cost structure, appropriate changes could correct these issues. The labor cost issue is the compensation of some employee categories and not overstaffing. The board members, physicians, administration, employees, and unions that represent them need to understand these issues and be unified in correcting them.”
According to Transparent California, a public pay and benefits database, in 2021 the combined pay and benefits for Steve Hannah, CEO, was $440,250. The second highest paid person was a staff nurse at $388,717, which was more than Mark Robinson, CFO, at $378,597, and Jordan Wright, VP, at $306,585. Of the120 nurses, 56 were paid from $200,826 to $366,808.
The average pay, not counting benefits, for an RN in California is $124,000 according to the NurseJournal and $155,000 in Santa Clara County. The Nurse Journal says the Santa Clara county area is the highest in the nation due to the cost of living.
“We are a union shop,” Casillas said. “We do have four unions here at Hazel Hawkins, so there’s only so much we can do without going into negotiations. We have invited all four unions into mediation, and they have accepted. So, we hope to gain some strides there.”
She said some positions have already been eliminated. These included the CEO and CEO assistant positions last November.
When Hannah was terminated after two years under the terms of his four-year contract, he received $350,000 plus health coverage and other benefits.
The Home Health Department, which was shuttered Jan. 31, had 14 employees. Several executives, including Casillas, have taken 10% reductions in their pay, and the nurses union agreed postpone their negotiated initial phase of their 12.5% raises for 90 days, which the hospital said would save $16,000 per pay period. The nurses and the hospital agreed to a new four-year contract in July.
“We also want sustainability, long-term, and we’re struggling staying as a district to withstand things like the pandemic that got us here,” she said, adding that negotiations are ongoing with Medicare to spread out the “claw back” or repaying overcharges of more than $5 million. She said the hospital is “struggling to stay independent.”
She emphasized that Hazel Hawkins is still “a fully functional hospital” but also pointed to the impact of COVID and the difficulty of recovering from it.
In response to claims the hospital received a lot of COVID relief funds, Casillas said, “It’s not true. Our nurses couldn’t handle the volume of patients that we were seeing. We had to bring registry nurses. To cover all that cost was on us. We are still recovering from COVID. And just like everybody else, we are really struggling with inflation since the pandemic.”
According to the board minutes, the hospital did receive $1.2 million from the Social Services Emergency Fund on April 10, 2020, and $5.6 million on May 28, 2020, from the Rural Relief Fund. Neither has to be repaid. Additionally, it secured a $2 million loan at 2% interest over 20 years for a temporary fix of the roof over the main building before the rainy season.
She said drug prices are up over 40%, medical supplies 19%, and labor costs have increased 16%.
“That’s just in the last two years,” she said. “We have not seen reimbursement. In fact, we haven’t seen any increases in well over a decade. Medicare came to us on July 30th to let us know that they’re going to be adjusting our payments and taking some of the money back from previous years on July 1. Between the two, adjusting our payments and taking some of that money back, was over $900,000 a month in revenue. We were losing the very next day, July 1. We got the notice on June 30th. That’s over $900,000 a month in depleting our cash. And that’s what got us into the situation we are in now.”
It isn’t that simple, though. Hannah brought Georgia-based Adams Management Services Corporation to study the financial records and come up with a master plan. The board agreed to hire AMSC in January 2021 for a fee of $85,000.
Based on the hospital’s finance reports that showed it would lose money for at least the next eight years, in February 2022 AMSC presented three options to the board for moving forward. The board approved one that proposed building a $250 million hospital on the north side of town. Hazel Hawkins would undergo seismic renovations, after which it would become an auxiliary to the new hospital.
This is the very same project that Hannah told BenitoLink about in an interview last June.
The board approved, but did not fund the project.
AMSC made clear that the hospital had been in trouble for years and would continue to lose money. It demonstrated that from 2017, projecting out to 2031, the hospital lost and will continue to lose money 12 out of 15 years, ranging from $1.09 million in 2017 to $10.5 million in 2031.
If the hospital does fail to find a partner or buyer, it would be required to notify the public within 68 days before closing the skilled nursing facilities, 90 days before closing the hospital itself, and 180 days before closing the emergency department. There are more than 90 residents in the skilled nursing facilities. The hospital has said it would attempt to sell or lease them rather than allow them to be closed.
Related BenitoLink stories:
Hazel Hawkins faces more criticism over handling of fiscal emergency | BenitoLink
Hazel Hawkins Memorial Hospital nurses temporarily postpone salary increase | BenitoLink
Hospital officials outline funding efforts, scenarios | BenitoLink
Hazel Hawkins Hospital receives $3 million loan from CHFFA | BenitoLink
Hazel Hawkins to close down Home Health Department | BenitoLink
Could Watsonville hospital serve as a blueprint for saving Hazel Hawkins? | BenitoLink
Hazel Hawkins staff asks board to ‘take the ego out’ | BenitoLink
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