The San Benito Health Care District Board of Directors unanimously approved on Aug. 7 a letter of intent from American Advanced Management Inc and provided authority to continue negotiations over the management of Hazel Hawkins Memorial Hospital. The letter serves as a commitment by both parties to work together with the goal of entering into an exclusive contract with the district. The health care district states it is still able to speak with other interested parties.
At the meeting, information on AAM’s background was provided and the letter of intent was reviewed for the board and the 60 guests in attendance.
According to the letter, terms and conditions are “not binding and remain subject to due diligence and negotiations of the definitive agreements.”
AAM’s website says its “mission is to preserve access to quality healthcare for rural and urban communities by revitalizing struggling hospitals with a focus on growth and fiscally responsible specialized services.”
At the meeting, interim CEO Mary Casillas said AAM originated in 2012 and opened its pilot hospital, Central Valley Specialty long-term care hospital, in Modesto in 2013. She said it has since reopened or kept at least four hospitals from closing, and acquired six care centers, 12 clinics and three urgent care centers.
If it enters into a lease agreement, the letter of intent said AAM “would operate and assume financial responsibility for certain assets of HHMH, including without limitation a licensed inpatient acute care hospital, outpatient surgery center, skilled nursing facility, various clinics and other properties included on the hospital campus.” The lease term would last between five and 10 years.
It also proposes “to ‘lease to own’ assets of the district for several years prior to purchasing them outright while maintaining the same level of high quality medical care to the residents of San Benito County,” according to a health care district press release.
Robert Miller with Hooper, Lundy and Buckman acting as the Healthcare Regulatory Transaction Counsel for the district, and said at the meeting the terms of the agreement offered to the district, though, are “an agreement by the parties to continue negotiating.”
“We still all have due diligence to do, as we’ve got to find out things about each other to decide whether it makes sense to move forward,” Miller said. “There are many details that still need to be worked out, but we think that there’s room for agreement here.”
He said the district will look at AAM’s operations and determine whether they seem like a high-quality operator—which entails looking at AAM’s track record at other sites and at their financial capacity to perform its obligations under a potential lease. He said he expects both parties to do their due diligence “right up through the signing of the definitive agreements.”
If an agreement is reached, Miller said it must be approved by the board and district voters, which includes most of the county except parts of south county.
District Legal Counsel Heidi A. Quinn said once the terms are clarified, a ballot measure regarding the deal could happen anywhere between the end of this year to early next year.
“There are some advantages to waiting until March because we could consolidate it with the general election and save costs,” Quinn said.
Hospital Board President Jeri Hernandez asked what type of medical services AAM would be required to provide Hazel Hawkins patients.
“As drafted in Exhibit A, the obligation is for AAM to continue to provide services necessary to maintain the licensure of the facilities,” Miller said. “So if there are additional services that are not required to maintain licensure of the facilities, then that’s one area where we might want some feedback on including an additional obligation or covenant or expanding that promise of AAM.”
When asked by board member Devon Pack about which services are not required to maintain licensure facilities, Casillas said obstetric services are not required.
Public speaker Jenny Koons said eliminating OB services at Hazel Hawkins concerned her. While carrying her baby, she said her original birth plan had her delivering her son at Stanford Hospital.
“After an emergency situation at 24 weeks, we came to our local hospital expecting just to be seen and taken home,” she said. “After a couple of days in the hospital, we changed our hospital to Hazel Hawkins. The Women’s Center was absolutely incredible.”
She said she emailed “anybody I could to express my concerns about OB services not being offered in this community.”
Miller also said the current agreement does not require AAM to accept all insurance providers or payers, but that it is something both parties can add to the agreement.
Regarding whether AAM’s willingness to honor the existing labor agreements, Casillas said “they did make a statement that they don’t make changes when they come in,” but she encourages staff to question AAM about these agreements at the next board meeting on Aug. 16.
Pack asked, “Assuming that we reach the end of the lease terms, and that AAM decides to exercise the purchase option, will the district at that point be continuing to collect a special district tax or will it continue to be directed to AAM?”
Miller said that while this depends on the final form the transaction will take, “it would not be accurate that the district would take in tax revenue and that tax revenue would go to AAM. That would be a very surprising outcome under the local healthcare district law.”
Quinn reiterated that by having the district board and CEO sign the letter of intent, changes could still be made in the agreement and “the direction is really for the district to continue negotiations with its potential partner.”
“This is not an exclusive negotiating partner, and we would want other partners to come forward,” she added. “And that’s really part of the bankruptcy process; to get the highest and the best offer for the district.”
Casillas said in a press release that when the healthcare district started the process of seeking a buyer in December, “our goals were simple: do all we can to stabilize the finances of the district while maintaining quality healthcare for the community; find a partner or buyer who understood the unique needs of our community; and find a partner who possessed the resources to guarantee a continuum of care delivery for the future needs of our county.”
Casillas said she believes AAM “fits” with the mission of Hazel Hawkins Memorial Hospital.
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