Locals Scramble To Raise $70M To Buy California City’s Only Hospital Out Of Bankruptcy


Locals are scrambling to raise $70 million to salvage a California city’s only hospital, which went bankrupt less than two years after a real estate investor bought it in 2019.

Medical Properties Trust, a Birmingham, Alabama investment trust that oversees more than $20 billion and is among the nation’s biggest owners of hospital real estate, helped a group buy the struggling 127-year-old Watsonville Community Hospital, the Wall Street Journal reported. The hospital, a nonprofit for most of its history, acquired a significant amount of debt and changed hands multiple times over the past two decades.

By using the trust’s money up front, some investors have been able to avoid risking their own capital, meaning MPT and hospitals will be left to handle the aftermath if the deal falls through.

Halsen Healthcare, led by former Orange County hospital executive Daniel Brothman, bought the hospital. Controversy surrounding Brothman and Halsen over company finances and the arrest of a doctor who spoke out led some community members to push back against the deal. Local community nonprofit Community Health Trust of Pajaro Valley tried and failed to block the takeover.

MPT contributed $40 million to the $46 million sale and issued an additional $15 million loan to Halsen to fund operations. Operational issues including a faulty billing system contributed to the hospital’s woes and six months later it was in default for failing to pay rent.

When it filed for bankruptcy in December 2020, the hospital had lost more than $32 million in a year, double what it lost under a previous owner reported in 2019. At the time of the bankruptcy, the hospital owed MPT more than $40 million.

Former local healthcare worker Mimi Hall opposed Halsen’s takeover in 2019 and is now teaming up with local nonprofits to buy the hospital. “I don’t want to see the slow dissolution of our healthcare system here,” she said.

Hall’s group has agreed to buy the hospital out of bankruptcy in exchange for MPT lowering the lease payments to $250,000 per month from $353,000. While MPT would lose money on the deal, it would keep the hospital alive as there aren’t any other qualified buyers.

Hall said the biggest issue with the deal is money. While companies such as local berry seller Driscoll’s have pledged millions of dollars, a majority of the capital will have to come from the government.

Santa Cruz County has committed about $5 million for the sale and it will be up to the state legislature to finance the rest.

“I don’t know if we’ll be successful,” Hall said. “I believe we will be. I want to believe we will be.”

[WSJ] — Victoria Pruitt

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