A cascading wave of fiscal challenges—the election of President Donald Trump and his One Big Beautiful Bill Act (OBBBA)—has Watsonville Hospital’s leadership team worried that it will not have the financial means to continue to run the facility.
As a result, the Pajaro Valley Health Care District (PVHCD) Board of Directors voted Wednesday to seek an outside health care provider to take over day-to-day management of the hospital.
The board formed a two-person ad-hoc committee to look into a partnership with Sutter Health, Common Spirit Health—the organization that owns Dominican Hospital—and other interested health management organizations.
Since PVHCD took over Watsonville Community Hospital in 2021—saving it from potential closure in the face of bankruptcy and bringing it back into community ownership—it has made significant progress in righting the institution.
Voters passed Measure N in 2024, a $116 million bond that allowed the district to purchase the hospital building and property, renovate imaging systems such as MRI and CT scanners, and begin plans to renovate the emergency department. It has also created a new cardiac catheterization lab, which opened last month.
And two years after losing $33 million as a result of the bankruptcy, the hospital was on track to break even in 2024, said PVHCD Board Chair Tony Nuñez.
That was until a cyber-attack set off a cascading wave of fiscal challenges, and the passage of OBBBA—also known as H.R. 1—which will result in massive cuts to Medi-Cal and Medicare.
The hospital, which predominantly serves those with government insurance, is now facing financial uncertainty.
“It’s really bleak,” Nuñez said. “We’re talking anywhere on an annual basis of losing from $3.5–$7 million each year in revenue (starting in 2026).”
The search for external partnerships began last year, when the board sent requests for proposals to several healthcare providers such as Salud Para La Gente, Kaiser Permanente, the County of Santa Cruz and UC San Francisco.
That move to bolster the financial picture of the hospital and expand its services was part of PVHCD’s 2023 strategic plan, Nuñez said.
“This was the next step of us bringing services back to Watsonville and expanding services at Watsonville Community Hospital,” he said.
Talks are now underway with Kaiser to rent out unoccupied space at 65 Nielsen St., where they will offer specialty care.
But after initially declining management services offers from Common Spirit and Sutter, the newly formed ad-hoc committee will bring a list of guiding principles to hospital CEO Steven Gray in September, that could include a mandate that the PVHCD Board will still oversee the hospital, and that it will keep its name.
Gray will bring those principles to the negotiating table with the health care organizations.
“Now we’re here in this position where we need a partner to help us weather this really awful storm that is going to be coming for us over the next five years as a result of H.R. 1,” Nuñez said.
The challenge, he said, is that the hospital is not yet turning a profit, which means it cannot make smaller renovations, pay past-due bills and purchase supplies.
A larger healthcare network, he said, would have more cash on hand to do so.
But the most important incentive is that the hospital is running the risk of not being able to make it past OBBBA and the damage that will happen as a result.
“We cannot let that happen,” Nuñez said. “We can’t get to a point again where we are staring bankruptcy in the face. We can’t get to a point where we are going back to our community and saying ‘we might close.’”
Watsonville Hospital is not alone in its financial troubles. According to protectourhealthcare.org, 36 hospitals have already closed since the passage of OBBBA, and another 750 are at risk.
