.After Legislative Whirlwind, New Pajaro Valley Healthcare District Nears Goal

Watsonville Community Hospital’s history of local ownership dates back to 1895, nearly three decades after its namesake city was founded.

That changed in the early 1990s, when declining revenues and low reimbursement rates from managed health care plans prompted the hospital’s board of directors to consider a corporate partnership. What followed was 30 years of rocky management by three out-of-town corporations, which came to a crux in late 2021 when the hospital announced it was facing imminent closure unless a buyer came forward.

Enter the Pajaro Valley Healthcare District (PVHD), a nonprofit created by the County of Santa Cruz, the City of Watsonville, the Community Health Trust of Pajaro Valley and Salud Para La Gente with the sole mission of purchasing and operating the hospital.

That group won its bid on Feb. 18, canceling a planned auction and setting the stage for a hearing on Wednesday, when the court will consider PVHD’s finances and purchase proposal to possibly give the final approval for the sale.

That group cleared its first hurdle on Feb. 4, when Gov. Gavin Newsom signed Senate Bill 418—roughly three weeks after author Senator John Laird introduced it—officially creating PVHD.

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Laird, who wrote the law along with Senator Anna Caballero and Assembly Members Robert Rivas and Mark Stone, says that bills normally take around seven months to wind their way through the legislative process. He says the speedy passage and unanimous concurrence of both the Assembly and Senate—it passed 62-0 and 34-0, respectively—was a testament to the importance of the issue.

“This was at legislative warp speed,” Laird says. “It is impossible to understand how we would respond if that hospital goes under. So I took this issue on with a lot of urgency.”

Defining a District

A board of elected leaders similar to county boards of supervisors and school trustees—and governed by the same rules—health care districts are created to oversee some aspect of local health care. Because they are public agencies, they have bylaws that require open meetings and public input when any changes are proposed.

California currently has 77 health care districts, 32 of which run hospitals.

Better still, health care districts are not bound by the profit-centric models of many hospitals, says organizer Mimi Hall, who formerly served as the Santa Cruz County Public Health Director.

Hall adds that they often serve rural communities with health care provider shortages, large populations of under-insured and uninsured people as well as those on MediCal.

“They meet a need that probably only government is going to properly meet,” she says. “The whole reason we’re forming a health care district is we want a local form of government that is directly accountable to the communities they serve. It assures open government, oversight, transparency and it’s mission-focused. Our mission is to make sure that the community’s needs are met forever.”

PVHD will be made up of five members that, because of the quick formation and need for immediate action, will be appointed by the Santa Cruz County Board of Supervisors, Hall says. In the future, members will be chosen by voters.

“I believe we had broad community support,” she says. “The only reason we took this very, very abbreviated route was because we didn’t have the luxury of time.”

The next step––and perhaps the most challenging one––is to secure the funds needed to make the purchase and then to run the hospital, Hall says.

Team Effort

Leaders throughout the Pajaro Valley have already begun to step up. The County of Santa Cruz has pledged $5.5 million, the Community Health Trust has offered $4.65 million and the Central California Alliance for Health and County of Monterey have each devoted $3 million. The City of Watsonville also chipped in $130,000.

If PVHD makes a successful bid, it still faces a $25 million operating deficit, Hall says.

Financial projections show the organization breaking even from this deficit by 2023, and going into the black by 2026. That, Hall says, would make the hospital “creditworthy” in the eyes of lenders.

Making the task more difficult is that PVHD will not have the property tax apportionment allotted to health care districts under state law, since those rules are not retroactive. But the organization has no immediate plans to ask the public to approve a special tax, Hall says.

“We didn’t think this was the time for our community to be taxed,” she says. “So going into it we knew that that would be a part of our business plan.”

This means asking local health providers such as Kaiser, Dignity and Sutter for their help, and also counting on financial support from the state, Hall says.

Still, Hall says, the challenges can be met.

“If they were insurmountable, we would not move forward,” she says. “Because it’s not responsible to expend all this energy and effort and money to do something that won’t become a reality. We believe that it’s possible.”

In all, PVHD representatives have said that they would need to raise just under $67 million to purchase the hospital and continue its operations.

Hall calls the formation of PVHD, and the efforts necessary in moving forward, a “labor of love.”

“I want the community and anyone out there to remember that we have our eyes far on the horizon,” she says. “The whole reason we’re doing this is that, after a couple of decades, we have an opportunity to truly return this hospital back to the community and serve the community in the ways that it needs.”

Hospital History

It all began in 1895, when Dr. Peter Kemp Watters bought a house on Third Street (now called Beach Street) and built the five-room Watsonville Sanitarium next door for $1,097, according to historical records. This was enlarged in 1901 and renamed Watsonville Hospital and Training School of Nurses.

For the next 90 years, Watsonville’s hospital retained its private ownership, even as it grew and moved from 311 Montecito Ave. (where Montecito Manor nursing home currently is) to 294 Green Valley Road (where Pajaro Valley Unified School District is headquartered) and then to its current location at 75 Nielsen St.

The hospital remained under local control—overseen by a board of directors made up of doctors—even as it was incorporated and as leaders sold shares to stockholders (which were later bought back.)

It became a nonprofit organization in 1950.

But in 1993, the hospital’s financial future was looking grim, and so the board of directors partnered with Community Health Systems (CHS), which took over operations, starting 30 years of shaky corporate leadership. 

CHS created a spinoff company called Quorum Health Corporation in 2016, which sold the hospital to Los Angeles-based Halsen Healthcare in 2019. That company—formed exclusively to purchase the hospital (and which still officially owns it)—sold the physical building and grounds to Alabama-based Medical Properties Trust (MPT), to lease it from them in a so-called sale/leaseback.

The hospital board ousted Halsen in January 2021, stating that the company was unable to meet “financial obligations to various stakeholders.” In its place, the board installed Los Angeles-based Prospect Medical Holdings.

Watsonville Community Hospital registered nurse Roseann Farris said that she and her colleagues are “cautiously optimistic” about the new leadership, with the only concern being whether the PVHD can find enough funding to make the purchase and keep it running.

“It’s very exciting to think about the growth that could occur, and this facility could be something that not only the employees and the physicians can be proud of, but that the community is proud of,” she says.

Farris is among dozens of nurses at Watsonville Community Hospital who have multiple times during the pandemic demonstrated against hospital leadership, claiming that staffing levels and working conditions had plummeted as the hospital struggled to make ends meet. 

“This is a huge thing for our community, and for health care in general,” she says. “If it does come to being a district hospital, it can be very positive for this community, and I’m hopeful that it can be something that other communities can see as a way of preserving health care for their communities.”

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