From Halsen To PVHCD: The Long History Of Watsonville Hospital

WATSONVILLE, CA — It was a sunny afternoon in October 2019 and employees of Watsonville Community Hospital were milling around munching on barbecue as part of a festive ‘hello’ celebration by the hospital’s new owners.

Just two weeks before Halsen Healthcare, an obscure Southern California investment firm, had purchased the hospital for $40 million from Quorum Health Corporation, a company spun off from Community Health Systems which had owned the hospital since 1998. The acquisition was touted as a milestone toward improving healthcare in the community and Halsen pledged to improve conditions for hospital employees.

This week (FEB 23) Halsen became history when San Jose Bankruptcy Judge Elaine Hammond, saying “it’s clear to me a lot of people worked very hard to make this happen” approved the hospital’s sale to the Parajo Valley Healthcare District Project (PVHDP) -- a non-profit corporation formed last summer by Santa Cruz County, the City of Watsonville, Community Health Trust of Pajaro Valley and Salud Para Le Gente, a healthcare provider to farm workers and other underserved populations – which submitted the only bid to purchase the facility at an auction sale on Feb. 17.

A critical element of the sale was creation of a formal public healthcare district by the state legislature. A bill authored by State Sen. John Laird creating the district breezed through the legislature and was signed by the governor on Feb 4.

Once the new Pajaro Health Care District is officially organized with a functioning board of directors, who are expected to be appointed by the Santa Cruz County Board of Supervisors next month, formal ownership will be transferred by PVHD through an intermediary non-profit corporation created for that purpose.

According to court documents PVHDP has budgeted $60-70 million to acquire the hospital and pay outstanding debts and cover other expenses. So far PVHDP has solid commitments of $23.5 million in cash or forgiven debt, including a $3.5 million gift from Driscoll’s, a Watsonville company that markets a variety of fresh berries.

PVHDP is also hoping for $20 million from the state through a budget appropriation requested last week and supported by Laird, State Sen. Anna Caballero and Assembly Members Robert Rivas and Mark Stone.

In a declaration filed with the court, Mimi Hall, a former Santa Cruz County health official and who serves as PVHDP’s chairman, said the organization has requested contributions from other philanthropic foundations and is engaged in other efforts to obtain additional funding for working capital from private individual and corporate donors.

Convoluted Corporate History

For more than two decades under private ownership the hospital had experienced growing financial problems that became even more severe after Halsen purchased the 106-bed facility in 2019 from Quorum Health Corporation for $40 million. Financial disclosures filed with the California Department of Health Care Access show the hospital lost $14.3 million in 2019 and $17.9 million in 2020. According to bankruptcy court documents the hospital lost more than $32 million last year.

Quorum Health was created as a spinoff by Community Health Systems – which purchased the hospital in 1998 – during a Community Health restructuring in 2015. Quorum filed bankruptcy in 2020.

As part of its acquisition from Quorum, Halsen sold the hospital property and building to Medical Properties Trust (MPT), an Alabama-based real estate investment trust, which immediately leased the facility back to Halsen.

Halsen owned and operated the hospital through three subsidiary companies – Watsonville Hospital Corporation, Watsonville Hospital Holdings and Watsonville Healthcare Management.

But soon after the purchase Halsen began having trouble paying its bills and early last year MPT removed Halsen from its management role, replacing the company with Prospect Medical Holdings of Los Angeles.

According to bankruptcy court documents, Halsen’s removal was prompted in part by eight notices of default on its lease payments to MPT between April and October of 2020.

By the time Halsen and its affiliated companies filed bankruptcy last December its debts totaled $80 million.

— Bob Porterfield and Courtney Teague reported.