Comparing Hazel Hawkins Memorial Hospital letters of intent 

Lea este articulo en español aqui.

In the past six months, four parties have expressed interest in either purchasing Hazel Hawkins Memorial Hospital or joining in partnership with its governing body, San Benito Health Care District (District), which filed for Chapter 9 bankruptcy in May 2023.

The following companies or organizations have submitted Letters of Interest (LOI) to the district: Modesto-based management company American Advanced Management in August 2023; Michigan nonprofit corporation Insight Foundation in early January 2024; community member/physician group, San Benito Health Alliance (SBHA) and its partner venture, management company Ovation Healthcare, on Jan. 25; and San Benito County’s Joint Powers Authority (JPA) on Feb. 7. All but the SBHA-Ovation Collaboration submitted their business plans with their LOIs.

A summary of each group and its LOI propositions are below:

American Advanced Management (formerly American Advanced Management Group)

AAM is a private for-profit company, which originated in 2012 and opened its pilot hospital, Central Valley Specialty Hospital, a long-term care facility in Modesto. According to its website, it manages a diverse range of services including acute hospitals, skilled nursing facilities, home health agencies, and urgent care centers. Its mission “is to preserve access to quality healthcare for rural and urban communities.” It now operates six hospitals and numerous other medical facilities in central California. They have no experience with an obstetrics [OB] service line.

The group came under scrutiny in Sep. 2023 when Madera Community Hospital Chief Executive Officer Karen Paolinelli told the Fresno Bee that AAM allegedly offered her an unsolicited job with a $150,000 check to “improperly influence” her choice of becoming a business partner. In February it was reported that the Madera Hospital sale is in process but is not complete. Hazel Hawkins CEO Mary Casillas and District board trustees told BenitoLink the San Benito County Healthcare District board had not been improperly influenced by the company. Community members, however, raised questions about board members taking AAM representatives to dinner after a special board meeting on Aug. 7, 2023.

Matthew Beehler, chief strategy officer for American Advanced Management Inc., spoke at the Hazel Hawkins special meeting on Aug. 7. Photo by Jenny Mendolla Arbizu.

AAM proposal:

• Assets: AAM would operate and assume financial responsibility for certain HHMH assets, 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.
• Bonds: The purchase is exercisable only if all bonds and other indebtedness of HHMH have been paid in full. The hospital has a $23 million general bond and a $8.3 million revenue bond.
• Employees: HHMH employees providing services “exclusively in the operation of the facilities” would become employees of AAM.
• Seismic Retrofit: LOI did not address retrofit that is required from the state by 2030.
• Voter Approval: The sale must be approved by the San Benito Health Care District board and district voters.  A simple majority vote of over 50% would be required.
• Lease term: Lease would last between five and 10 years, with an option to purchase at year 10.
• District Board: LOI did not address the future status of the current board of trustees. 
• Hospital Status: LOI did not address whether HHMH would remain a hospital after five to 10 years. 
• LOI does not provide information on the price it would pay for the hospital and its assets.

Insight Foundation of America 

Dr. Jawad Shah has a for profit business, Insight Health which acquired General Motors Headquarters in Flint, Michigan, converting it into an interdisciplinary health care center with services such as neurosurgery, pain management, orthopedics and chiro-massage therapy. Shah also has a nonprofit foundation which has purchased closed (or soon-to-be closed) hospitals and surgical centers in Michigan and Iowa. The foundation’s most significant purchase was in Chicago. According to its website, Insight is assisting in at least two of these facilities becoming financially solvent. According to the hospital reports filed online, the foundation reduced losses at Mercy Hospital in Chicago from $123 million to 60 million per year but current bed numbers are not available.

If Insight buys the hospital, its LOI proposes the district’s general obligation bond of $23 million is expected to remain in place, to be paid off through property tax. At a Jan. 9 special meeting, resident Robert Bernosky said it is “unacceptable” for taxpayers to be left with the general obligation bond if the district is sold. “If we don’t own the hospital, we cannot be paying the bonds off,” he said. 

County consultant Cecilia Montalvo explained that in this scenario, “the healthcare district would continue, but would no longer own the hospital. It would still collect tax revenue, unless the voters took action to stop that.” 

Insight’s Chief Strategy Officer Atif Bawahab provided a brief background of the corporation for the board. Photo by Jenny Mendolla Arbizu.

Insight proposal:

• Assets: Insight will establish a California nonprofit public benefit corporation to acquire all the hospital’s assets, including real estate, buildings, working capital and equipment, and will continue to operate the HHMH’s acute-care hospital and facilities.
• Bonds: Insight said the hospital will have funds to pay off the District’s $8.3 million revenue bond; its general obligation bond, however, would be paid off through property tax.
• Employees: LOI did not address employee status.
• Seismic Retrofit: Will be added to the fair market price.
• Voter approval: The sale must be approved by the San Benito Health Care District board and district voters. A simple majority vote of over 50% would be required.
• Lease term: LOI did not address length of lease.
• District Board: The board would remain, according to Insight Chief Strategy Officer Atif Bawahab. However, Montalvo said the district would no longer own the hospital. “It would still collect tax revenue, unless the voters took action to stop that,” she said.
• Hospital status: HHMH would remain a community hospital, according to Bawahab.
• The Insight LOI states the purchase price for the hospital and assets would be between $59 and $65 million. 

San Benito Health Alliance – Ovation Collaborative

According to its LOI, Tennessee-based Ovation Healthcare has been operating as a healthcare-focused management company for 45 years and has managed 45 hospitals nationwide, 27 of which are critical access hospitals. 

Montalvo told BenitoLink, however, it is Ovation’s predecessor company, Quarum Health, that “is the entity that has the long history,” she said. “The principals of Quarum seem to have reconstituted the company as Ovation. Quarum facilities largely went bankrupt.” 

The LOI describes the SBHA as “a community member organization made up of physicians, nurses, medical support staff, and business, financial, and community members to provide a diversified level of medical, operational, and financial experience not typically associated with a hospital operation.”

The LOI does not include a business plan, but it states one will be provided to the district upon Ovation’s evaluation and assessment of Hazel Hawkins. It says these tasks will be completed, at the earliest, by March 25, 2024. 

File photo of Dr. Ariel Hurtado, San Benito Healthcare Alliance president and former member of the San Benito Healthcare District board of directors, at the April 25, 2019 San Benito Health Care District meeting. Photo by John Chadwell.

The Collaborative proposes:

• Assets: County will hold assets. The LOI says the district will maintain its ownership, governance, and control by executing an operating agreement. However, according to Montalvo, Ovation would ultimately like to take over management of the hospital. 
• Bonds: LOI did not address bonds.
• Employees: LOI did not address employee status.
• Seismic Retrofit: LOI did not address retrofit.
• Voter Approval: LOI does not discuss whether voter approval is needed.
• Lease Term: LOI does not address lease term.
• District Board: The district and its current board will remain.
• Hospital Status: HHMH would remain a community hospital.
• The LOI says it will have a business plan by March 25.
• LOI does not provide information on what Ovation will charge for management.

Joint Powers Authority

The County of San Benito proposed a collaboration with San Benito Health Care District, and potentially the cities of Hollister and San Juan Bautista, to form a Joint Powers Authority (JPA). JPAs are legally authorized to allow public agencies to jointly exercise powers in common to its members; to be established for a specific purpose. JPAs also have authority to issue bonds or enter contracts with outside agencies. This LOI proposes this JPA to focus on the operation and financing of healthcare services. ECG Management Consultants was hired by the county to analyze and assess the hospital, and thereafter developed a business plan for the operation of the hospital and clinics.  

The county may adopt new development fees to supplement hospital revenues. The JPA proposes the establishment of an operating board, which will include two board members from each JPA member, and three to seven members from the community. The 9 to 11 member board will select its Chief Executive Officer and will appoint an auditor and treasurer.

The county proposes:

ECG Management consultants, Jeffrey Hoffman and Alex Keser present the final report on Hazel Hawkins Memorial Hospital during the San Benito County Board of Supervisors meeting Oct. 24. Photo by Monserrat Solis.

• Assets: District will keep its assets, as well as its long-term and current liabilities. It will continue to receive supplemental tax revenue. JPA will oversee the management and operations of the hospital.
• Bonds: Public bonds will continue to be repaid per original contracts.
• Employees: Over the next five to seven years, JPA would develop a multi-specialty medical group as hospital employees and has authority to restructure rural clinics, according to its LOI and business plan.
•  Seismic Retrofit: LOI did not address retrofit.
• Voter Approval: Must be passed by San Benito County Board of Supervisors, District Board and the United States Bankruptcy Court in San Jose. 
• Lease Term: Not applicable; no sale is necessary. If the agreement is terminated, any and all assets and liabilities of the JPA will be acquired by the district. 
• District Board: The district and its current board will remain. 
• Hospital Status: HHMH would remain a community hospital.
• JPA will provide $12 to $15 million of new capital for hospital operations: $5 million from the county and $7 to $10 million from public debt issued to JPA. 

*The San Benito Healthcare District scheduled a special meeting for March 4 at 5 p.m. The agenda can be found here.

Editor’s Note– BenitoLink removed the following sentence because we were unable to confirm for this report the number of beds currently in use at Chicago’s Mercy Hospital. “However, Cecilia Montalvo, a county consultant, told BenitoLink while the foundation reduced losses at Mercy Hospital in Chicago from $123 million to 60 million per year, it also ‘downsized the hospital from 200 beds down to about 40.’”

Other related BenitoLink articles:

We need your help. Support local, nonprofit news! BenitoLink is a nonprofit news website that reports on San Benito County. Our team is committed to this community and providing essential, accurate information to our fellow residents. It is expensive to produce local news and community support is what keeps the news flowing. Please consider supporting BenitoLink, San Benito County’s public service, nonprofit news.