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Richard Peil, senior managing director with B. Riley, a consultant brought on by the San Benito Health Care District gave an overview to the district of the four potential partner letters vying for the hospital’s ownership during the Feb. 22 meeting.
The health care district, which oversees Hazel Hawkins Memorial Hospital, declared a fiscal emergency Nov. 4, 2022, and filed for bankruptcy May 23, 2023. The district met with two health care unions Dec. 2, 2023 in bankruptcy court after the unions alleged the hospital had a positive net working capital, but no ruling has been made yet.
After filing bankruptcy, the health care district called for proposals to take over the hospital. Four parties have submitted a letter of intent (LOI). They include Insight, American Advanced Management (AAM), San Benito Healthcare Alliance, and San Benito County.
Insight
Insight, a Michigan-based nonprofit health organization submitted its LOI to the board on Jan. 9. In his presentation, Piel added that Insight’s letter included acquiring all of the hospital’s assets, excluding cash assets, and that the hospital would continue operating as a California nonprofit corporation.
Health care district Director Devon Pack asked Peil how each proposal met against the fair market value of the hospital’s assets.
Though he did not want to rank the proposals, Peil said both AAM and Insight include acquisition of assets, but only Insight met the hospital’s fair market value.
Peil added that Insight has hired an outside law firm for legal and bankruptcy counsel.
“They are working on, what I would refer to as, definitive transaction documents on the legal side of the equation,” Peil said. He added that Insight is moving aggressively and quickly.
The possible sale to Insight, which would require voter approval, would raise economic and legal issues, Peil said.
Selling the hospital would trigger an immediate repayment of the district’s revenue bonds totaling about $8.5 million, and Insight’s closing sale cash payment would cover the bond repayment, Peil said.
In addition, the possible sale would change the existing employee pension fund plan, forcing the district to pay out the plan in the amount of $34 million, Peil said.
American Advanced Management
Approved by the board on Aug. 7, 2023, AAM’s LOI includes acquiring all of the hospital’s assets, excluding cash assets. The letter stated that AAM would maintain the hospital’s acute-care services during a 10-year period, Peil said.
A sale to AAM would also involve legal issues, Peil said.
Because the sale would transfer the hospital to a for-profit organization, the hospital would be required to repay revenue bonds in the amount of $8.5 million—the same as with Insight’s sale—and AAM’s closing sale cash would cover the bond repayment, Peil said.
The sale would also force the health care district to pay out the existing $34 million pension fund plan—as would a sale to Insight.
Peil added that AAM has been unresponsive to questions about its Hazel Hawkins proposal following its pending acquisition of Madera Community Hospital, which closed its doors Jan. 3, 2023.
“I believe that’s where all their bandwidth has been focused for much of 2024,” Peil said. “Hopefully they’ll be able to reconnect with us sometime in the near future to go over some of our concerns.”
Peil continued: “As it’s outlined right now, in their current letter, the purchase offer doesn’t work for the district. It’s not economically viable, it doesn’t meet evaluation requirements and it has certain issues.”
The remaining letters lacked details necessary for an accurate analysis, Peil said.
Joint Powers Authority
On Feb. 7, San Benito County submitted a proposal to B. Riley, who gave an overview of a Joint Powers Authority (JPA) with the district, Peil said.
The proposal included a financial plan with a strategy to exit bankruptcy by recruiting physicians over the next 10 years, he said. The county anticipates that the district would take on about $20 million of additional debt.
Peil said he believed the proposal lacks detail on how the JPA would function and doesn’t address whether the health care district’s current board of directors would be part of the proposed JPA board.
“The proposal lacks granular details about the financial projections that were devised by the county’s consultants that relate to the viability of this growth plan of new physicians and new services,” Peil said. “As a result, we [B. Riley] are just not able to conduct any granular analysis of the feasibility of these financial projections.”
After his analysis, health care district directors posed questions.
Director Rick Shelton asked if the city of Hollister and Salinas Valley Memorial Healthcare Systems would still be involved in the JPA.
Peil said the city and Salinas Valley Memorial were not referenced in the latest documents from the county.
At San Benito County’s Feb. 22 town hall session on the JPA, county consultant Cecilia Montalvo said they are not interested in taking a “prominent role” but that they could partner in clinical programs.
Directors Josie Sanchez, Pack and Shelton asked about the county’s proposal to recruit 25 physicians.
Hazel Hawkins Chief of Emergency Medicine Dr. Michael Bogey said it would cost a minimum of $275,00 per doctor to recruit doctors to San Benito County due to the cost of living.
“It’s not as easy as calculating it out,” Bogey said. “I think that the initial cost, you could probably easily estimate a cost of somewhere between $6 million and $10 million to get 25 doctors here.”
“It’s true. We are living next to the most expensive county in California and the cost of living here is crazy,” Bogey said. “It’s very difficult to recruit physicians here.”
Shelton said the county’s timeline is aggressive, proposing to take over the hospital in August.
“It’s a situation where I think we need more time on this particular proposal,” Shelton said.
Director Jeri Hernandez agreed that the timeline was not realistic.
San Benito Healthcare Alliance
Peil spoke briefly about San Benito Healthcare Alliance, which submitted its LOI on Jan. 25. He said it did not offer many details.
“At the moment we’re not really able to offer a very meaningful assessment of the type of nature of transaction or economic arrangement that this organization has in mind.”
Following Peil’s analysis, Pack and Hernandez said a group consisting of the health care district’s Chief Executive Officer Mary Casillas, Vice President of Clinic, Ambulatory and Physician Services Amy Breen-Lema, Hernandez and Pack toured two Insight facilities in Michigan and Chicago at the end of January.
Pack said he was impressed with Insight’s diverse board with Black, South Asian and Islamic-cultured members.
Hernandez agreed with Pack and added: “They have a phenomenal team.”
Casillas said that Insight took over a building to start an after school program and was impressed by the “care Insight puts into the community.”
Casillas added the health care district’s ad hoc committee, consisting of Pack and Hernandez, also met with the county to discuss the JPA.
There were four public comments.
Robert Bernosky condemned Casillas, Hernadez and Pack for complimenting Insight after touring Insight facilities and failing to give the same attention to the county’s JPA.
Bernosky said he also visited Insight in Chicago and did not see a busy hospital.
“So something just isn’t right with what you’re saying that you’re so in love with what they’re doing with the community,” he said. “They are on a different mission from us. You’re a hospital, you’re not a community center.”
He claimed the district was “dissing” the county’s proposal.
“You did not give the JPA the same treatment that you gave AAM and Insight,” he said, adding that the district gave AAM and Insight a special meeting to present its letter, but not the county.
A comment from Roxy Montana questioned the district’s visit to Insight and whether Hazel Hawkins physicians were invited on the tour.
Hernandez said no clinical staff from Hazel Hawkins took the tour. She didn’t directly answer if the district’s visit was planned in advance or unannounced.
Casillas said Insight would visit in March to meet with Hazel Hawkins staff and that staff would have the opportunity to put questions to Insight executives.
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