Watsonville Community Hospital is once again facing a financial crisis.

Right now, the hospital has reportedly been operating with fewer than 10 days of cash on hand — an extraordinarily difficult position for any hospital, especially one that serves so many families across the Pajaro Valley and south Santa Cruz County. Hospitals generally try to maintain months of reserves to weather unexpected financial problems. 

Watsonville does not have that cushion.

The danger is real. Federal funding cuts and delays tied to last summer’s passage of HR1 have hit hospitals across the country, especially hospitals like Watsonville, where roughly 85% of patients rely on Medicare, Medi-Cal or other public health programs. Those programs already reimburse hospitals below the actual cost of care. When federal support dries up, community hospitals feel it immediately.

That is why the legislature and Gov. Gavin Newsom moved quickly this month to approve Assembly Bill 108, emergency legislation pushed by state Assembly and Senate leadership and designed to help a small number of financially distressed hospitals stay afloat. A few days ago, Watsonville Community Hospital was awarded a $10.6 million grant through the distressed hospital program created by AB 108.

The funding is intended to help the hospital get to July 1, when we expect that another distressed hospital program will be put into place by the state budget.

This scenario – of Watsonville Community Hospital needing emergency help – might sound familiar. 

In 2021, I got a call from then-County Executive Officer Carlos Palacios warning that Watsonville Community Hospital was heading toward a financial reckoning. By the end of that year, the private equity firm that owned the hospital announced plans to close it.

What followed was one of the most extraordinary community efforts our region has seen in years.

At the beginning of January 2022, I authored Senate Bill 418 with Assemblymember Robert Rivas to establish a public hospital district. The bill moved through the California Legislature in less than three weeks. The bankruptcy court accepted the district’s bid for the hospital days later, and residents, healthcare workers, local businesses, elected officials and community leaders came together to raise the money needed to keep the hospital open.

If Watsonville Community Hospital had closed, there would have been no emergency room between Santa Cruz and Salinas. Thousands of residents would have lost access to emergency care, maternity services and basic health care. More than 600 people would have lost their jobs.

For many families in the Pajaro Valley, that would have been devastating.

The next year, voters approved Measure N so the hospital could purchase its facility, improve services and begin rebuilding for the future. The state recognized the situation with many stressed hospitals and created the distressed hospital loan program, which helped hospitals across the state – including Watsonville and Hollister’s Hazel Hawkins Hospital – with their fiscal challenges. 

Watsonville was on a path to long-term solvency, and it was expected that this year was the first year in many that the hospital would have been in the black. There was real optimism about where the hospital was headed; it finally seemed like Watsonville Community Hospital was moving toward financial stability after years of losses.

But federal officials had other ideas. 

With the passage of HR1 last summer, various federal funding sources for hospitals across the country started to dry up. Funds for disadvantaged hospitals and hospital fee program funding were cut or delayed.  Hospitals like Watsonville, with so many patients needing public medical assistance, were particularly hard hit. Those programs do not reimburse the full cost of medical services as it is, and if a hospital relies on a disproportionate share of public payees, it struggles. The federal bill will knock millions of people off healthcare nationwide, and hospitals like Watsonville will take a hit.

These cuts put Watsonville Community Hospital back where it was financially when it was rescued in 2022, despite making real progress in the intervening years. Right now, the biggest issue is cash flow. Hospitals generally try to keep months of reserves on hand to get through unexpected financial problems. 

Again, Watsonville Community Hospital has less than 10 days of cash on hand and needs this state infusion to stay afloat. 

The eligibility standards to access this emergency funding are strict. Hospitals have to show very limited cash reserves, serious financial distress and a patient population heavily dependent on Medi-Cal, Medicare and other public health care programs. While this legislation is not a permanent fix, it gives hospitals some short-term breathing room.

None of this will be easy. Community hospitals across California are dealing with rising costs, staffing shortages, and aging facilities while continuing to care for large numbers of low-income patients.

But keeping a community hospital open does not happen because of one election, one bill or one round of funding. It takes years of work, difficult decisions and a lot of people who care to continue to work together.

After July 1, there will be more difficult choices. Hopefully, the federal hospital fee program funding will come through. Hopefully, a state distressed hospital program will be put in place – even though there is not enough money to fund everything that is needed for such hospitals in California. And there is the possibility of a long-term partnership with another entity to help Watsonville Community Hospital make it. 

No one should assume the difficult decisions are behind us. 

Giving up is not an option. Watsonville Community Hospital is too important to the Pajaro Valley, too important to South County families, and too important to health care in this region for us to walk away. The community already proved that this hospital is worth saving. 

Now we need to keep doing the hard work in the coming months to make sure it stays that way.