The board overseeing Hollister, Calif.-based Hazel Hawkins Memorial Hospital is seeking to reenter Chapter 9 bankruptcy, arguing that a judge improperly tossed its case based on an "unduly narrow" view of insolvency tests while excluding its pension obligations from the analysis.
The San Benito Health Care District, which oversees the 25-bed hospital, voted in May 2023 to file for bankruptcy after declaring a fiscal emergency in November 2022. Chapter 9 allows financially distressed cities, hospital districts, and other public entities protection from their creditors while they develop and negotiate a plan for adjusting their debt.
The California Nurses Association objected to the filing and noted in a hearing last year that financial cuts led to lower-quality care. The union also said the hospital was solvent and able to pay bills through the fiscal year's end in June. A U.S. Bankruptcy Court Judge for the Northern District of California acknowledged the financial challenges Hazel Hawkins has faced but concluded the hospital is not insolvent.
In a July 17 court filing, the board said the central issue in its appeal is the extent to which the bankruptcy code requires a distressed municipal debtor to be out of cash on, or soon after, the petition date.
"The issue is of critical importance to the district and other municipal healthcare providers that must balance the desire to remain open with the obligation to ensure any winddown is initiated with sufficient funds to protect patient care," the board wrote in the appeal.
In addition to Hazel Hawkins — which is the only hospital in its county — the San Benito Health Care District also operates two skilled nursing facilities and offers primary and specialty care services at eight clinics throughout the county. The board said transitioning patients and preserving medical records in the event of a closure is costly ($5 million) and time-consuming (six months).
"If the bankruptcy code requires the district to be out of cash before filing its bankruptcy petition, eligible municipal healthcare providers would have to put public health and safety at risk before taking advantage of the protections of the bankruptcy code," the board argued in the filing.