A healthcare system that planned to take over operations of the shuttered, bankrupt Madera Community Hospital has backed out of negotiations — calling into question whether the hospital can find a viable partner to reopen before creditors push for liquidation of its assets.
Riley C. Walter, an attorney representing the Madera hospital in its bankruptcy proceedings, told The Bee on Thursday that Adventist Health informed the hospital it was “unable to find a fiscally viable solution for the costly process of reopening, especially given the limited financial resources available and current economic pressures facing rural and safety net providers.”
Hospital creditors also announced in a bankruptcy hearing Thursday they are taking steps to liquidate, or sell off, the hospital’s assets to pay back creditors.
Madera hospital closed in December and then sought partners to help it reopen. Adventist, a faith-based nonprofit health system operating in California, Oregon and Hawaii, was announced in July as the chosen partner.
Adventist Health confirmed in a press release shared with The Bee on Thursday afternoon that it will no longer pursue the management of hospital.
“Adventist Health intended to create a management model that would not just reopen the hospital but ensure Madera Community Hospital could be sustainable for years,” the statement said. But after analyzing the data, operational costs and developing a business plan with industry experts, Adventist couldn’t find a “fiscally viable solution for the costly process of reopening and operating a closed facility.”
The broken deal marks the second time a major hospital system has backed out of a deal with Madera, which was the only general acute care hospital for adults in Madera County. In December, Trinity Health, owners of Fresno’s St. Agnes Medical Center, pulled out of a deal to purchase the hospital.
The latest announcement is another twist in the bankruptcy process that has included allegations of a “bribe” for the hospital’s chief executive, revelations of multiple ”immediate jeopardy” situations prior to the closure that put patients at risk and months of financial assistance from Madera County to keep the hospital running.
The development also raises questions about the future of the $50 million state loan set aside for Madera hospital, which was designated for reopening with Adventist Health.
Adventist Health had already started recruiting for medical staff such as primary care physicians, emergency and general surgeons, pediatricians and other specialty care doctors, according to multiple online job postings. One job posting shows that Adventist Health was offering $50,000 sign-on bonuses for qualifying applicants.
A source familiar with the bankruptcy process said that the hospital’s creditors opposed the deal with Adventist because it didn’t include a clear plan to repay creditors. He asked to remain anonymous because he’s not authorized to speak on behalf of creditors.
Walter, Madera hospital’s lawyer, denied the allegation that the creditors had a role in Adventist’s decision to back out.
“While it is true that the AH (Adventist Health) proposal was unclear as to the treatment of creditors,” he said, “I don’t think this was a factor in the decision to withdraw.”
Fate of $50 million hospital loan is unclear
Assemblymember Esmeralda Soria, D-Merced, said the news of Adventist dropping out as a reopening partner is “disappointing” but that reopening the hospital continues to be her “number one priority.”
“Despite the set-back, I remain determined to work hard every single day to find a path forward to reopen the hospital and restore healthcare access to our community,” Soria said in a statement Thursday night. Soria co-authored a bill that created the Distressed Hospital Loan Program, which has awarded over $300 million in loans for 17 community hospitals across California, like the Madera hospital.
At least one community activist questioned what this means for the hospital’s future — as well as the future of the state funds set aside to reopen the hospital.
“Saying I’m disappointed is an understatement,” Baldwin Moy, an attorney for California Rural Legal Assistance, said in an email statement to The Bee. The organization is a community advocacy group that works in Madera as well and as a party-of-interest group in the bankruptcy proceedings.
“It’s hard to know what will happen,” said Moy, referencing the state loan for the hospital.
The fate of that $50 million loan to help reopen Madera Community isn’t clear since a new reopening partner would have to be approved for the funds.
“If Madera Community Hospital amends its application due to its bankruptcy case, or other developments, any revisions to the application would be re-evaluated by the program,” a spokesperson for the Department of Healthcare Access and Information, the agency overseeing the state’s distressed hospital loan program, told The Bee.
Madera hospital creditors taking steps to liquidate
Lawyers for the hospital’s unsecured creditors say their decision to file a liquidation plan is meant to establish a deadline for the hospital’s search for a potential suitor.
“We just can’t sit by and wait any longer,” said Boris I. Mankovetskiy, a lawyer with Sills Cummis & Gross P.C., a firm representing the hospital’s unsecured creditors, via Zoom court.
“Bankruptcy cases are more akin to fish than fine wine: They don’t age well,” Mankovetskiy said, “and I think this case has been pending for quite some time now.”
He stressed that the creditors “continue to hope” that the hospital can find a “viable value maximizing transaction” that benefits the community, creditors and stakeholders. The plan is expected to include an option for the hospital to propose a deal with a suitor that can be brought before the court before the liquidation process starts.
Madera hospital has other suitors, but is running out of time
The hospital still has two interested suitors, Walter said. One is a Modesto-based hospital management company.
“American Advanced Management is continuing to pursue the opportunity to reopen Madera Community Hospital,” Chief Strategy Officer Matthew Beehler said in an email statement to The Bee on Thursday.
Last month, AAMI was invited by the hospital to present their proposal to the board of trustees, Walter said during an Oct. 24 hearing.
Until that point, communication had broken down between the two. In August, the hospital’s lawyers said AAMI had acted like “a jilted lover who wants to get back together” and accused the firm of trying to “improperly influence” the hospital’s chief executive with a $150,000 check.
It’s not immediately clear who the second suitor is.
Doctors in Madera are concerned with the process to secure a hospital reopening partner.
“We’d like to see the hospital reopen,” Dr. Kanwal Singh, a cardiologist in Madera, told The Bee, “and we appreciate any and all help we can get.”
Dr. Ranjit Rajpal, a Madera cardiologist for over 40 years who used to see his patients at Madera Community Hospital, said he wants to see new management in charge of the hospital.
Whoever takes over hospital operations, Rajpal said, “it’s very important that they don’t use the same outfit running the hospital because that is what caused the failure.”
Rajpal said the hospital didn’t have a contingency plan in late 2022 when negotiations to sell the hospital to St. Agnes’ owner, Trinity Health, fell through. “They have no vision,” he said.
Walter, the hospital lawyer, declined to respond to that on Thursday. He added that all proposals from potential suitors indicate that acquirers decide on management decisions, not the hospital.
The Madera hospital board of trustees is expected to meet Monday to select a new suitor. Any suitor the hospital selects is subject to approval by the bankruptcy judge and the California attorney general.