Madera County could commit $500K lifeline to bankrupt hospital. Why it’s a ‘big deal’

Madera County leaders are expected to extend a half-million dollar lifeline to help the county’s shuttered, bankrupt hospital stay afloat through August as it negotiates a deal with a possible suitor.

The Madera County Board of Supervisors plans to vote next Tuesday on whether to allocate $500,000 to Madera Community Hospital. The money would cover another month of expenses – including building maintenance, utilities and salaries – as Madera Community races to find a new partner that would either purchase the hospital or operate it as an acute care facility.

Fresno-based St. Agnes Medical Center and its parent company, the hospital chain Trinity Health, walked away from a proposed merger with the Madera hospital late last year. The hospital filed for bankruptcy in March.

County leaders say the cash infusion would demonstrate a commitment to reopening the hospital and fend off, at least temporarily, mounting pressure from creditors who seek liquidation of the hospital’s assets. The board of supervisors is considering this funding now, they say, because of two positive developments: the possibility of a loan through the state’s new Distressed Hospital Loan Program and the news of a potential partner.

Madera Supervisor Robert Poythress said in a phone interview with The Bee that the county would commit the money to “hold off the creditor’s committee from taking any action that would permanently close the hospital.”

The county indicated its willingness to provide short-term financial support for the hospital on Tuesday, the same day that a bankruptcy judge in Fresno heard arguments about whether the Madera hospital should be allowed to continue running a skeletal operation while it seeks a buyer and develops a reopening plan.

The promise of county funding was a key bargaining chip at the proceedings, when U.S. District Judge René Lastretto II gave the hospital until Aug. 4 to continue its spending plan and look for a potential suitor. (The judge could have denied an extension of the spending plan, which would have likely meant liquidation of assets to pay off its creditors.)

Another hearing is scheduled for next Tuesday in the U.S. Bankruptcy Court Eastern District of California.

“Hopefully by then, we’ll see a path forward,” said Lastretto during Tuesday’s hearing.

Madera hospital ‘close to accepting’ deal

Any potential suitor is likely to be either a health care or hospital system that would take over operations through a management agreement.

Madera Community Hospital’s chief executive, Karen Paolinelli, told KFF Health News last week that the current, unnamed suitors are interested in reopening the hospital as an acute care facility, possibly with scaled back services.

Riley C. Walter, Madera Community Hospital’s bankruptcy lawyer, said during Tuesday’s hearing that MCH is “close to accepting a proposal from a healthcare system.”

Walter also said the hospital is looking at a “strict” management services agreement with a hospital system that’s done this in other municipal bankruptcy cases. There may be an option to purchase the hospital in the future, he said.

In an email statement to The Bee, Walter said that the county’s funding commitment is a “big deal” that will likely help secure additional time from the creditors.

He added that “MCH will likely reach an understanding and maybe an agreement in principal by mid-August.”

An agreement doesn’t mean the hospital would open right away. There would be “a lot of time” between when the deal is reached and when the hospital would reopen, Walter said. Any agreement would be subject to court approval.

Baldwin Moy, an attorney for California Rural Legal Assistance, a community advocacy group and party of interest in the bankruptcy proceedings, said in an email statement to The Bee that the supervisors’ cash infusion would help the hospital avoid a “total shutdown” during this fluid time.

“I’m cautiously optimistic,” he said, “looks like the stars are aligning for a reopening of the hospital.”

County supervisors: reopening hospital ‘is a priority’

District 1 Supervisor Jordan Wamhoff said during Tuesday’s board meeting that he was ready to take this “very strategic risk” because the hospital’s future is at a critical juncture.

“We are at that precipice right now,” Wamhoff said, “and I think it sends a message to others involved that reopening this hospital is a priority for us.”

Poythress said the county was willing to put money into the hospital now, as opposed to other points, because of developments in the case.

“It’s one of those situations where the hospital for the first time in a long time received a serious offer,” he said, “or maybe not an offer, but interest.”

At the same time, the situation is “dire” due to the pressure from the creditor’s committee seeking repayment and the hospital’s dwindling funds, he said.

Joel Bugay, assistant county administrative officer, said the board is planning to approve the allocation of the $500,000 of federal American Rescue Plan money next Tuesday, with a payment plan of $125,000 per week. Disbursement of these funds is contingent upon the county’s receipt of a letter of intent from a credible partner, provider or suitor for the hospital, Bugay said.

The “number one goal,” he said, “is the restoration of services” in the county.