Miracle: How Watsonville Hospital Was Saved

By Jondi Gumz

Last December, a dozen hospitals across the U.S. filed for Chapter 11 bankruptcy protection to redo their finances, as budgets were the red due to lower reimbursements and fewer patients were coming in.

Eleven closed.

Communities lost important services, and thousands lost their jobs.

Only one has stayed open since then — Watsonville Community Hospital, with 106 beds and 650 employees, serving Pajaro Valley, a city of 53,000 plus people in unincorporated Monterey County just across the Pajaro River bridge, and the only medical facility with an emergency department in South County.

It’s a rare good-news story that Steven Salyer never tires telling.

Salyer is the CEO of Watsonville Community Hospital.

He’s the 21st leader in that position, a sign of the turnover that made it difficult to accomplish anything.

He clearly relishes a challenge.

On Oct. 13, speaking to the Aptos Chamber of Commerce, he shared his “sense of gratitude” to have another year at the helm.

“In the end, the community needs this hospital,” he said.

Coco McGrath, who was born at the old Watsonville hospital and whose family goes back to 1879, lives on a berry ranch. The berry pickers harvesting the crop “need our hospital as well,” she said.

Santa Cruz County needs more than one hospital emergency department, according to Rochelle Noroyan, corporate and community relations director at Second Harvest Food Bank.

“Go hang out at the Dominican Hospital ER,” she said.

On Nov. 4, the Aptos Chamber recognized Watsonville Community Hospital with the award for “Outstanding Achievement.”

Last year, Salyer was chief operating officer of UP Health System, a 222-bed hospital in Marquette in Michigan’s Upper Peninsula.

After working at hospitals in Tennessee, Florida and Michigan, Salyer, a California native who served in the Marine Corps in San Diego, wanted to get back to California.

The offer from Prospect Medical Holdings, which owned Watsonville Community Hospital, seemed to be just what the doctor ordered.

Once Salyer arrived in July 2021, he faced “significant chaos.”

Then, only months later, the bankruptcy filing.

With so many hospitals closing their doors, the fact that Watsonville Community Hospital stayed open is a miracle.

What made it possible was raising $67 million to buy the hospital operation from the for-profit owner and fund initial operating costs, and creating a new nonprofit, which required legislation be approved at lightning speed to meet the bankruptcy judge’s deadline.

That success resulted from a lot of support in the community here and in Sacramento, where legislators had a record budget surplus.

“We asked for $20 million and they came through with $25 million,” Salyer said, crediting Sen. John Laird, D- Santa Cruz, for shepherding the legislation and championing the cause.

Laird told Salyer he had a suspicion the fundraising would be $5 million short.

The community came up with $40 million.

Community Health Trust of Pajaro Valley, created when the old Watsonville hospital was sold, put in $6 million — “one of our key patrons,” Salyer said.

The funds go into a foundation with oversight from the Attorney General’s office for 20 years.

Keeping the doors open were the staff who stayed rather than bail out — and the patients “because you still need revenue,” Salyer said, noting “we kept 100% of the staff.”

Employee salaries and benefits represent the largest costs for a hospital, and over the years in Watsonville, negotiations produced agreements in which employees worked part-time and got full-time benefits.

“We’re asking them to put in a few extra hours,” Salyer said, “so we’re right-sized.”

He added, “We have staff physicians from the top medical schools. Our staff is the same way. We ‘re as good as our people … Help us with the rhetoric out there.”

His recipe for a turnaround:

Boosting revenue by parity with payers such as Aetna and Kaiser Permanente: $11 million.

Reducing spending for traveling nurses: $8 million.

Negotiating for parity with suppliers: $2 million.

Going nonprofit: $1 million.

Attracting patients with private health plans, such as Kaiser Permanente, which pay for more services than Medicare or Medi-Cal.

Currently 40% of patients have commercial insurance plans, such as Aetna or Kaiser Permanente.

Salyer sees a need for a catheterization lab, which would serve heart patients.

“We have interventional cardiologists on staff,” he said, mentioning interventional radiology and new surgeons.

Dominican Hospital, in Santa Cruz, has the only cath lab in the county.

He’s hired June Ponce as the new outreach director.

An empty space on the second floor could be a psychiatric ward, Salyer said. “We’re talking with the county.”

County meetings with the business community found there is a need, and demand, for additional in-patient psychiatric beds.

He has renderings prepared by an architect and expects that will be topic for upcoming strategic planning, replacing the prior owner’s micromanagement.

Strategic planning will involve the new board of the Pajaro Valley Health Care District (Dr. Joe Gallagher, who was on the hospital staff, is the top vote-getter so far in the Nov. 8 election, followed by county budget chief Marcus Pimental) with a focus on key stakeholders such as Kaiser Permanente and Community Health Trust, and bonding with the staff.

“How will we all work together,” he said, predicting that in two years people will say “this was the best thing ever.”

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The Pajaro Valley Healthcare District Board will meet in the afternoon on Nov. 30 and Dec. 28. The agendas and YouTube recordings of past meetings are posted at https://pvhcd.org/pvhcd-meetings/