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CA Healthcare District Files for Bankruptcy

News  |  By Doug Desjardins  
   October 31, 2016

The West Contra Costa Healthcare District filed for Chapter 9 bankruptcy protection after a deal to sell hospital property to a hotel developer fell through.

The West Contra Costa (CA) Healthcare District announced its Chapter 9 filing October 20, nearly 18 months after the district closed Doctors Medical Center in San Pablo following years of financial problems.

In early 2016, Royal Guest Hotels, a boutique hotel operator, agreed to purchase the former Doctors Medical Center building and adjacent property for $13.5 million. But Royal Guests pulled out of the sale in September.

"The West Contra Costa Healthcare District board of directors was left with little choice but to file for Chapter 9 bankruptcy due to the recent decision by the prospective hotel developer, Royal Guest Hotels, to cancel their agreement to purchase remaining district property," said West Contra Coast Healthcare District Board Chairman Eric Zell.

The filing would allow the district to meet its remaining financial obligations to workers and business partners, Zell said.

"With no chance to bring in revenue in the short term to cover existing district expenses, such as workers compensation and medical record storage, the district board voted unanimously to file for bankruptcy to allow for the orderly disposition of remaining financial obligations, including those owed to past district employees and vendors," he said.

The Chapter 9 filing is not a complete surprise. Bankruptcy was mentioned as a possibility in a report released in August by consultant Berkson Associates.

The study examined several options for the future of the healthcare district that included reorganizing as a subsidiary district or shutting down. The West Contra Costa Healthcare District was running a budget deficit of $20 million at the time.

"Because the District no longer operates a hospital—the primary purpose for which it was formed—and does not provide any other health-related services, it is a candidate for dissolution, consolidation, or reorganizing," the study stated.

West Contra Costa is the third healthcare district in the state to file for bankruptcy in the last nine years, said Amber King, senior legislative advocate for the Association of California Healthcare Districts (ACHD).

"It's not common, but we have seen a few bankruptcies in the past decade due to problems like reduced reimbursement rates that are putting a strain on smaller hospitals," said King. California is currently home to 85 healthcare districts.

Risky Business for Rural Hospitals

In 2009, the Sierra Kings Health Care District filed for Chapter 9 bankruptcy. Mendocino Health Care District filed for Chapter 9 bankruptcy in 2012. Palm Drive Health Care District filed for Chapter 9 bankruptcy in 2014 with the closing of Palm Drive Hospital, which later reopened as Sonoma West Medical Center.

The West Contra Costa Healthcare District formed in 1948 and operated Brookside Hospital from 1954 to 1997. In 1997, Tenet Health purchased Brookside Hospital and renamed it Doctors Medical Center San Pablo.

The district took over Doctors Medical Center in 2004 and operated it until April 2015, when it was closed due to revenue shortfalls caused mainly by a decrease in patient volume and a high percentage of Medi-Cal patients.

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