Plan filed to liquidate bankrupt Madera hospital, but it’s not too late to reopen

Since filing for bankruptcy in March, the Madera hospital hasn’t filed a reorganization plan that would reopen its facility — which requires an outside party to save the hospital from its financial woes.

Preventing the hospital from liquidation has always come down to a potential outside partner providing a reopening plan that creditors are satisfied with. But now that a liquidation plan is on the table, a clear path forward has been set in motion. The case’s committee of unsecured creditors intends to vote on the plan by Feb. 13.

If it’s approved by the creditors committee and the judge, it would establish a trustee to oversee a liquidation process. Built into the liquidation plan, however, is a potential route to reopen the hospital, but only if an interested operator brings forth a favorable proposal. Only two remain: American Advanced Medical Inc. and Praise Healthcare LLC.

Both companies have submitted reorganization plans and management service agreements to the legal teams representing the hospital and the creditors committee, according to court documents. Those plans have not yet been made public.

Fresnoland was not able to reach Praise Healthcare, LLC, for comment.

AAMI’s Chief Strategy Officer Matthew Beehler told Fresnoland his organization has experience with taking over hospitals that have either closed down or are struggling, including in 2012 with Central Valley Hospital in Modesto, in 2019 with Colusa Medical Center and in 2020 with Coalinga Medical Center in Fresno County.

“The reopening of a hospital is a difficult, time-consuming, resource-draining process,” Beehler said. “We have been through it now four times and we’ve learned — every time we’ve done it, we’ve made fewer and fewer mistakes.”

Unlike Adventist Health’s plan, which largely relied on state funds to reopen the Madera hospital, AAMI’s pitch since the beginning was that it would be able to pay off the majority of the hospital’s debts. In September, AAMI’s legal team said in court that they could pay off $30 million of the Madera hospital’s debts.

Beehler confirmed AAMI’s intent remains the same and said his organization’s proposal brings “very significant resources to the debtor’s estate.” He said he couldn’t go more into specifics due to a mid-negotiation nondisclosure agreement.

Although AAMI has been in contact with the Madera hospital with proposals to take over the enterprise since before it closed in December 2022, the hospital board preferred other proposals on at least three occasions, according to court documents.

At one point, AAMI offered the Madera hospital’s CEO Karen Paolinelli a $150,000 check, which she called an inappropriate offer in September. AAMI’s legal team said the offer was not a bribe and not meant to give them an advantage in the competitive process to take over the hospital. 

Then in October, about a month before Adventist Health backed out of negotiations, the hospital’s board contacted AAMI to review its proposal once more.

Officials, residents remain hopeful for future Madera hospital

When Adventist Health backed out of negotiations to take over the Madera Hospital last month, it put everything back at square one: a bankrupt hospital with no viable plan to reopen and a county of 160,000 people that has gone close to a year without a local emergency room.

The next day, the creditors in the bankruptcy case released their formal plan to liquidate the hospital, valued at around $39 million. While that means the hospital is inching closer to liquidation, the plan also leaves the door open to the possibility of a reopening transaction to take place.

“I’m not taking the filing of a liquidation plan lightly,” said Joel Bugay, the assistant county administrative officer at Madera County. “But at the end of the day, several components have to align for a deal to materialize. I’m more hopeful today than I was a few months ago because there are, in my opinion, two viable entities that want to acquire the hospital, which then makes it more likely that a deal could be had.”

Since the spring, Madera County has been financially supporting a potential reopening of the Madera Hospital. They’ve covered more than $2.25 million in facility costs required to keep the hospital’s license from being revoked entirely. The county has also set aside $100,000 to renew the Madera hospital’s now-suspended license.

On Nov. 28, the Madera County Board of Supervisors allocated another $500,000 to the hospital to cover those expenses until the end of January 2024. 

Resources from the state have also been made available to Madera Community Hospital, thanks to advocacy in Sacramento from state Sen. Anna Caballero and Assemblymember Esmeralda Soria. They crafted California’s new Distressed Hospital Loan Program for nonprofit and public hospitals.

The program dedicated $150 million in loans to distressed hospitals in need of a cash infusion to right their ship. In the summer, the Madera hospital applied for $80 million, more than half of the statewide program’s total funds. It ended up getting awarded $57 million on the condition that the hospital’s chosen administrator submit a viable reopening plan.

However, the $57 million was not enough for Adventist Health to continue negotiating a reopening plan, leaving the Madera hospital without an outside partner with necessary capital to help it reopen.

“Although they said it’s an issue of money, I think it’s bigger than an issue of money,” Caballero told Fresnoland. She described the Madera hospital situation as one of the most “frustrating exercises” she has ever been involved with, especially after she worked to secure state resources to support the hospital’s reopening. 

Even before the hospital shuttered in December 2022, Caballero secured $5 million from California’s state budget to help the hospital. But whenever she asked for financial documents from Madera Community Hospital’s executives, she said they weren’t very willing to cooperate. 

“When I started asking for financial documents to help us figure out how we could be helpful, the answer that we got was, ‘We’re private, we don’t have to give you financial information.'” Caballero said.

Although Paolinelli, the Madera hospital’s CEO, said over email the hospital shared five years of audited financial statements with Caballero, the senator’s office said those documents didn’t describe the hospital’s financial state leading up to its closure, which is what Caballero requested. 

“Our board of trustees and leadership believe in transparency and open communication,” Paolinelli added over email.

The current hospital situation is a massive disappointment, Caballero said. It’s also a disappointment for community members who were eager to see Adventist Health lift the hospital out of bankruptcy, only to then see the firm pull out of negotiations months later. Caballero said any reopening would have to rebuild trust in the community. 

“There is a desire in the community for new leadership at the hospital,” Caballero said. “If you want to convince people to go to a hospital that’s been closed for a year plus, they want to make sure that they’re going to get good service.”