Madera Community Hospital Reopens After Emerging from Chapter 11 Bankruptcy with Help from Perkins Coie and the California Distressed Hospital Loan Program

SAN FRANCISCO (March 19, 2025) - Perkins Coie congratulates Madera Community Hospital (MCH) on its reopening yesterday. MCH’s closure in January 2023 left the 160,000 residents of Madera County without its only full service, acute-care hospital and with the closest emergency room more than 23 miles away in Fresno. The reopened hospital will now provide critical emergency room and in-patient services under the management of new operator, American Advanced Management Inc (AAM). 

MCH filed for Chapter 11 bankruptcy protection in March of 2023. Perkins Coie and Sills Cummis & Gross, as co-counsel to the Committee of Unsecured Creditors (Creditors Committee), negotiated the bankruptcy plan whereby AAM agreed to take over management of MCH, pay the expenses of reopening of the hospital, and contribute up to $31 million into a liquidation trust to fund a projected 100% recovery for MCH’s creditors. The confirmed plan became effective on May 7, 2024, and was a critical step to facilitate the hospital’s reopening.

The Perkins Coie legal team was led by senior counsel Paul Jasper and consisted of fourteen lawyers from multiple practice groups, including Bankruptcy & Restructuring, Healthcare, Litigation, and Labor and Employment.

The hospital’s reopening is extraordinary given the dire financial circumstances it faced. MCH closed in January 2023, and laid off over 700 employees, after sustaining losses of more than $25 million in 2022. At the time of its bankruptcy filing, the hospital’s provider licenses had been suspended and the costs to reopen were estimated to exceed $50 million. MCH sought to immediately terminate a multitude of critical equipment leases and considered shutting down its boiler to stem continued daily losses. The Committee’s successful opposition of those efforts preserved a lifeline for the hospital to be purchased and reopened.

As co-counsel to the Creditors Committee, Perkins Coie led negotiations with Madera County that resulted in the county’s commitment to fund the hospital’s monthly operating expenses for months, while Perkins Coie simultaneously negotiated the transaction with AAM that led to the hospital’s reopening and a projected 100% recovery to creditors. 

Key to the successful reopening was AAM successfully navigating California’s Distressed Hospital Loan Program (DHLP) to obtain access to more than $50 million of DHLP loans to support the hospital’s reopening. The DHLP was created to provide stop-gap financing to not for profit and public hospitals struggling in the wake of the COVID-19 pandemic with increased labor costs and inadequate reimbursement from public and private insurance programs. DHLP offered distressed hospitals interest free loans, secured by the Hospital’s Medi-Cal reimbursements, with a tight repayment window — repayment begins 18 months after the initial disbursement and loans must be fully discharged within 72 months.

Since emerging from bankruptcy, MCH has used its DHLP loan to make significant improvements to the hospital’s facilities and hire and train hospital staff. MCH is now in a strong position to serve its community for years to come. 

Seventeen other hospitals took advantage of the DHLP in 2023-2024, and in many cases repayment of the DHLP loans is already under way. Companies in the healthcare and medical sector, however, continue to face unprecedented challenges posed by increased labor and supply costs and uncertainty in capital markets. California hospitals in particular face a demanding regulatory environment and unique challenges in serving low-income and vulnerable populations. 

Perkins Coie, along with its co-counsel Sills Cummis & Gross, played a similar role in the Watsonville Hospital bankruptcy case, which was filed on December 5, 2021. As with MCH, Watsonville hospital served a low income, rural community with a patient body primarily reliant on Medi-Cal and Medicare. In both cases, the increasing costs of providing health care increasingly exceeded Medi-Cal and Medicare reimbursement rates, leading to more than $25 million of pre-bankruptcy annual losses for both hospitals. Nevertheless, on February 23, 2022, the Bankruptcy Court for the Northern District of California approved the sale of Watsonville Hospital to the Pajaro Valley Healthcare District Project (Project), a nonprofit organization created by the Santa Cruz County, the city of Watsonville, Salud Para La Gente and the Community Health Trust of Pajaro Valley. To make the sale possible, stakeholders successfully sponsored legislation to form a new California health care district to acquire and operate the hospital. The sale of the hospital to the Project closed on August 31, 2022.

Lawyers with Perkins Coie’s Bankruptcy & Restructuring and Healthcare teams can help hospital groups and operators to navigate this challenging environment.