‘Jilted lover’ or likely suitor? New firm wants to take over bankrupt California hospital

Less than a week after the state announced a multi-million dollar loan for a bankrupt Central San Joaquin Valley hospital, a new player has emerged unexpectedly that wants to take over hospital management.

Modesto-based hospital management company American Advanced Management, Inc., announced their interest at a bankruptcy hearing Tuesday in taking over operations of Madera Community Hospital.

The company says it has experience saving bankrupt medical facilities. Earlier this month, the company announced a proposed “lease to own” partnership to take over Hazel Hawkins Memorial Hospital in Hollister, according to CalMatters. They also operate Coalinga Regional Medical Center in Fresno County. The hospital system says on its website that it was the first company in California to revive a rural hospital following bankruptcy and closure.

“We want to make sure the public knows there’s an alternative,” Matthew Beehler, chief strategy officer for American Advanced Management, said in an interview with The Bee on Tuesday.“This hospital is of interest to us because of our facilities that are nearby, and we believe that there’s an opportunity here,” said Hamid Rafatjoo, a partner with Raines Feldman Littrell LLP and counsel for American Advanced Management, Inc., during a Tuesday bankruptcy hearing.

News of this new interested party comes just days after the state of California announced that Madera Community Hospital now has access to a $50 million state loan, plus a $2 million bridge loan to cover operational costs while it works out a potential deal, as part of the state’s Distressed Hospital Loan Program.

Madera Community Hospital is already in negotiations with another suitor, Adventist Health, a faith-based, nonprofit health system operating in California, Oregon and Hawaii. The proposed Adventist deal was made public late July and is contingent upon the $50 million loan from the state in year one, plus another $30 million in funding for year two.

Madera Community Hospital closed in December and filed for bankruptcy in March after a deal fell through to sell the hospital to Trinity Health, owners of Fresno-based St. Agnes hospital. The abrupt closure left 160,000 Madera County residents without access to an acute medical care facility in their county.

So far, Madera Community Hospital hasn’t shown any interest in American Advanced Management’s proposal, according to Rafatjoo. He criticized the hospital’s leadership for not seriously considering their offer and filed a motion for discovery to investigate why the hospital hasn’t reported its other options to the court.

“We would like to … find out if this is a situation where people are just trying to preserve their jobs in the future,” Rafatjoo said at a Tuesday bankruptcy hearing.Without providing any evidence, he said that under Adventist Health’s proposal, management would be able to keep their jobs, but not with American Advanced Management. (The Adventist Health letter of intent doesn’t specify details on hospital management’s future employment.)

Madera Community Hospital Chief Executive Karen Paolinelli said in an email statement to The Bee that Rafatjoo’s contention is “completely false.”

While Paolinelli said she couldn’t share information on potential suitors, she said “the hospital Board of Trustees voted on Adventist Health as they felt Adventist Health would be able (to) serve the health care needs of our community in the future,” Paolinelli said.

Riley Walter, an attorney representing Madera Community Hospital in the bankruptcy proceedings said that American Advanced Management was “acting like a jilted lover who wants to get back together.”

Madera hospital “welcomes the opportunity to respond to AAMI (American Advanced Management Inc.) and to lay out its reasons why the Board chose Adventist,” he said.

Madera Community Hospital still has the exclusive right until Oct. 6 to put forth a plan to file a reorganization plan to keep the business alive and to pay creditors over time.

Advanced American Management was able to address the court because they recently purchased a general, unsecured claim of $391 to Madera Community Hospital, court records show.

What American Advanced Management is proposing

According to American Advanced Management executives, they’ve been engaged with Madera Community Hospital since December 2022.

Beehler said they want to turn Madera Community Hospital into a true community hospital that serves as a referral destination where they can transfer patients from their Coalinga-based facility, for example.

“For us, we want Madera (Community Hospital) to be a hub, not a spoke,” he said.

They’re proposal includes a management services agreement to run the hospital, followed by a transition to change of ownership with an asset purchase agreement. They’re also putting up to $30 million of their own funding in the deal in exchange for the real estate and license of the facility.

As part of this plan, “creditors would be, if not paid in full, close to that,” Beehler said.

American Advanced Management says in court filings that their proposal is “materially more favorable to the Debtor (Madera Community Hospital), its estate, and its creditors than that proposed by Adventist Health.”

Beehler said they also offered to cover the hospital’s operational costs so that Madera County taxpayers don’t have to foot the bill during negotiations. On Friday, Madera County Board of Supervisors voted to allocate $500,000 to support the hospital’s operational costs during the month of September, in addition to the $500,000 they gave to the hospital in August.

Adventist, he said, is not contributing any of their own funds to help reopen the hospital.

“Our belief is that (Adventist Health’s current proposal) has a low likelihood of success in getting through bankruptcy court, especially given that there is an alternative proposal that brings significant repayment to the creditors,” Beehler said.

It isn’t immediately clear when or how creditors would be paid under the proposed deal with Adventist Health. A spokesperson for Adventist Health didn’t answer specific questions from The Bee about a proposed repayment plan for creditors.

Creditors want to see other proposals

Madera Community Hospital creditors say they want to see more proposals for the hospital.

Andrew Sherman, legal counsel for the creditor’s committee said Tuesday that they’d welcome discussions from “all potential interested acquirers.”

“As far as where a transaction ultimately goes,” Sherman said, “we welcome a competitive process.”

American Advanced Management, Rafatjoo added, is “not gonna go away.”

“Everybody is hanging their hat on this concept of ‘oh, we already signed up with Adventist,’’ he said, “that’s not binding on this estate.”

Any deal that Madera Community Hospital moves forward with requires court approval.