Watsonville Community Hospital is on a downward financial track after years of steady recovery. (Amaya Edwards — Santa Cruz Local/Catchlight Local)
WATSONVILLE >> Watsonville Community Hospital lost more than $24 million last year, due to fewer patient visits and an onslaught of setbacks including a cyberattack, equipment failures, and state and federal funding changes.
“It was a really rough year,” said Julie Peterson, the hospital’s chief financial officer, at Wednesday night’s board meeting. A report on 2025’s finances showed the hospital made about $35 million less in revenue than was expected, but was able to save about $9 million, mostly in supplies, to partially offset the loss.
Ending the year that far in the red doesn’t come as a surprise for Tony Nuñez, chair of the Pajaro Valley Health Care District board, which owns and oversees the hospital. But he said it worries him.
“We refuse to cut services until we absolutely have to,” Nuñez said. Last month the board approved a 2026 budget with a $5 million loss, and leaders are looking to a partnership with a private company to pull the hospital out from continued fiscal disaster.
A public-private partnership could see a company like Sutter or Dignity Health taking over the hospital’s operations while the Pajaro Valley Health Care District retains administrative control.
The details of such an agreement are still being negotiated and a more concrete proposal is expected to come before the board by the end of March.
But if a partnership agreement falls through, he said, the hospital will be looking at some very hard decisions, like cutting some services. While 2025 was “an awful year” for the hospital financially, he said this and the coming years are not looking any easier.
On top of the $5 million in budgeted losses for 2026, they are expecting another $3.3 million hit after receiving word that a federal grant will be less than expected, hospital CEO Stephen Gray said at the meeting.
The “quality assurance fee” grant comes from the U.S. Centers for Medicare and Medicaid Services to reimburse hospitals for treating Medicaid patients, because government-funded plans generally pay less for patient treatments and procedures than private health insurance.
Not only is the grant less than what the hospital budgeted, Gray said, it’s also uncertain when the money will come in. California health officials are expected to push back on the reduced funding, and have 60 days to respond.
Those dollars “really should have been approved almost a year ago,” Gray said. “Had it been approved by CMS at the level that the state had wanted it to be, it would have been a nice increase for us, helped us offset a lot of our losses.”
Nuñez said the hospital is bracing for the quality assurance fee money to be cut back even further next time, which “is going to make ’26 and ’27 even harder for us.”
The financial setback is frustrating for hospital leaders in part because the health care district was established to pull the hospital out of impending bankruptcy and possible closure after a for-profit company ran its finances into the ground.
The district formed in 2022 and hospital finances were on an upward track. The hospital was in the red by $30 million in 2022, about $23 million in 2023 and nearly broke even in 2024 with a loss of less than $1 million.
“We did such great work in 2024 to get out of the hole,” Nuñez said, but multiple factors have “just continued to mount on us.”
The hospital’s ICU nearly shut down earlier this month after failing to staff its night shift nurses. After outcry from hospital nurses they managed to put together a staffing plan for four weeks with many nurses taking on night shifts to make it work. That agreement has been extended another month, through March 7, but a long term solution has yet to be determined.
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Nik Altenberg is a bilingual reporter and assistant editor at Santa Cruz Local. Nik Altenberg es reportera bilingüe y editora asistente para Santa Cruz Local.
