Coast Hospital District/Adventist Health Restructuring Lease Agreement… Or Else!

The Mendocino Coast Health Care District (MCHCD) held a special board of directors meeting on October 1st. After roll call Chair Paul Garza read the following statement, “On September 30, 2024 the Mendocino Coast Health Care District received notification from Adventist Health that based on Section 19.11 in the Lease Agreement between Adventist Health and MCHCD they would like to renegotiate the terms of the lease. The MCHCD Board of Directors will review the Restructure Notice and explore every possible option to continue to provide access to healthcare services to residents on the Coast. We will keep the public apprised of the situation as we know more.”

The basic background: Since July 1, 2020 Adventist Health (AH) has run the day to day operations of the coast hospital in Fort Bragg. AH has taken in all profits and incurred the losses from those medical practice operations. The healthcare district still owns the buildings and property where the hospital rests. Hence, a landlord – lease arrangement between MCHCD and AH.

Unfortunately, the statement read by MCHCD Board Chair Garza did not touch on the full notification from Adventist Health's Northern California Network President, Eric Stevens. Stevens' September 30, 2024 letter was addressed to the Mendocino Coast Health Care District, Attn. Paul Garza, Board Chair:

“This letter is a follow up to our discussions on September 26, 2024, wherein we discussed what the best path forward would be to allow us time to evaluate our relationship under the Lease and the implications those discussions may have on the TBOA [Transfer of Business Operations]. We tentatively agreed to Adventist Health Mendocino Coast (“AHMC”) providing a Restructure Notice under Section 19.11 Lease, using the 60-day period to evaluate our relationship, and setting an agreed upon termination date in the event we are unable to restructure our relationship.

“Accordingly, this letter constitutes Adventist Health Mendocino Coast's (“AHMC”) notice of the following:

• The Medical Business, as defined under the Lease, has achieved less than 5% EBITDA [Earnings Before Interest, Taxes, Depreciation, and Amortization] for the previous 12-month period;
• This letter is AHMC's restructure notice under Section 19.11 of the Lease. AHMC's restructure terms will be discussed during the 60-day negotiation period.

“Consistent with our discussion on the 26th, we are proposing the following:

• The 60-day negotiation period shall begin immediately and end at the close of business on Friday, November 29, 2024.
• If we are unable to reach agreement during the 60-day negotiation period, AHMC may terminate the Lease and TBOA, by delivering written notice to the Mendocino Coast Health Care District (“District”). Such termination will be effective at midnight on June 30, 2025. AHMC's right to terminate after failing to reach an agreement during the 60-day negotiation period will expire on December 31, 2024.
• Upon delivery of the termination notice, the parties shall meet and confer within thirty (30) days to begin negotiating the necessary agreements to transfer hospital assets and operations back to the District as required under Article 13 of the TBOA.
• All other terms and conditions of the Lease and TBOA will remain in effect pursuant to their terms. The parties may amend this letter agreement in a writing signed by both parties.

“If these terms are acceptable, please sign and return this letter agreement no later than October 2, 2024. Once this letter agreement is executed, we can begin scheduling our negotiations immediately. If we do not receive a signed copy by October 2, 2024, this letter shall constitute AHMC's notice of termination under Section 19.10 of the Lease and the termination will be effective at midnight on June 30, 2025.”

MCHCD Chair Garza did sign the agreement to negotiate with Adventist Health over the 60 day period ending November 29th. However, at the October 1st special board meeting all that the public received was the brief statement quoted at the outset of this piece. No allusion to the possible termination aspects of the situation were mentioned by Chair Garza. The statement, “We will keep the public apprised of the situation as we know more,” appears disingenuous to say the least, if not a clear obfuscation of the facts as Garza knew them at the time.

The pertinent sections of the lease agreement between MCHCD and Adventist Health, that went into effect on July 1, 2020 are available at mendocinochcd.gov by clicking on the legal documents link.

Speculation can run wild as to what Adventist Health wants in this 60 day negotiation period. The bottom line is, as almost always, money. AH lost in the neighborhood of $5 million running the coast hospital in 2023. This year's losses are projected to be just as high if not slightly more.

Along those financial lines, coast residents should not be shocked if/when AH cuts some of the services now offered, meaning patients would have to travel to AH's Ukiah hospital, or farther, for those medical services.

What happens if Adventist Health terminates the lease agreement? The District might very well put out a RFP (Request For Proposal) to see if other healthcare systems are interested in affiliating with the coast hospital. Keep in mind that when that request for proposal was sent out far and wide in the spring of 2019, Adventist Health was the only realistic respondent. If Adventist Health cuts the coast hospital loose after only four years of operation, consider the message that sends.