Photo of Madera Community Hospital's emergency department in 2021 by Breanna Hardy.

This story was originally published by Fresnoland, a nonprofit news organization.

A bankruptcy judge approved a plan Tuesday to reopen the Madera hospital under American Advanced Management, Inc. — just days after a surprise announcement that UCSF Health and Adventist Health wished to intervene and buy the bankrupt, shuttered hospital. 

After more than two hours of arguments over whether AAMI or the UCSF-Adventist alternative was a better option to reopen the Madera hospital, Judge René Lastreto’s decision to approve AAMI’s plan ultimately came down to what he called sound business judgment.

The decision sets AAMI in motion to begin with a four-month reopening process, which means the hospital could open its doors as early as July. It also essentially shuts down the UCSF-Adventist alternative, though Jay Varney, Madera County’s chief administrative officer, said the ruling could be appealed but the county was still weighing its options late Tuesday.

“We were just waiting for this day so we can now start the process of opening the hospital once we get the CDPH approval,” said AAMI President Gurpreet Singh.

Saying there were no clear concerns regarding AAMI’s ability to reopen the hospital and recruit necessary staff, Lastreto said there was no reason to delay the process further simply to allow UCSF Health and Adventist Health time to put together their own plan. 

However, the UCSF-Adventist alternative had the support of community groups involved in the bankruptcy case — including the Madera Coalition for Community Justice and California Rural Legal Assistance. Their representatives asked Lastreto to hold off on approving a plan so the community could at least compare what AAMI and the UCSF-Adventist alternative brought to the table.

“The community is really angry, they feel abandoned, they feel betrayed,” said Baldwin Moy, a lawyer with CRLA. “Another week, or another two weeks, to allow the court to sort out what is in the best interest of the community is something that, to me, is certainly worth waiting for.” 

However, Lastreto said he had to make a decision in the best interest of the case’s creditors, per bankruptcy law fundamentals, which he said trumps community interest. 

“Under the bankruptcy law,” Lastreto said, “the community interest is something to consider, but it really doesn’t control — the court has to look at what the law looks at in determining whether or not this is a proper exercise of the bankruptcy power.”

New hospital won’t include labor and delivery room

Madera Hospital Chief Executive Officer Karen Paolinelli did not take questions outside the courtroom following the Tuesday ruling, but she said she was excited for the hospital to reopen.

Singh, AAMI’s president, told Fresnoland that he too was excited to restore Madera County’s only general acute care hospital. He declined to say whether Paolinelli would keep her CEO job or if there would be a new management team running the Madera hospital. 

AAMI’s turnaround plan does not include a labor and delivery room, which means expecting mothers in Madera County would still have to give birth in neighboring counties, like Fresno or Merced. Singh said he “of course” acknowledges the importance of obstetrics and gynecology services, but said AAMI is focused on restoring an emergency room and intensive care unit for Madera County residents. 

AAMI’s Chief Strategy Officer Matthew Beehler told Fresnoland earlier that it would not be viable to restore a labor and delivery room because insurance reimbursement rates were too low and that department alone was losing up to $4.5 million a year before the hospital closed. 

Reimbursement rates were a big issue for Madera Community Hospital prior to closing, — unusually so with private health plans. Singh said he is hopeful things will be different when AAMI’s bargaining team meets with insurance companies. 

“I think they must have learned from the closure of the hospital that everything they were doing impacted the hospital,” Singh said. “So now when it’s coming back, they will, hopefully in good faith, work with the hospital so this never happens again.”

Lawyers go to bat for five-day-old alternative plan

The alternative plan announced just five days before Tuesday’s hearing would have been structured as a joint powers authority between UCSF Health and Madera County, with Adventist Health operating the hospital under a management services agreement. Arguments in favor of the plan were made by several lawyers including attorney Jason Rios representing Madera County and attorney Ori Katz representing the University of California. 

Jason Rios argued that the UCSF-Adventist alternative was more financially favorable to the creditors in the bankruptcy case, that the Madera hospital would have a much more successful reopening with such big medical institutions behind it and that AAMI does not have a comparable track record. 

“Any resolution can be helpful but there are special cases where you can see the phoenix rise from the ashes,” Rios said in court Tuesday. “That’s what we’re doing here today and this is a special case where we’re going to bring healthcare back to Madera County.”

Additionally, Patience Milrod, an attorney representing the Madera Coalition for Community Justice, called for more time to weigh the two proposals side by side to see which better serves the Madera community,given the long-term impacts the ruling will have on Madera residents. 

“The possibility that there could be a (medical) teaching facility in Madera County is all by itself is an indicator of quality,” Milrod said. 

AAMI reopening plan chosen for progress since December

The UCSF-Adventist alternative was in its early stages, with attorneys referring to just a term sheet, not a flushed out reopening plan. It was also filed so late Monday that several attorneys said in court there was not adequate time to review fully.

In comparison, AAMI was much further in devising a reopening plan — collaborating with both the debtor and the creditors committee. AAMI also made headway in the regulatory process involving several state agencies, including the California Department of Public Health and the state’s Healthcare Access and Information office.

Additionally, it was because of a joint motion from the debtor and creditors that the AAMI reopening plan was even brought before the court Tuesday — something that has never happened before in more than 11 months of the bankruptcy case. 

“We do not think it’s appropriate to go back to another two, three, four, or God forbid, another 11 months of trying to get to the finish line,” said Paul Jasper, an attorney for the bankruptcy case’s creditors. “The AAMI deal is not a term sheet. They are final documents negotiated over many, many drafts.”

Jasper also spoke to unsettled frustrations over Adventist Health walking out on the Madera hospital in November, only to come back into the picture three months later. “Adventist at no point has been involved with negotiations with the creditors committee,” Jasper said in court. 

At one point in the hearing Lastreto also questioned where UCSF Health has been for the last year, and why they were trying to get involved in the 11th hour of a bankruptcy case almost a year old. 

“The question in my mind is why UCSF waits until now,” Lastreto said in court. “Is it because they are interested in expanding their footprint here in the valley? Why can’t you expand your footprint even if the AAM deal goes through? It seems to the court that if UCSF has the impetus and the wherewithal to go forward, they could’ve done that at any time and they can do it any time in the future.”