Palm Drive Hospital lines up emergency funding as shutdown looms

A U.S. bankruptcy court judge Tuesday approved a $450,000 emergency loan to Palm Drive Hospital from Sonoma County that will help the failed hospital pay for operations and payroll until the final bankruptcy hearing on May 1.

The loan is secured through a lien on the Palm Drive Health Care District's parcel tax revenue, with the county's claim being second only to existing certificate holders from district bond offerings in 2005 and 2010.

The motion for the emergency loan was heard by Judge Alan Jaroslovsky, the head of the Santa Rosa division of the U.S. Bankruptcy Court's Northern California district.

"The judge recognized the urgent need for the cash infusion to help the district address its short-term cash crunch," said Michael Sweet, an attorney representing the district.

During the bankruptcy hearing, hospital representatives told Jaroslovsky they needed an initial disbursement of $600,000 to cover the cost of payroll for medical and other staff, plus goods and services over the next two weeks. Without the loan, the hospital will have only $3,318 cash on hand by the week ending April 26.

"The loan is to provide adequate liquidity for us to care for our patients and ensure patient safety as we wind down operations," said Tom Harlan, Palm Drive's CEO. "It will primarily be used for payroll, to compensate physicians and to pay vendors."

Jaroslovsky approved a lesser loan amount, saying the hospital needed to provide additional proof of its need for the larger sum of $600,000.

The Sebastopol hospital is slated for closure on April 28, even as the board considers options that would revamp services to create a more financially viable facility.

Earlier Tuesday, the Sonoma County Board of Supervisors voted unanimously to approve a loan of up to $1.8 million to the cash-strapped health care district — contingent on the bankruptcy judge's approval. The initial $450,000 loan would be the first payout from that overall financing pledge.

The Sebastopol hospital — slated to close as soon as April 28 — needs about $925,000 to meet payroll, $400,000 to pay vendors, $340,000 for employee health insurance, $280,000 for doctor payments and about $150,000 for clinic location rent and liability insurance, according to a county staff report to the supervisors.The report did not say how long the $1.8 million would support the hospital beyond its scheduled closure.

The $1.8 million would cover expenses beyond the closure of the hospital, including costs related to bankruptcy that could extend through June, Harlan said.

"The county's intention is to be as helpful as we can," said Supervisor Efren Carrillo, whose west county district includes the hospital.

Supervisor Susan Gorin said the county feels "such sympathy with everything Palm Drive is going through" and expressed concern about other small hospitals, including Sonoma Valley Hospital.

Gorin said there needs to be "a larger conversation about how we can sustain our district hospitals."

Nancy Dobbs, a Palm Drive board member, said the hospital was in an "extremely traumatic" situation, reflecting the uncertain future for small hospitals.

"It's no fun being the canary in the coal mine," she said.

Board Chairman David Rabbitt asked if there was a "100 percent guarantee" that the Palm Drive district's parcel tax revenue would continue to flow.

The $450,000 loan, to be paid as soon as possible, is secured by the property taxes that were collected last week, said Jonathan Kadlec, the county's assistant treasurer-tax collector.

"The money's in the bank, so to speak," he said later in an interview.

If circumstances change before the second loan is paid in July, the county could reconsider the matter, Kadlec said.

The emergency loan agreement between the county and the hospital district that was approved in bankruptcy court Tuesday also creates another safeguard for the county.

A secondary trustee in the form of another bank will hold parcel tax revenues before they reach the district to ensure the loan is repaid to the county.

You can reach Staff Writer Martin Espinoza at 521-5313 or martin.espinoza@pressdemocrat.com