At Long Beach City Hall, it was code blue for Community Hospital. For nearly a century, Community had served generations of residents in East Long Beach. With its Spanish Colonial architecture and small-town feel, it seemed like a throwback in an age of mega hospitals and vast health care systems. But behind the scenes, it was facing the modern realities of hospital economics.
Only once in its six years as operator of the city-owned hospital had health care giant MemorialCare turned a profit on the small, 158-bed acute care facility. Over the decades, numerous other Community Hospital leaseholders had failed to make a go of it, too.
In early 2018, MemorialCare informed Long Beach officials it was terminating its lease with the city rather than spend tens of millions of dollars more in seismic repairs mandated by the state.
MemorialCare’s decision to bow out would represent a death knell for Community Hospital and its emergency room unless city officials could find a new operator. A determined legion of “save our hospital” stakeholders kept the pressure on at City Hall to make that happen.
“We were devastated when we found out it was closing,” says Jackie McKay, a nurse who had worked at Community since 1985 and lives down the street. “We were hoping the city would do everything they could to save it.”
And the city responded, with crushing consequences.
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Under pressure to get a deal done, the Long Beach City Council approved a highly unusual lease agreement that shifted the financial risk to the city and resulted in a worst-case scenario.
In December, the new leaseholder closed Community after just 11 months, leaving Long Beach on the hook to repay millions of dollars for the operator’s losses, meaning the city will likely have to sell the multimillion-dollar hospital property that it’s owned since the early 1900s.
It was precisely the outcome city staff had warned would probably occur before the council voted on the lease.
Even before the lease was inked, there were concerns about the new operator’s ability to keep the hospital afloat.
The company picked by the City Council to operate Community was splintering, ultimately leaving only one of four original partners, Long Beach businessman John Molina, to manage the hospital’s affairs. It was a job for which he was admittedly unprepared.
Molina—whose Pacific6 Enterprises owns the Long Beach Post and Downtown real estate interests—insists the demise of Community Hospital had nothing to do with management issues or his favorable lease terms.
A note from the executive editor
The Community Hospital story hit close to home; here’s why we felt compelled to confront it
Our mission at the Long Beach Post and Long Beach Business Journal is to give the news impartially, “without fear or favor”—words famously written by the publisher of the New York Times in 1896. Holding those with power to account is one of our core duties.
To that end, today we are publishing a report looking at what led to the ultimate closure of Community Hospital, a public asset owned by the city, and the unprecedented lease agreement that will require Long Beach to reimburse potentially tens of millions of dollars in losses to its operator.
This was a difficult story to report, not only because the subject matter is complicated, but because the operator at the center of this story, John Molina, is also the principal owner of the Post and Business Journal.
Pacific Community Media, or PCM, which oversees our two publications, is a subsidiary of Molina’s company Pacific6. (You can read a more detailed timeline of our ownership in our Transparency Portal.) The three-member board of directors for PCM consists of John Molina, Brandon Dowling (chief of staff for Pacific6) and David Sommers, the former publisher of the Post and Business Journal who recently stepped away from that role to become chief operating officer for Pacific6.
Molina, Dowling and Sommers have no involvement in our day-to-day editorial operation and no mechanism to directly influence our coverage. Still, pursuing this story—and not knowing what our reporting would uncover—put us in the position of potentially publishing unflattering information about the people who ultimately control our parent company.
It was an awkward situation but one we felt compelled to confront. One of the values laid out in the Post’s mission statement is integrity, telling the truth “even when it’s hard” and “even when it affects our bottom line.”
If we were going to keep that promise to our readers and the hundreds of community members who donate in support of our mission, we could not shy away from an important topic just because it hit close to home.
We needed to approach and evaluate this story like any other. To do that, reporters Kelly Puente and Brandon Richardson, along with the editors at the Post and Business Journal, treated Molina, Dowling and Sommers strictly as public figures worthy of news coverage, not as owners or directors of our board. What that means in practice:
- The reporters went through normal channels to arrange interviews with the owners and directors, i.e., there was no expectation of special access;
- Interactions and interviews with sources were preceded by a discussion of on-and-off-the-record protocols, as is standard practice in reporting;
- Interview questions were chosen without regard for any potential impact to the relationship between our parent company and our publications;
- It was made clear that the owners and directors would not receive an advance copy of the report and would not be allowed to make editorial changes.
To guard against conflicts, we are steadfast in adhering to the long-established code of ethics of our profession, which includes independence, transparency, and above all, to boldly seek truth and report it.
He says the pandemic drove costs sky-high for seismic repairs, staffing and equipment. Even with the city covering millions of dollars of his losses, Molina says, he’ll still be out potentially millions more from his efforts to save the hospital and its emergency services. He says he lost $30 million, an amount the city is now attempting to verify before potentially parting with its 8.7-acre property.
“Had COVID not hit and the costs not gone up so much, then it would have been a completely different ballgame,” says Molina, who has proposed turning the hospital into a mental health campus that would not require expensive seismic repairs—a plan that is now in jeopardy as well.
Third District Councilwoman Suzie Price, who pushed to keep Community open, concedes that the lease did not necessarily favor the city but says the council was determined to be responsive to constituent concerns.
“Now, in hindsight, I’m sure people are going to say, ‘Well, it was too big of a risk and we shouldn’t have taken it,’” Price says. But at the time, the residents “absolutely did not want to walk away from the idea of acute care services in East Long Beach, for reasons that are extremely reasonable and understandable.”
Here, based on city and state records, as well as interviews with numerous key players in and out of Long Beach government, is an inside look at the high-risk gambles and financial pressures that led to Community Hospital’s final days.
Troubles from the start
Long Beach leaders were well aware of the challenges confronting Community long before their unprecedented lease deal with the new operator—Molina Wu Network, or MWN.
When MemorialCare, Long Beach’s largest health care provider, assumed operations of Community in 2011, the hospital had been struggling for years and was on the verge of being shuttered.
“We knew it was failing for a number of reasons and [we were] approached to see if there was a way we could keep it open,” says John Bishop, who was chief financial officer for Long Beach Memorial when it took over Community. “And we were hopeful.”
But Community Hospital continued operating at a loss nearly every year, according to financial documents submitted annually by MemorialCare to the state. From 2012 to 2017, the facility reported a net loss of nearly $27.2 million, only turning a profit in 2015 of $212,737.
Bishop, now CEO of MemorialCare’s Long Beach campus, says small hospitals frequently operate at a loss but are subsidized by their larger parent companies. Community’s losses, he says, were covered by MemorialCare’s four other hospitals and dozens of urgent care centers.
He says MemorialCare had hoped to keep Community open, but the equation shifted when the health care provider got the results of a $1 million seismic survey it commissioned, revealing the exact location and severity of an active fault under the property.
When it comes to acute care hospitals such as Community, California earthquake regulations are the most demanding to ensure safe operations after an earthquake—an enormously costly undertaking for facilities with seismic problems.
To avoid the costs, Bishop says, MemorialCare proposed closing the acute care hospital and opening a mental health facility, which would not require the seismic fixes. But the City Council in closed session rejected the idea, directing staff to seek offers from other potential hospital operators.
Enter John Molina, whose late father founded Long Beach-based Molina Healthcare, one of the country’s largest providers for Medicaid patients and others with government-subsidized health care.
In 2018, Molina, a former chief financial officer of Molina Healthcare, embarked on an ambitious agenda of acquisition and development in Long Beach. Among other investments, his newly created Pacific6 purchased the historic but deteriorating Breakers Hotel on Ocean Boulevard to convert it into a hip boutique hotel, a vision that remains unrealized.
That same year, he also bought the Post, he says, to improve news coverage of his hometown. (He bought the Business Journal in 2020.)
In all, the city received interest from five companies to operate Community Hospital. All but MWN and Palisades Health Solutions withdrew from the competition, citing the high cost of seismic compliance, according to city officials. To review the remaining two proposals and offer a recommendation, the city hired Los Angeles-based COPE Health Solutions.
At the time of the assessment, MWN consisted of four individuals, including John Molina and his physician brother, J. Mario Molina, who was overseeing a medical group called Golden Shore Medical and was Molina Healthcare’s former CEO. Also on board were doctors Jonathan Wu of Health Source MSO and Kenneth Sim of Apollo Medical Holding, an affiliate of Network Medical Management.
COPE concluded that MWN’s diverse experience, far-reaching connections and strong ties to Long Beach made it the best candidate to keep Community Hospital operating into the future.
But before the lease was signed, the roster of talent COPE had praised was reduced by one important player, Mario Molina.
“I was never all that interested in the project to begin with,” Mario Molina now says. He says he mostly wanted to team his brother with Sim and Wu, the latter of whom operates multiple Southern California hospitals. “I thought it would be a good thing.”
Just months after the lease was signed, Sim and Wu would also leave to focus on other business ventures, John Molina says, including the acquisition of hospitals in Northern California and Riverside by one of the doctors. “Their attention was elsewhere,” he says.
Sim and Wu did not respond to interview requests from the Post.
Although John Molina had experience in the health care industry, he says he never claimed to know how to run a hospital.
“It was the other two parties that were supposed to be the operators,” Molina says of Sim and Wu. “We were just supposed to be the city’s liaison.”
City officials acknowledge they had reservations about the new management arrangement, which differed markedly from the one COPE endorsed.
Mayor Robert Garcia, in an interview, said Molina offered assurances he could handle the job. “John and the team felt very confident regardless of the change,” the mayor says.
Despite warnings, a risky vote to save the hospital
When the City Council met on the night of Oct. 15, 2019, to vote on the proposed MWN lease, the refrain from the dais and the audience was that a matter no less important than life and death was on the agenda.
By then, Community Hospital and its emergency services had been closed for 16 months. Any further delay, they said, could jeopardize the wellbeing of area patients who would have to be transported to more distant—and potentially more crowded—emergency rooms.
Eighth District Councilman Al Austin, for one, said the reopening of Community Hospital “shouldn’t be about money, it’s about human lives.”
Added Councilwoman Price: “Minutes matter.”
But such concerns, while heartfelt, were apparently misguided.
In recent interviews, Long Beach fire officials said that in the months after the MemorialCare closure, the department was able to “absorb” the impact with just seconds being added to citywide transport and response times.
In 2017, the last year MemorialCare operated Community Hospital, the average transport time was 7.3 minutes, according to fire officials. In 2019, the first full year of the closure, transport times rose to 7.8 minutes. Ambulance response times increased from 5.5 minutes to 5.6 minutes.
As for concerns that other emergency rooms would become more crowded with an influx of new patients, the numbers again told a different story. Representatives of the city’s four other hospitals with emergency departments—Memorial, St. Mary, Lakewood Regional and Los Alamitos—told the Post they experienced only a small uptick in patients after the MemorialCare closure and that the impact was minimal.
In fact, many emergency patients in Community Hospital’s service area were already being transported elsewhere. In recent years, Community’s emergency department had not been equipped to treat patients with numerous urgent needs, including acute heart attacks, strokes and severe traumas.
On the night of the City Council’s lease vote, only one naysayer rose to speak against the proposed arrangement with Molina’s MWN, longtime City Hall critic Corliss Lee. She expressed concerns that the deal could ultimately backfire, leaving East Long Beach with a closed hospital and the city with a pile of debt.
“That is not a good deal,” she said.
Lee based her conclusion on a lease analysis prepared by the city’s Economic Development Department. In a report to the council, it said the proposed lease contained “significant risks” for the city but represented the best terms that could be negotiated to incentivize MWN to keep Community Hospital open.
The most significant incentive: MWN could terminate the 45-year lease at any time and Long Beach would have to reimburse the company for its operational losses, even if the hospital never saw a patient. Under the lease, the city would cover those losses by selling the publicly owned Community Hospital property or essentially giving it to MWN. The company, for its part, would shoulder any losses above the property’s appraised market value, which, in 2018, was $17 million.
Before the vote, the city’s economic team warned the council that this scenario was not just possible but “likely to occur” because “the overall terms of the lease make it financially beneficial for Tenant [MWN] to terminate the lease at some point, regardless of whether or not the Hospital is viable.”
“What this says,” critic Lee warned the council, “is that at any time Mr. Molina can back out of this deal and that we need to reimburse him for all of his investments when it’s potentially tens of millions of dollars. That should be enough to stop everyone in their tracks.”
It wasn’t. The council voted 7-0 to approve the lease. (One councilman was absent and one seat was vacant at the time.)
Looking back, Councilman Daryl Supernaw, whose 4th District then included the hospital, says the economic team and other city officials failed to keep the council fully informed of the risks during the lease negotiations.
“There were so many conversations—closed sessions and whatnot,” Supernaw said in an interview. “Would not someone say, ‘He [Molina] is going to walk away from this anyway?’ Wouldn’t you think that statement would come up a few times? But that was not the case. We were all working under the assumption that this was going to work.”
Supernaw says that, by the time the lease was presented for a vote, it was a matter of take or leave it—”this is what we have, this is what it’s going to take to get it done.”
But, he adds, “I don’t know of a real estate deal in history that doesn’t have an element of risk. This is a risk that we wanted to take and our constituents were asking for.”
Supernaw says he was so committed to getting the hospital reopened that he used $250,000 from his office funds at city staff’s request to pay for critical elevator repairs—taxpayer money that, in the end, would be lost to the effort.
High ambitions, a pandemic wallop
John Molina was confident he could deliver where MemorialCare had failed.
He believed that being smaller, and focused solely on Community, would help him revive the hospital within a year of taking control.
“We didn’t go into this completely blind,” he says. “We knew there were big costs. The fact that we had a smaller footprint we thought would be advantageous.”
But his optimism for the hospital’s future quickly got an infusion of reality as expenses began to mount.
Among other things, he says he learned that the nearly 100-year-old building was suffering from years of deferred maintenance and structural problems, some of which would have to be fixed before the state would authorize its reopening.
Then the pandemic arrived, only compounding the costs as it swept across Los Angeles County and the nation.
Molina says state officials asked him in March 2020 whether he could reopen under an emergency status to handle non-COVID patients, thus easing the burden on hospitals that were overwhelmed with pandemic admissions.
Molina says he made a “mad dash” to hire 150 nurses and medical staffers, stock pantries and buy personal protective equipment and other supplies, some of which were marked up by more than 500% because of shortages and high demand.
Then, just weeks later, the state told the hospital to stand down, that its services were not needed. The about-face, Molina says, cost roughly $2 million without the admission of a single patient.
Representatives for the California Department of Public Health were not available for comment.
In January 2021, after state approvals, the hospital finally reopened to take transfer patients from hospitals confronting COVID surges. Community’s emergency department would be authorized to open five months later.
But the hospital was now facing a nationwide nursing shortage. Closed for nearly three years, many of its former staff members had retired or moved on to other jobs, leaving Community at the mercy of the market.
Cardiologist Mike Vasilomanolakis, who came back to Community to serve as vice chief of staff, says the hospital was forced to hire nurses from registries, with some charging hundreds of dollars an hour. The nursing costs “were unbelievable,” he says. “It was just destroying the hospital” budget.
Vasilomanolakis says he “poured his heart and soul” into saving the hospital, where he had worked for 39 years.
“We were all anxious to get Community Hospital reopened and it’s easy to critique the city and say, ‘How could you write an agreement where you’re going to reimburse somebody for their losses?’” he says. “But their heart was in the right place. Everybody was trying to do everything they could to bring the hospital back.”
Still, one crucial piece of that mission was missing—the patients. Only a trickle showed up, despite the outcry among former employees and others in the community that the hospital’s services were essential. On some days, city officials say, the hospital was seeing just two patients.
Molina says he was shocked by the numbers because of the apparently strong public support and a feasibility study that showed high demand for the hospital’s services.
“The fact of the matter is, when Memorial closed the emergency room, they were seeing about 75 patients a day,” Molina says. “We needed to hit 50. We never got over 35.”
Officials say it’s hard to know why patients failed to materialize at Community but speculated that the pandemic was keeping many people away from emergency rooms out of fear they’d become infected or have to endure grueling waits.
But the patient count also remained low because the hospital itself was turning people away or sending them elsewhere because of staffing shortages and a lack of equipment, Vasilomanolakis says.
The hospital did not, for example, have a basic imaging device known as a C-arm, used for X-rays of bone fractures. Vasilomanolakis says it was ordered but got held up in the pandemic’s massive supply-chain backlog. The device arrived, he says, after the hospital had closed.
Vasilomanolakis says the hospital also did not have a fully implemented electronic records system. The medical staff had to hand-write its notations, which slowed down Community’s operations and “made everyone’s job more difficult,” the cardiologist says.
But ultimately, like MemorialCare before him, Molina says it was the seismic repairs, which the state required to be completed by 2025, that sunk his efforts.
Molina says soaring construction costs during the pandemic pushed the initial retrofit estimate of around $50 million to $79 million. “With all those costs,” he says, “there was just no way to make it work.”
And with that, a warning by the economic team before the City Council’s vote had come to pass. “Any unexpected high cost of the retrofit,” it said in its lease analysis, could lead to a new operator’s failure to keep the hospital open.
‘A massive disappointment’
In November, Molina gave a 90-day state-required notice that MWN was closing Community. But the California Department of Public Health was concerned about understaffing and ordered it to shut down in less than 30 days.
Longtime community supporters say they were heartbroken.
Kathy Berry, Community’s former public relations director, says the staff spent countless hours trying to save the hospital and were left jobless when Molina’s MWN pulled it from life-support.
“I am very frustrated that they closed it as quickly as they did,” says Berry, who was born at the hospital in 1942. “It’s a massive disappointment not only to the community but also to the people who came back to work there because they loved Community Hospital and wanted to see it open. And all of a sudden, they’re done.”
When MWN announced the closure, the company proposed rebranding the facility as the Long Beach Community Wellness Campus, which would offer an array of outpatient and inpatient services, including behavioral and mental health, urgent care and other medical and social programs.
But that plan has now run into trouble—for both Molina and Long Beach. On March 1, the state informed the city that the Community Hospital property is subject to a 2019 state law that seeks to encourage construction of affordable housing.
Community Hospital property must be offered to affordable housing developers, state says
If the ruling stands, the city can’t simply transfer ownership of the land to MWN as reimbursement for the company’s losses. Instead, it must be declared “surplus” land and offered for sale to affordable housing developers, which would likely take months. The law has affected other high-profile projects, including the city of Anaheim’s plan to sell the land surrounding Angel Stadium to the team’s owner.
The city said it is still negotiating with the state. In a statement last week, MWN said it hasn’t decided whether it will now pursue the mental wellness campus project because of the “possible regulatory hurdles,” despite community needs for such services.
In the meantime, Long Beach has enlisted Hardesty Health Solutions to audit MWN’s financial records—thousands of transactions—to verify Molina’s contention that the company lost $30 million. Independent appraisals are also underway to determine the value of the land, a months-long process. Under the lease, Molina would only be entitled to an amount equivalent to its market value, even if MWN’s losses are greater.
Wherever the appraisals land, it’s unclear how Long Beach would reimburse MWN if, as the state contends, transferring the property directly is off the table.
Although details of all this are complicated and uncertain, this much seems increasingly clear: the historic property will eventually be lost to the city of Long Beach.
City Manager Tom Modica says the City Council was driven by a higher calling to save the hospital, even if that meant possibly losing money or the property itself.
“The City Council absolutely wanted a hospital. This was clear from the get-go,” says Modica, who calls the reopening effort “successful.”
“It opened and then it closed,” he says. “But it did open and that was the goal the council wanted.”
Reporters: Kelly Puente and Brandon Richardson
Editor: Joel Sappell
Executive editor: Melissa Evans
Layout and design: Dennis Dean and Candice Wong