This story has been updated from a previous version.
Watsonville Community Hospital CEO Stephen Gray will step down July 10 after leading the community-owned hospital for more than 2½ years, hospital officials announced Monday.
The Pajaro Valley Health Care District Board, which oversees the hospital, has begun selecting an interim chief executive officer while conducting a search for a permanent replacement. An interim CEO is expected to take over in July, with a permanent search planned for fall 2026.
The hospital has not yet named an interim CEO but expects to do so by the end of June.
Gray has served as CEO since November 2023, a period marked by efforts to stabilize the hospital following its transition to public ownership and ongoing financial challenges facing health care providers statewide and nationally.
Hospital officials did not provide a reason for Gray’s departure.
Pajaro Valley Health Care District board member Marcus Pimentel said the announcement in May “caught the board off guard but not in a way that should surprise anyone.”
“Health care is challenging right now, especially in California,” he told The Pajaronian. “In hindsight, we probably should have seen some of these risks coming. This is Steve’s decision, and we’re working well with him through the transition. He’s going to spend time with his family and take a moment to catch his breath. He’s devoted a tremendous amount of time and energy to the hospital over the last several years.”
In the press release, Pimentel said Gray’s work has “bettered the lives of patients, staff and the larger Pajaro Valley community.”
“Steve’s leadership was critical during the transition to a community-owned hospital, when we lacked systems and support,” he said. “We’re grateful that Steve believed in our hospital.”
During his tenure, Gray oversaw implementation of the hospital’s first strategic plan since it became publicly owned.
He also led efforts related to Measure N, a general obligation bond approved by voters in 2024 that provides funding to purchase the hospital and support future modernization and expansion projects.
Hospital officials said Gray also guided the establishment of primary care services on the Watsonville campus.
More recently, Watsonville Community Hospital reported improvements in its financial position, including positive operating revenue and the receipt of more than $10 million in emergency state funding through a competitive grant process. Earlier this year, the hospital also earned top marks on a national patient safety rating.
Pimentel said Gray informed the board in May, giving members time to plan for his departure. He also said he will be available during the transition.
“I’m grateful for that,” he said. “You don’t always get two months’ notice from a CEO, and you certainly don’t always get a CEO who says, ‘After I leave, I’m still available to help.’ That’s pretty rare.”
Pimentel, who was on the ad hoc committee that recruited Gray in 2023 and will be part of the search for a new CEO, said Gray stood apart from the other candidates.
“He genuinely wanted to serve this community and this hospital,” he said. “The other candidates were qualified, but they were looking for an opportunity. Steve knew exactly what he was walking into.”
That included a hospital that had recently emerged from bankruptcy and did not own the building or the property surrounding it.
In addition, Gray knew the newly created board had not completed its five-year financial plan.
“And he still chose to come here,” Pimentel said. “I’m personally grateful he made that choice. We’ve had a lot of success because of it.”
Gray’s departure comes at a time when Watsonville Community Hospital—along with medical institutions across the United States—is facing financial hardships due to budget cuts and H.R. 1, known as the One Big Beautiful Bill Act.
Estimates suggest hospitals nationwide could lose tens of billions of dollars in revenue as Medicaid enrollment declines and more people become uninsured. In California, the California Hospital Association projects hospitals could lose between $66 billion and $128 billion in Medicaid and Medicare revenue over the next decade.
“The timing is never good when leadership transitions happen,” Pimentel said. “That said, Steve has helped set us up for success in this moment. We’ve identified additional funding opportunities and navigated delays involving Medicare, Medicaid, CMS and the state that have affected our cash flow.”
The hospital announced last week that it received $10.6 million through California’s Distressed Hospital Small Grant Program, part of a state effort to help financially struggling hospitals avoid closure.
“A lot of work went into securing that funding, and Steve led much of that effort,” Pimentel said. “We appreciate the state and everyone who helped make it happen.”
