Santa Clara County to Buy St. Louise, O’Connor Hospitals

Santa Clara County emerged this month as the sole bidder for O’Connor and Saint Louise hospitals, clearing the way for the county to buy the two private hospitals for $235 million, County Executive Jeff Smith disclosed Monday.

“We are really excited,” Smith said in an interview on Monday. “And, we’re ready to go.” He added: “There is nothing that can derail it.”

Smith said the county, anticipating this month’s news, has been laying the groundwork for its expanded health care system, and now will be on a fast track, which Smith hopes will ensure a smooth transition to a three-hospital system in less than three months.

Once the deal closes, the 129-year-old O’Connor Hospital in San Jose and the 29-year-old Saint Louise Regional Hospital in Gilroy will join the 142-year-old Valley Medical Center in a significantly expanded publicly owned and managed health care system. The new hospital system will nearly double the number of county hospital employees, medical staff physicians and hospital beds.

Smith said the county has already created the nearly 2,000 new positions, ready to be filled initially by existing O’Connor and Saint Louise employees, who will be hired as “provisional employees in permanent positions.”

He is gearing up the county’s human resources staff and expects a new media relations team and additional administrative services to be in place once the deal closes in late February. Smith said patients at the two Verity-owned hospitals will see few immediate changes with the ownership change.

“Patients will see the same nurses, the same staff doctors—they won’t see much if any change at all,” he said, adding that the newly acquired hospitals will accept all of the same health insurance carriers.

Paul Lorenz, CEO of the Santa Clara Valley Medical Center since 2012, will lead the transition, after which two new sister hospitals will retain their names and identities under the expanded county umbrella. Smith also is well-positioned to manage hospital acquisitions: He has both medical and law degrees.

The county executive said he expects a federal bankruptcy judge to finalize the county purchase on Dec.19, and the escrow period to close by the end of February. The county offered to buy the hospitals in late July, after Verity Health announced it was seeking suitors and one month before Verity filed for Chapter 11 bankruptcy protection.

In October, Santa Clara County’s offer of $235 million was identified as a “stalking horse bid” in a highly anticipated bidding race that never got out of the starting gates.

A Dec. 5 deadline passed with no competing bids for the two Santa Clara County hospitals, eliminating the need for an auction this month in U.S. Bankruptcy Court in Los Angeles. Verity and its hospitals in August filed voluntary petitions for protection under Chapter 11 of the U.S. Bankruptcy Code, for the stated purpose of facilitating a court-supervised sale of some or all of the hospitals.

Saint Louise Regional Hospital is located on the north side of Gilroy, and O’Connor Hospital is in San Jose, located less than two miles from Valley Medical Center, less than four miles from the center of downtown San Jose.

Verity Health owns the two Santa Clara County hospitals, plus two in San Mateo County and two in Los Angeles. The company had posted no information or released any statement as of Dec. 10 about the sale of the two hospitals to the county. Smith said Verity contacted his office last week, and notified him of the county’s successful offer.

The O’Connor and Saint Louise employees will retain their jobs, but Smith said all union contracts with Verity Health will be voided, with the new employees represented by the current collective bargaining agreements already in place in Santa Clara County.

The bankruptcy court will be deciding what money, if any, Saint Louise and O’Connor will receive in a pay-out of their pensions. Smith said the employees will enter the California Public Employees’ Retirement System as new employees, regardless of currently held seniority. He said the union contracts and pensions have to be different, because federal and state laws differ between public and private employees.

Smith said the county is talking with employees and unions, adding that “We will be speaking with the doctors, and tenants of the buildings” at the hospital campuses.

The county is developing plans for the implementation of a new medical records system for all of its hospitals, called EPIC, and will updating equipment. By July, he anticipates that all employees will be connected to the county payroll system. “We will have a whole lot of work to do behind the scenes,” he said, including creating a new financial systems that integrate the two hospitals with the Valley Medical Center system.

Smith said the DePaul Urgent Care Center in Morgan Hill—site of the original Saint Louise hospital—is part of the purchase and will continue as an urgent care center and medical offices. He expects the county to tear down the old hospital building, which has been vacant, and anticipates expanding skilled nursing care facilities in Morgan Hill.

The first-year costs in connection with the hospital purchase will be expensive—perhaps exceeding the purchase price of the two hospitals, Smith estimated. However, he said these expenses will be defrayed by income from the two hospitals.

The county will sell “lease revenue bonds” to finance the purchase, a mechanism already authorized by the Board of Supervisors. Smith described this as a kind of mortgage, for which payments would be about $15 million per year.

Smith is optimistic about the financial health of the two hospitals, because Medicare reimbursement formulas provide more money for medical bills at publicly owned hospitals than for private hospitals. “Now that the future is more stable, we know there is never going to be a cloud over these hospitals, and there is going to be a stable owner,” said Smith. “Then we can build the system back up and provide more services.”

Verity Health System, created in late 2015, is a nonprofit employing more than 6,000 people in California. In 2015, the Catholic Daughters of Charity had sold the six hospitals to BlueMountain Capital Management, which owned Verity Health. Last year, a company owned by billionaire Dr. Patrick Soon-Shiong, who also owns the Los Angeles Times and San Diego Union-Tribune, bought the hedge fund’s healthcare division that owns Verity.

This article was originally published in San Jose Inside/Metro Silicon Valley’s sister publications, the Morgan Hill Times and the Gilroy Dispatch.

23 Comments

    • “Universal healthcare” is just another term for “single payer” — which is another term for “No competition allowed.”

      The Universe progresses via competition: atoms compete for electerons (valence); plants and animals compete to improve the species (natural selection), and products improve via competition between businesses.

      It’s all based on competition. Without competition, species die out. We’d all be driving Edsels. There would be one football team, and it would win the Super Bowl every year. But no one would watch.

      With universal health care, AKA: “Single payer”, competition will be ILLEGAL! But who does that benefit? Certainly not the patients who can no longer shop around…

  1. > “Patients will see the same nurses, the same staff doctors—they won’t see much if any change at all,”

    “If you like your doctor, you can keep your doctor. If you like your plan, you can keep your plan.”

    — Barack Obama

    NOT!

  2. Will Santa Clara County residents be the first in the US to have universal healthcare? I know we can do it, if we just roll up our sleeves and put in the effort and the investment.

    • > Will Santa Clara County residents be the first in the US to have universal healthcare?

      Maybe we can start with the Canadian plan:

      1. Wait in line for six hours to get a free government bandaid and an aspirin.
      2. Anything more serious, wait fourteen months, or go to the U.S. to get it taken care of at your own expense.

      In the case of Santa Clara County universal healthcare, substitute Thailand for the U.S.

      • Or we keep doing it the USA way, 40% inflation a year in health care costs, less care than in western Europe, and a lower life expectancy. Yeah, that’s the winning strategy. Right.

        • Obamacare: “40% inflation a year in health care costs”

          Obamacare: “less care than in western Europe”

          Obamacare PLUS uncontrolled mass immigration: “and a lower life expectancy”

          “Yeah, that’s the winning strategy. Right.”

    • I know we can do it, if we just roll up our sleeves…

      May I? Thank you:

      I know we can do it, if we just open our wallets wider and wider.

      • We’re *already* opening our wallets wider and wider. And all that money is just going to the big pharma companies, the same ones that are getting Americans hooked on opioids (cough… Purdue… cough… oxycontin). Yeah, that’s the winning strategy, open our wallets to the privately held legal drug dealers and get hooked on their products. Then die.

  3. I am concerned (on many levels) concerning the purchase of these hospitals. What is the current status of the “service life” of these buildings and what are the source of FUNDS for Capital Improvement Projects?

    David S. Wall

    • > What is the current status of the “service life”
      > of these buildings
      That’s a good question, David S Wall. I’m pretty sure that O’Connor went through a major renovation within the last 10 or 20 years, which would put its age at less than that of the earthquake of 1989. The article states that St. Louise is 29 years old, so that’s about at the same age as the earthquake. Not sure what the service life of a hospital is, but I’m sure it does take a significant amount of upkeep.

      As for funding that upkeep, the plan is probably about the same as Valley Medical Center, which is going through a huge expansion and renovation, so you could do some research to discover the funding model.

  4. Already over half the County’s budget goes to the medical system. By far the highest paid county employees. 900k/year doctors. 400k nurses. This is the way “affordable” government run health care siphons off revenue that could be used for other important purposes.

    • I dunno, Johnny Gault. Medical care seems to be a pretty important purpose. And I’m not sure if you even live around here, but the cost of living ain’t cheap, y’know. Those fully loaded costs you mention (eg, 900k/yr for doctors, etc) are probably not out of the norm.

      • > Medical care seems to be a pretty important purpose.

        Then why not the best: FREE MEDICAL CARE FOR ALL PROVIDED BY RAINBOW UNICORNS!

        Unicorns are cuter and more cuddly than taxpayers PLUS they never complain about waste and corruption.

        • Outside the Bubble’s been taking too many hits down at the dispensary. Calm down, bubble boy, no need to shout about your hallucinations. But if you can’t handle it, I’m sure that the fine folks at Valley Medical Center will help you out if you need it, even if you can’t afford it.

      • I dunno either SCC Resident. I agree medical care is important. But so important that we should turn it over to the government? On th contrary, maybe it’s so important we should leave the government out of it. And I think it could also be argued that of all the factors driving up the cost of health care, government involvement is at the top of the list.

        • I’m glad that you agree that medical care is important. But if the private sector fails in that most important responsibility, what is the alternative? The cost of medical care in the US has been outpacing inflation by orders of magnitude for many years, and just by that metric alone, I would say the private sector is having a hard time with it. Maybe a new approach is needed. Maybe medical care for all is needed, and the only way I see that happening is the people pulling together to make it happen. People pulling together, that’s more commonly known as a government.

          • > Maybe a new approach is needed. Maybe medical care for all is needed, and the only way I see that happening is the people pulling together to make it happen. People pulling together, that’s more commonly known as a government.

            SCC RESIDENT

            You are the textbook definition of a charlatan.

            But charlatan applies to any promotor of universal/government/single-payer healthcare.

            Healthcare “needs” are virtually infinite. The charlatan political class routinely classifies ANYTHING they can think of to give away as somehow relating to “health care”.

            Healthcare resources are EXTREMELY limited.

            This is the essential dilemma of all economics.

            People like you and Bernie Sanders and the entire Democratic Party who promise vast health care services (paid for by someone else) are essentially promising “eternal life”. They are WORSE then television evangelists.

            They are con men and frauds.

            It is IMPOSSIBLE for everyone to have unlimited healthcare.

            Stop the deceit!

          • Hey Bubble, who said anything about unlimited healthcare? Wasn’t me. Please re-read my comment.

            I did a search for your term “charlatan political class” since I’ve never heard that term before. Of course, Breitbart articles were on the first page of the search results. Imagine that.

            Yes, universal healthcare won’t come to us from the private sector. It will *have* to start with We The People, ie, the government. You should start getting your head around that sooner rather than later. Once it’s here, people will wonder what took so long. We’ll have to point at you, Bubb.

  5. What a great Idea, more places for illegal aliens to go for knife and bullet wounds at taxpayer expense.
    Will citizens be allowed to go to?

  6. Hey Gunner, did you know that the county medical facilities are where county employees, like fire fighters and sheriffs deputies, go when they sustain injuries, like from bullet wounds from angry white…. gunners?

  7. Yes but they go to the front of the line! And yes they should be at taxpayer expense. Off duty we go to Kaiser.

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