Keeping 2 county hospitals operating is a major victory

Santa Clara County’s winning bid last week for San Jose’s O’Connor Hospital and Gilroy’s Saint Louise Regional Hospital is an essential step toward meeting the county’s long-term health care needs.

The county could take over the two hospitals as early as March if a bankruptcy court on Dec. 19 formally approves the $235 million offer, which also includes Morgan Hill’s De Paul Health Center. The county was the only bidder at an auction that is part of a bankruptcy reorganization by the hospitals’ parent company, Verity Health System of California. The fate of Verity’s other four hospitals — Seton Medical Center and Seton Coastside in San Mateo County and two Southern California hospitals — remains in limbo.

The closure of the two Santa Clara County hospitals and the Morgan Hill clinic would represent a health care disaster for the county. The Board of Supervisors has known for decades that the county has a shortage of hospital beds in a region prone to major earthquakes. The county has 1.7 beds per thousand residents, which is lower than the national average of 2.4 per thousand. This in a county that is expecting its population to grow by another 600,000 people by 2030.

If the deal for O’Connor’s 358 beds and Saint Louise’s 93 beds falls through, the board would have little choice but to consider adding an equivalent number at Valley Medical Center. The cost would likely be double, or perhaps even triple, the county’s bid for O’Connor and Saint Louise hospitals. VMC officials would also have to determine a way to handle the 80,000 emergency room visits O’Connor and Saint Louise receive every year.

The challenge for the county will be paying for the hospitals and operating them without harming its existing programs.

The county plans to use bonds to make the purchase and pay them off with revenues generated by the hospitals. Verity has been losing between $2 million to $3 million a month operating O’Connor and Saint Louise hospitals. But the county would receive substantially higher reimbursement rates than Verity for the large number of MediCal and Medicare patients seen by those two hospitals.

The county will not have to assume liability for existing employee pension costs. The bankruptcy court will determine how Verity’s debts are paid off from existing funds and proceeds from the deal.

Verity’s failure to successfully operate the hospitals was predictable. This newspaper argued in 2014 that the Daughters of Charity should have sold O’Connor and Saint Louise to the county in order to continue the Daughters’ 100-year legacy of providing access to quality, affordable health care to the communities they serve, including the poor. It was unlikely that a for-profit entity could meet the conditions imposed by the state Attorney General to sustain the charitable elements of the Daughters’ mission for 10 years while also receiving less favorable reimbursement rates from the federal government.

The Daughters instead sold its six hospitals — including O’Connor and Saint Louise — to BlueMountain Capital in 2015. Two years later, Dr. Patrick Soon-Shiong, a Los Angeles billionaire, obtained a majority stake in the hospitals.

Buying the hospitals and the Morgan Hill clinic will place a substantially higher burden on the county, but the benefits the purchase provides far outweigh the potential health care disaster posed by their closure.