State AG tries to block hospital sales

Officials say move could result in closure of both O’Connor and St. Louise

SAN JOSE >> California Attorney General Xavier Becerra is trying to block the sale of two financially struggling hospitals to Santa Clara County, which he says hasn’t agreed to operate them under certain conditions that would protect healthcare access.

But county officials say Becerra’s action could end up shuttering the hospitals entirely.

“Since the County was the only party to bid on Verity’s hospitals in Santa Clara County, it is likely that such an action would cause the closure of O’Connor and St. Louise hospitals,” county CEO Jeffrey Smith said in a written statement.

The county’s agreement with Verity Health System of California, the hospitals’ parent company, requires the deal to close by the beginning of March. A hearing to consider the attorney general’s request is set for Jan. 30.

Smith said the county’s intention in buying the hospitals was to increase health care access countywide and for safety-net populations.

“We’ve made it clear the only reason we’re buying the hospitals is to operate them as general acute care hospitals,” Smith said in an interview Friday. “We have no intention to change the services by decreasing; we tend to increase the services in south county.”

Rich Adcock, CEO of Verity, said in a phone interview he doesn’t believe the state’s action will delay the sale.

“Both the attorney general and county are exercising their full authority … but I believe on January 30 (the sale) will continue on the same path it’s on, and this will close on March 4th,” Adcock said.

Asked whether Verity can continue operating the hospitals if the sale is delayed, he replied: “We’ll cross that bridge when we get there. … We’re focused on what’s ahead of us.”

The county’s $235 million purchase of O’Connor Hospital in San Jose and St. Louise Regional Hospital in Gilroy is part of a plan to relieve overcrowding at Valley

Medical Center and expand the public health system in central San Jose and south county.

The county had offered to buy the hospitals as part of a bankruptcy reorganization by Verity, which had been in talks with more than 100 organizations looking at various parts of the hospital system. None of them put in a bid, however, allowing the county to win by default.

The attorney general has argued that the county, as part of the sale, should commit to following conditions imposed on those hospitals in 2015, when Verity purchased four former Catholic Daughters of Charity Health System hospitals dedicated to serving safetynet populations.

Then-Attorney General Kamala Harris, who is now a U.S. Senator, argued the conditions would preserve healthcare access and ensure low-income people continue to have the same level of healthcare and access to the facilities after the restructuring.

Those conditions include requiring the facilities to remain general acute care hospitals with 24-hour emergency medical services, requiring them to provide the same level of service to Medi-Cal beneficiaries, and mandating comparable salaries and wages for employees after the transition.

“As we have stated before, the California Department of Justice is committed to advocating for conditions that ensure communities have access to essential healthcare services,” a spokesperson for the attorney general said in an emailed statement.

The county and attorney general have been talking for months, Smith said, but the county believes many of the conditions aren’t legally enforceable and don’t make sense because there are already separate, and more stringent, laws requiring it to provide healthcare to the poor.

During the discussions, the attorney general agreed to waive conditions requiring the hospitals to provide specific amounts of charity care and community benefits and conditions related to pension obligations and the composition of the hospitals’ board of trustees, according to a judge’s ruling.

“I think what it boils down to is they want to maintain what they perceive as their authority in the rest of the sales over the other four hospitals,” Smith said. “So they want to treat our purchase the same way as the other hospitals, without recognizing we’re a different purchaser, a government entity.”

In late December, U.S. Bankruptcy Judge Ernest M. Robles ruled that the California Attorney General’s office doesn’t have the legal right to oversee the sale of nonprofit hospitals to a public entity and therefore can’t block the sale.

Robles wrote that the statutes allowing the attorney general to intervene are aimed at preventing “charitable assets from falling into the hands of forprofit entities who would not continue to use those assets for charitable purposes,” and don’t apply to public agencies.

The attorney general has appealed that ruling and is seeking to stay the sale order.

Verity Health filed for Chapter 11 bankruptcy in August, citing more than $1 billion of bond debt and unfunded pension liabilities, a need for significant expensive seismic upgrades and aging infrastructure.

Daughters of Charity had previously declined to sell O’Connor and St. Louise to Santa Clara County because it wanted to sell all the hospitals as a package.