Nonprofit profile St. Louise Regional Hospital will stay open after county’s purchase

South Valley residents will get access to more services in VMC system

Published in the January 9 – 22, 2019 issue of Gilroy Life

Santa Clara County will take ownership of St. Louise Regional and O’Connor hospitals and Morgan Hill’s De Paul Medical Center in the next several months. A bankruptcy court last month approved the offer by the county of the assessed value of $235 million to purchase all three facilities.

The county would initially pay cash for the purchase, said Supervisor Mike Wasserman, who believes the purchase is a “big, big, big win” for South Valley residents. A few months after the sale, depending on the market and when it can get the best rates, lease revenue bonds would be issued to finance the purchase. The financing term would likely be 20 to 30 years.

“Because of the county coming in and being the purchaser, this will give a guarantee of the continuity of the hospitals in questions and the services and the expansion and the improving of medical services provided at those locations,” Wasserman said.

Santa Clara County started taking steps to purchase the three facilities after the Redwood City-based Verity Health System of California filed for bankruptcy protection Aug. 31.

St. Louise is the only hospital in the South Valley region, serving a local population of more than 100,000 residents. The purchase adds the 93 beds now at St. Louise and the 358 beds at O’Connor to the 563 beds now operated by the county at its acute care hospital Valley Medical Center in San Jose.

“If we had not bid and won, there’s no telling what would have happened to St. Louise Hospital and those services,” Wasserman said. “The good news is that we’re doing it, and the end results are going to be maintaining and improving medical services in South County.”

The county’s intention is to hire Verity’s more than 1,700 employees at the hospitals as county employees, he said. The pensions and paid leave built up by these employees are not in the county’s transaction.

“That’s all between Verity and the bankruptcy court. The county is not party to any of that,” he said. “The county is coming in and keeping the lights on.”

The county still needs to finalize some details such as the state transferring the license for operating the facilities and some regulatory procedure issues, which should must be completed before the close of the sale, Wasserman said.

The county purchased Valley Medical Center a few years ago. Adding St. Louise, O’Connor and De Paul to their medical care system will enhance the level of service for South Valley residents, he said.

“Having the county as the owner of these hospitals ensures top-quality state-of-the-art services and continuity of services,” he said. “This is going to make O’Connor and St. Louise hospitals better than they’ve ever been. And the reason I’ve been pushing for this, especially for St. Louise, is because geographically, there’s not another place for South County residents to go to easily and conveniently.”

A date for the transfer has not been set as the details of the purchase are being finalized. But it’s a “safe estimate” that the close of the sale will be in early March, said John Hennelly, CEO at St. Louise and De Paul.

“I’m excited about moving into 2019. (The years) 2017 and 2018 were challenging but successful for St. Louise, but we needed a new partner to really move forward and the county is filling that bill. They’ve got the resources, they’ve got the medical staff specialists that we really need to take St. Louise to the next level.”

VMC CEO Paul Lorenz will be leading the expanded county health system and intends to do a strategic plan for the three hospitals and De Paul campuses, he said. The county has conveyed that they intend to keep the same management structure that exists today. Hennelly plans to continue in managing St. Louise and De Paul.

“My intent is to continue leading the hospital into 2019 and continuing to fulfill our commitment to the community,” he said.

A significant issue for nurses and other staff at St. Louise is how their pensions and other benefits will be dealt with by Verity. Negotiations with the union are still underway.

“I think the simple message is bankruptcy is a tough transition and Verity is working very hard to make sure everybody is kept as whole as possible, but we don’t know yet what the outcome of each creditor will be, and we’re all creditors at this point,” Hennelly said. “Every individual that Verity and the hospital owes money to is a creditor, and Verity’s goal is to honor the commitments that we’ve made to everybody. Verity’s management team is working to ensure those commitments get honored, but it’s a bankruptcy and those are difficult.”

As a public entity, the county will not have the limitations and requirements as a private health care systems as Verity faced, Wasserman said.

“Our intention is to bring those best practices and services to St. Louise and provide those there,” he said. “What services they can provide will be greatly expanded because they are now going to be part of the Valley Medical system. VMC has an absolutely state-of-the-art trauma center, burn center, rehab in the state of California. And now patients who go to St. Louise will have immediate access to all the services provided by Valley Medical Center.”

Staff coming in from St. Louise and O’Connor will need to be trained in Epic, a financial software program used by Valley Medical Center that the county spent millions of dollars transitioning to four years ago. Epic has streamlined the process of receiving reimbursements from the state and federal governments and improved service to patients. The electronic medical record system should significantly improve the business side of running the hospitals, Wasserman said.

“If we break even, that would be a wonderful thing and that’s certainly my expectation,” he said.

Levels of service will be enhanced for people with limited insurance and the homeless, he said.

“The role of the county hospitals is to provide service to anyone and everyone as compared to the private hospitals,” he said. “The county provides services to anyone and everyone who walks through those doors.”

St. Louise was originally owned and operated by the Daughters of Charity of St. Vincent de Paul. Verity Health was formed in July 2015 when the DOC selected BlueMountain Capital Management LLC, a private investment firm, to re-capitalize the health systems operations and transition leadership of the health system to the new Verity Health System.

Before that, DOC had been unsuccessful in an affiliation with Ascension Health Alliance and a sale to Prime Healthcare Services.

Verity lost about $175 million annually on a cash-flow basis. It had to secure a $185 million loan to stay afloat and pay employees and suppliers as it searched for potential buyers.

Hennelly is pleased the county made the purchase so people in Gilroy, San Martin and Morgan Hill will continue to have access to professional medical care for their quality-of-life needs.

“I’m excited that St. Louise will be able to continue its mission,” he said. “We have created some stability at the hospital and we want to keep that moving forward. The county is going to be able to let us continue that.”