SAN JOSE — Santa Clara County on Wednesday moved a big step closer to taking over O’Connor Hospital and St. Louise Regional Hospital after a Los Angeles bankruptcy judge rejected the state’s effort to block the hospitals’ sale.
The judge’s final ruling, which concluded California Attorney General Xavier Becerra doesn’t have the authority to regulate the transaction, gives the county a clearer path to closing the $235 million deal with Verity Health Systems on March 4.
The county nevertheless is bracing for the possibility that the attorney general could go to federal district court in a last-ditch effort to stop the sale.
“We’re obviously very pleased with the bankruptcy court’s decision, we think it’s correct on the law, but more importantly, it’s so important for our community,” County Counsel James R. Williams said.
U.S. Bankruptcy Judge Ernest Robles, who ruled in December that the attorney general doesn’t have the authority to control the sale of private, nonprofit hospitals to public entities, wrote that Becerra’s attorneys presented the same argument as they did in December, which he didn’t buy then.
“The Attorney General still has not identified any specific statutory provision that establishes his authority to review the sale,” Robles wrote in a tentative ruling, which he finalized Wednesday morning.
The ruling is a victory for the county, which launched a media blitz against the attorney general last week, arguing a stay on the sale would blow the March 4 deadline for escrow to close, thus killing the transaction entirely and possibly forcing the hospitals to shut down.
The county was the only bidder for the two hospitals after Verity Health filed for bankruptcy in August. Buying O’Connor Hospital in San Jose and St. Louise Regional Hospital in Gilroy would allow the county to significantly expand its public health system.
Williams said he believes Becerra could still request a stay from a federal district court while he pursues an appeal of the sale.
“There is a practical deadline, which is, if they don’t get a stay before closing, the transaction is closed…and the sale order is final,” Williams said.
In a statement released after the hearing, Becerra said the decision “strips our office of the authority to protect patients when hospitals are transferred to public entities like the County of Santa Clara.”
“This is concerning, since the County of Santa Clara would not articulate which of these important patient protections and services that were a condition for the operation of Verity’s hospitals would survive in the transfer of ownership,” Beccera said in the statement. “Nor would Santa Clara County explain why it would not commit to maintain these levels of patient protections and services.”
Asked whether the attorney general plans to appeal the ruling to a federal district court, a spokesperson said, “we’re reviewing all of our options.”
The attorney general was seeking to block the deal until the county agrees to a set of conditions the state imposed on the hospitals’ private nonprofit owners in 2015, which included requirements to provide an emergency room and inpatient beds and maintain women’s reproductive health services.
Those conditions were aimed at preventing the new owners from reducing services to low-income patients at the hospitals, previously run as safety-net facilities by the Catholic nonprofit Daughters of Charity Health Centers.
Williams said Beccera’s claim that the county hasn’t specified which conditions it’s willing to comply with is false. He said the county had “almost daily communication for months” with the attorney general over each condition.
Court documents filed by the attorney general in November and December also showed the two sides have been negotiating over the conditions and that the attorney general had agreed to waive at least five of them.
The county has asserted that the conditions were essentially pointless because other government statutes obligate it to provide the same or higher level of health care services to the poor.
“We’re subject to numerous statutes and licenses that govern what we do. The problem with the conditions is they were written for a hedge fund,” said Williams, referring to the hedge fund that bought the hospitals and created Verity Health.
Williams and County CEO Jeff Smith also traveled to Sacramento last week to offer the attorney general a binding contract agreeing to certain conditions, but “the AG’s office made plain they were not interested in that conversation,” Williams said.
Meanwhile, the county and Verity Health both say they are preparing to close the deal. The county has received more than 2,000 applications from Verity Health employees and is in the process of hiring them.
“People are literally on-site in Santa Clara as you and I are talking, doing work…executing, arranging everything for the sale,” said Rich Adcock, CEO of Verity Health.
Verity Health will still be involved in some operational aspects, such as technology support, for a few months during the transition, Adcock said.
“On March 4, if that is the closing date, (the county will) have full control,” Adcock said. “On the day they close, they’re fully running it and we’re merely just there to support the transition.”
Robles wrote in his ruling that granting the attorney general’s stay on the sale of O’Connor and St. Louise would likely cause the county to withdraw its bid and the hospitals to close until another buyer comes along.
“Far from protecting public health and welfare, a stay would set in motion a series of events that, in all probability, would reduce the availability of healthcare services to the public,” Robles wrote.
In a statement, State Sen. Jim Beall (D-San Jose) said the attorney general’s claim that their action protects county residents is “uninformed and baseless.”
“Saint Louise has the busiest Emergency Department in the South County and this case put them in jeopardy, not their purchase to the county,” said Beall.
Verity Health Systems also owns four other hospitals that are up for auction. Southern California-based KPC group submitted a bid earlier this month for those hospitals, setting off an auction process.
Contact Thy Vo at 408-200-1055 or tvo@bayareanewsgroup.com.
