State AG Files Stay On Hospital Sale To Santa Clara Co.

GILROY, CA -- Placing the sale of two area hospitals on life support, the California Department of Justice has attempted to block the sale of O’Connor and St. Louise hospitals to Santa Clara County in a legal maneuver that the $235 million deal in peril.

The state Attorney General's office has filed an appeal of the U.S. Bankruptcy Court's sale order by requesting a stay, which asks the court to stop the sale of St. Louise in Gilroy and O'Connor in San Jose. The Bankruptcy Court in Los Angeles set a hearing date regarding the stay for Jan. 30. A stay will cause a breach of the purchase agreement between Verity and the county, thus preventing the sale.

“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 Chief Executive Officer Jeffrey V. Smith.

If the Bankruptcy Court denies the stay at the hearing, the attorney general can appeal the decision and cause further delay of the sale.

“Our concern is that if the transaction is not completed on time, the deal is dead, and the future of the hospitals is uncertain,” Smith said. “The attorney general’s actions to block the sale of Verity’s hospitals to the county is a real threat to the health of our community, our residents and the vulnerable populations the hospitals serve.”

On Dec. 27, the Bankruptcy Court approved the county’s bid to acquire the two hospitals, which involves the DePaul Health Center in Morgan Hill under the Gilroy wing. The county would be adding the hospitals to its health system, which already includes Santa Clara Valley Medical Center in San Jose.

The hospitals, their staffs and doctors all share the county’s mission to provide high quality, compassionate and accessible healthcare, the county contends.

“County leadership is already working on transition planning with the leaders, managers and employees in these hospitals in preparation for an expected late February ownership change and to make the transition as seamless as possible,” Smith said. “Adding these hospitals to our health system would ensure the continued availability of essential healthcare services that their communities have depended on for more than a century. Because of this attempt to block the sale, our efforts and the viability of these community hospitals are now in jeopardy.”

The state contends it petitioned the county to continue to operate the facilities as general acute care hospitals, including among other things 24-hour emergency medical services. The Attorney General's Office claims the county has not agreed to those conditions as part of its purchase.

Gleamed from the stay order was the state's objections in halting the sale centered on concern over the public's trust in having the local government take over the facilities.

"A stay will promote the public’s interest in allowing the District Court to determine on appeal whether the (California Attorney General) can retain his police and regulatory powers to enforce conditions that were designed to protect the public health, safety, and welfare of the people of the state of California. The CAG conditions address the continued operation as licensed general acute care hospitals, continued provision of 24-hour emergency and trauma medical services, continued provision of certain essential health care services including reproductive health
services, continued participation in the Medi-Cal and Medicare programs for low
income, disabled and elderly patients and the continuation of governmental contracts that provide access to care for indigent patients," the state argument reads.

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