New hospital system requires bigger subsidies

The new Santa Clara County Health System that began operation this month offers new stability for healthcare services, especially for thousands of Medicare, Medi-Cal, uninsured and South County residents—but it also has a price tag for all county taxpayers.

The addition of O’Connor Hospital in San Jose and Saint Louise Regional Hospital in Gilroy will increase the Santa Clara Valley Medical Center subsidy from the county’s general fund by about $20 million in 2019-20, to $100 million, estimates County Executive Jeff Smith. That $100 million deficit represents about 5 percent of the new hospital system’s total operating budget.

In an interview with this newspaper on the eve of the completion of the $235 million purchase of the two hospitals by the county, Smith noted that the growth in the operating deficit of the new health system is a small percentage of the county’s $7 billion general fund.

The county executive said improved management at Santa Clara Valley Medical Center reduced its annual county subsidy from $250 million in 2011 to approximately $80 million in the fiscal year that ends in June. The medical center has a $1.84 billion operating budget in 2018-19.

O’Connor, with a $300 million operating budget, and St. Louise, with a $100 million operating budget, will swell total county health system annual spending to nearly $2.24 billion.

Smith said economies of scale in administration and improved Medicare reimbursements will put the two hospitals purchase out of bankruptcy court on a firm financial footing. Medicare reimbursements for public hospitals are higher than for privately owned hospitals, he said.

The county executive said he expects the transition to the new three-hospital system to be relatively seamless, with surgeries and treatments proceeding as scheduled, and patients continuing to see the same faces on the medical staff, and in related clinics.

In the first weekend of March, new websites were in place. Beginning this month and continuing into the summer, Smith said patients and staff would begin seeing some significant changes at St. Louise and O’Connor, as the county begins $400,000 in capital improvements, including new hospital beds, new elevators, and a new IT system for medical records to fully integrate medical information among the three hospitals.

The hospitals and clinics are operated under a consolidated license from the California Department of Public Health, and the county has put in place new reporting procedures for hospital administrators.

Deputy County Executive Rene G. Santiago is the director of the Santa Clara County Health System. John Hennelly is still top executive at St. Louise and Patricia Ryan still holds that role at O’Connor; both now report to Paul Lorenz, CEO of Santa Clara Valley Medical Center (who reports to Santiago).

Richard Adcock, the CEO of former owner Verity Health System, offered these parting words in a statement emailed to this newspaper:

“The completion of the sale of O’Connor and St. Louise Regional Hospitals to Santa Clara County means that these important institutions will continue providing local communities with the high-quality care they need and deserve. Throughout this process, the county has shown great leadership and partnership in helping us achieve this shared mission.”

At St. Louise, the Gilroy hospital will retain its contract with the CALSTAR 2 emergency transport system. The De Paul Health Center in Morgan Hill will continue to offer a range of outpatient services. De Paul was the original St. Louise hospital site until 1999 when the hospital was relocated to Gilroy.

“We are excited to bring these community hospitals into our health system as we expand and enhance the high-quality care that so many Santa Clara County residents have come to rely on,” said Smith in a statement. “Our new partners share our mission, values and passion to serve.”

“This acquisition is truly a win-win for the community. It prevents the closure of two critically important hospitals and ensures continued access to medical services for those who need it, regardless of ability to pay,” said Supervisor Joe Simitian, president of the Santa Clara County Board of Supervisors.

“We have worked hard over the past few months to lay the foundation for transitioning these new facilities into the county family of healthcare resources,” said Lorenz.

The two acquired hospital boards will stay on as community advisory boards, said Smith. He added that the board of the charitable foundations for each hospital will remain in place, and the foundation money remains dedicated to each hospital community.

The new three-hospital system will have more than 1.000 licensed hospital beds, is likely to have nearly double the emergency room visits of Santa Clara Valley Medical Center.

The new system will add more than 850 attending physicians, and 1,700 employees. Santa Clara Valley Medical Center lists approximately 6,000 employees at its sprawling campus in west San Jose.

O’Connor and Saint Louise hospitals reported a total of nearly 2,000 births last year, and conducted more than 10,000 out- and inpatient surgeries.

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