A U.S. Bankruptcy Court judge in Los Angeles today delivered a resounding rejection of a plea by California Attorney General Xavier Becerra to block Santa Clara County’s purchase of O’Connor and Saint Louise hospitals.
In denying Becerra’s request for stay of a Dec. 26 decision approving the sale, Judge Ernest Robles ruled that the attorney general’s action would “severely harm the public interest” by forcing the hospitals to close, and that Becerra had no legal authority over the $235 million deal.
Becerra’s deputy, Alicia Berry had argued in court that her office didn’t believe the dire warnings from the judge, hospital owners Verity Health Systems or Santa Clara County officials that the hospitals would likely shut down if the request for a stay were granted.
“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,” wrote Judge Ernest Robles in his Jan. 30 order.
He further said that Becerra’s U.S. District Court appeal of the sale “is unlikely to succeed and does not raise serious legal questions.” Robles characterize the attorney general’s legal case as weak, with a “lack of merit.”
“The attorney general still has not identified the specific statutory provision establishing his authority to review the sale,” Robles said in the order.
Undeterred, Becerra released a stinging statement after the ruling, in which he doubled down on his position— that Santa Clara County’s offer to buy O’Connor and Saint Louise hospitals was “without guarantees of outstanding protections and levels of service.”
He said the Jan. 30 court decision “strips our office of the authority to protect patients when hospitals are transferred to public entities.” He claimed that Santa County had refused to say which “important patient protections and services” it would provide.
While Becerra could continue his legal fight, Robles wrote that the “denial of a stay will most likely result in the attorney general being unable to obtain appellate review of the court’s decision.”
Becerra and his office did not respond to follow-up questions or requests for an interview.
The attorney general’s allegations were rejected later in the afternoon by Santa Clara County Executive Jeff Smith, who said in a statement that Becerra’s comments were “false” and “misleading.”
“We are happy about the court’s decision and will move forward with the maintenance and expansion of community healthcare services in San Jose and South Santa Clara County,” said Smith, who holds both medical and legal degrees. “We will ensure the continued availability of essential healthcare services in the entire region, something the attorney general was jeopardizing by attempting to block the sale and threatening the closure of these hospitals.”
As a public hospital system, the county provides care to all Santa Clara County residents, and Smith has repeatedly public expressed the county’s continued commitment, as required by state law, to provide comprehensive healthcare to all residents.
“The County of Santa Clara has effectively complied with all the medical and clinical conditions for the purchase and will continue to meet all state law requirements, as it already does throughout its high-quality health system,” Smith said. He and his staff had gone to Sacramento on Jan.22, offering a memorandum of understanding, to assure Becerra the county would honor its healthcare commitment for a wide range of healthcare services. That offer was rejected in a five-minute meeting, Smith said.
“Sadly, the attorney general’s office has refused to work with the county to assuage its concerns,” he said in the Jan. 30 statement. “The Office of the Attorney General continues to make false accusations regarding the county’s ongoing commitment to the provision of medical services.”
“It is simply not accurate for the attorney general to argue that the county has not explained and provided reassurances that we will provide all appropriate healthcare services to all patients in need in Santa Clara County, regardless of their ability to pay.”
He said Becerra “continues to make false accusations regarding the county’s ongoing commitment to the provision of medical services.”
In an interview, Richard Adcock, chief executive officer of Verity Health System—whose filing for Chapter 11 bankruptcy protection last fall opened the door to the county’s purchase offer—praised the ruling by the bankruptcy court.
“We are happy and proud” of the sale of two of its six hospitals to Santa Clara County and the pending sale—headed for approval next week—of the sale of the other four hospitals to KPC Group, a private, Southern California firm, he said.
Adcock said Verity is working on a transition plan with Santa Clara County, to provide IT and other support in the weeks after the sale is closed March 4.
“We believe that working with Santa Clara County is in the best interests of those hospitals, to keep them open,” he said.
In court testimony, Adcock had said that if a stay were granted, “the sale would be in material danger of collapsing.”
The Verity Health System facilities in Santa Clara County beginning March 4 will be owned by the County of Santa Clara and will be operated as community hospitals with local control by the physicians at the hospitals and by local administrators. “The addition of these hospitals to the county health system will expand access for all residents to the highest quality healthcare,” Smith said.
He said last week he expects to hire more than 2,000 hospital staff and contract with approximately 700 physicians now affiliated with the Verity Health hospitals.
“Contrary to the attorney general’s assertion, throughout the entire purchase process the county has been committed to continuing to provide essential healthcare services, including access to emergency care, urgent and intensive care services, coronary care and neonatal intensive care,” Smith’s statement read. “The only reason for the county to purchase the hospitals is to keep them open. It is misleading to suggest otherwise.”
“All of the clinical services the attorney general has been talking about are also provided comprehensively and with high quality at our award-winning hospital, Santa Clara Valley Medical Center,” he said. “The county intends to expand those high quality and intensive care services to O’Connor and St. Louise hospitals upon the close of the sale,” Smith said.
“We hope that now that the court has made its ruling, we can all focus on the health and welfare of our residents.”
“We hope the Office of the Attorney General will not continue its opposition,” Smith said. “If the Attorney General’s Office continues its attempt to close the hospitals, we will continue to fight for the health and welfare of our residents.
Robles ruled Jan. 30 that Becerra’s legal actions were aimed at “vindicating his policy and regulatory powers,” and didn’t stack up against the damages that an approval of his request would cause.
“The injury to the debtors and to other stakeholders resulting from issuance of a
stay will be substantially greater than the injury to the Attorney general from denial of a stay,” Roble wrote in his opinion.
He said Verity Health has “expended significant resources.”
More than 100 people have been working with representatives of Santa Clara County to effectuate the transfer of the hospitals’ operations.
Among other things, he said the county and Verity Health have spent significant time preparing a transition services greement: transferring the hospitals’ information technology functions to Santa Clara County; communicating with the public regarding the transition; conducting job fairs to facilitate the transition; attending to various accounting and financial management issues; and preparing legal documents necessary for the transition.
“If the sale collapses, all of that work will have been wasted,” the judge said in his ruling.
He also said that a stay of the sale order would harm employee morale at the hospitals by creating additional uncertainty.
“Following entry of the sale order, 104 employees who worked at the hospitals between Sept. 4 and Dec. 28 have left. The uncertainty created by a stay could cause more employees to leave, further damaging the hospital’s operations,” the judge wrote.
“Closure of the hospitals, even if it were temporary, would severely harm the public interest,” Robles concluded. “The attorney general’s theory is that public health and welfare can be adequately protected only if he has the opportunity to enforce the conditions.”
“This argument overlooks the reality that enforcement of the conditions would likely lead Santa Clara to withdraw from the sale,” he wrote.