Some three years after a New York hedge fund purchased six California hospitals from the cash-strapped operator of Seton Medical Center in Daly City and Seton Coastside Medical Center in Moss Beach, the futures of two major health care facilities in the county are uncertain once again after their owner announced earlier this month it is experiencing financial challenges and may put them up for sale.
Among the possible options leaders of Verity Health, the nonprofit health care system formed after New York hedge fund BlueMountain Capital struck a deal with Daughters of Charity in 2015, may consider is the potential sale of some or all of its locations. The system is the process of exploring several options to address financial and operational challenges — including a decade of deferred maintenance, poor payer contracts and increasing costs — facing its six hospitals, which also include O’Connor Hospital in San Jose and St. Louise Regional Hospital in Gilroy, as well as St. Francis Medical Center in Lynwood and St. Vincent Medical Center in Los Angeles, according to a press release.
“The top priority of Verity’s board and management team is to establish a long-term, sustainable path forward for our hospitals, which are of critical importance to the communities they serve,” said Verity Health CEO Rich Adcock in the release. “As the board and management team work together to evaluate these options, the interests of our patients, employees and communities remain paramount.”
More than 1,500 employees and 400 staff physicians provide a range of care services to some 1.5 million residents in San Francisco and San Mateo counties at the Seton Medical Center in Daly City. With more than 350 licensed beds, the hospital is more than twice as large as its 116-bed sister hospital, Seton Coastside, which is a skilled nursing facility and offers the only standby emergency department along the 55-mile coastal stretch between Daly City and Santa Cruz, according to Verity Health’s website.
Noting the county’s long-standing support of the two facilities, David Canepa, who represents north county’s District 5 on the San Mateo County Board of Supervisors, emphasized the role they have played in making health care available to low-income county residents for decades. Verity Health confirmed some 27,000 patients receive care annually through the emergency department at Seton Medical Center, which also offers cardiovascular services, oncology and wound care, among other services, and some 3,000 are seen at the coastside facility’s standby emergency room.
“Having Seton Medical Center in our community as well as [Seton] Coastside is important,” said Canepa. “It provides … services that are desperately needed.”
The two facilities were among six in the state that garnered attention from the state’s attorney general when its former operator Daughters of Charity sought to sell the group. In late 2015, then attorney general Kamala Harris laid out terms of agreement when BlueMountain Capital struck a deal with the nonprofit operator. Aimed at ensuring the safety-net hospitals continue offering services for at least 10 years, the transaction was considered by some to be the largest and most complex nonprofit hospital transaction in California’s history.
Part of those obligations included a $65 million project to seismically upgrade the Seton Medical Center by 2020, to which the county dedicated $15 million in 2017, according to a previous county staff report.
According to terms outlined by the state, BlueMountain has the option to purchase the hospitals between 2018 and 2030, then potentially run them for a profit. Based on the county’s contract, if the hospitals were to lose their nonprofit status before 2030, BlueMountain must repay the county. The reimbursement amount decreases over the years, so the longer the hospital is maintained as a nonprofit, the less BlueMountain would have to repay should it opt to take over, according to the report.
When Patrick Soon-Shiong, a surgeon, professor, scientist, entrepreneur, businessman and philanthropist who purchased the Los Angeles Times this year, stepped in as a majority stake owner in 2017, BlueMountain Capital contributed additional funding to continue Verity’s revitalization initiatives.
County spokeswoman Michelle Durand said in an email county officials are monitoring the status of the health care provider’s situation as it weighs its options. For his part, Canepa said he could not see the county stepping forward to purchase the hospitals at this time, but was confident officials would be focused on ensuring the terms and conditions set forth years ago are followed by whomever owns the hospitals.
“I will hold that owner to the conditions because they made a commitment to our community that they were going to provide quality accessible care,” he said. “We just have to be vigilant and make sure that they hold up their end of the agreement whether it’s this group or the next group.”
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