Operator of Seton seeks bankruptcy

Rich Adcock, CEO of Verity Health, said in a Friday press release the decision to file for bankruptcy marks the first critical step toward putting each facility on better footing in the future and that the system will remain focused on providing high-quality care to patients without disruption throughout the Chapter 11 process. In addition to the two Seton facilities, Verity Health’s hospitals 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.

“Despite many efforts over the last decade to create opportunities for success, we can no longer swim against the tide of our operating reality, which includes a legacy burden of more than a billion dollars of bond debt and unfunded pension liabilities, an inability to renegotiate burdensome contracts, the continuing need for significant capital expenditures for seismic obligations and aging infrastructure,” he said in the release.

For Supervisor David Canepa, who represents north county’s District 5 on the Board of Supervisors, Verity Health’s announcement marked a sad day for San Mateo County, and especially residents served by Seton Medical Center. In addition to an emergency room serving some 27,000 patients a year, the Daly City facility offers more than 350 licensed beds as well as cardiovascular services, oncology and outpatient care including clinical lab, diagnostic and imaging services. Seton Coastside, a skilled nursing facility, is 116-bed hospital that also offers the only standby emergency department along the 55-mile coastal stretch between Daly City and Santa Cruz, according to Verity Health.

County worries

Since the system’s July announcement, Canepa has been in talks to prepare for a variety of possible scenarios with Supervisor Don Horsley and leaders of the San Mateo County Health System and the Health Plan of San Mateo, an independent, quasi-government agency which functions as a health maintenance organization and offers a comprehensive network of health care providers.

Though sale of the facilities has long been among the possible outcomes officials have studied, Canepa worried the bankruptcy filing could signal the beginning of the end given the financial challenges the system is facing.

“When you take a step toward bankruptcy, it’s the first step in terms of restructuring and there are no guarantees that the hospital will remain,” he said.

He said he will remain focused on ensuring there are no changes to the terms of agreement laid out by then-attorney general Kamala Harris in late 2015 when BlueMountain Capital struck a deal with the hospitals’ former operator Daughters of Charity. Aimed at ensuring the safety-net hospitals continue offering services until 2025, the transaction was considered by some to be the largest and most complex nonprofit hospital transaction in California’s history.

Canepa remembered the renewed hope many placed in the hospitals’ futures 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 Integrity Healthcare, Verity Health’s management company, in 2017. Canepa expressed disappointment in the doctor and Verity Health, noting officials would have to remain vigilant and ensure the operator adheres to the conditions set forth by the state’s attorney general.

County Counsel John Beiers said officials were concerned to learn of Verity Health’s petition for bankruptcy, but noted it is his understanding the petition does not change Seton’s current obligations to its patients and the community as a health care facility.

“This process is at its earliest stage, and county leadership will be paying close attention to potential impacts on the residents of San Mateo County going forward,” he said in an email.

Canepa noted the contrast between the billionaire doctor’s commitment a year ago to making sure the hospitals continued providing services and the message sent by Verity Health’s bankruptcy announcement. He said the news is an affront to the Daughters of Charity, the patients served by the facilities and the many workers employed at the facilities.

Union concerns

In a Friday press release, the Service Employees International Union-United Healthcare Workers announced plans to challenge the bankruptcy proceedings. Representing 2,000 workers at Verity Health hospitals, the union alleged Verity Health sought permission from the court to sell their hospitals free from any “liens and encumbrances” and forecasted its intent to nullify its obligations to its union collective bargaining agreements and the conditions of sale put in place by the state’s attorney general. By challenging Verity Health’s petition, the union aims to ensure the operator’s obligations are fulfilled, including keeping the hospitals open, maintaining existing services, bargaining with union workers, meeting pension obligations and maintaining current levels of employment.

“When Verity bought these hospitals from Daughters of Charity four years ago, they made promises to these communities that they would not lose access to the care they needed,” SEIU-UHW President Dave Regan said in the release. “Now it looks like Verity’s billionaire owner wants to go back on those commitments.”

County money

Having contributed some $25 million for patient care and set aside $15 million toward a seismic upgrade project at the Seton Medical Center, county officials have already dedicated some $40 million to the facilities since they were acquired by Verity Health, noted Canepa. He said $5 million in county funds has been expended for the $65 million seismic retrofit, so he is hoping they can recover any county funds that haven’t been spent.

“I have a role to now begin to look at the money we’ve given, and what potential recovery of those dollars we have,” he said.

anna@smdailyjournal.com

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