Is Santa Clara County planning a big hospital purchase?

With difficult economic pressures and increased caseloads straining its ability to care for patients in the post-COVID era, Santa Clara County is considering expanding its healthcare system by purchasing another area hospital.

Since the beginning of the year, county supervisors have been meeting behind closed doors to discuss a proposed health care facility — though no details have been made public. And in February, the county signed a $3 million contract with a New York-based investment banking firm that specializes in hospital acquisitions and evaluations.

The company, Cain Brothers, is the same one that helped the county in 2019 when it assumed ownership of O’Connor Hospital in San Jose and Saint Louise Regional Hospital in Gilroy for $235 million. Both were owned by a nonprofit that filed for bankruptcy.

County Executive Jeff Smith confirmed the possibility of an expansion — but he, along with the county supervisors, declined to offer specifics.

One possibility is Regional Medical Center in San Jose with 258 beds on the city’s eastern side. The hospital is owned by HCA Healthcare, which oversees over 180 hospitals around the country and the United Kingdom.

In a statement, an HCA Healthcare spokesperson wrote, “Discussions happen all the time in healthcare. Sometimes they lead to something, and many times, they do not. For that reason, we’ve found it’s best not to talk about discussions we may or may not be having unless or until we have something to announce.”

In addition to its O’Connor and Saint Louise sites, the county also operates its main hospital, Santa Clara Valley Medical Center — a 731-bed facility in San Jose that serves lower-income residents — and a number of local clinics, overseeing the second-largest public hospital system in the state.

In an interview, Smith said a multitude of factors — both at the local and state level — is pushing the current county hospital system to the brink.

For one, a number of hospitals located in the vicinity of Santa Clara County are at risk of failing. San Benito County’s Hazel Hawkins Memorial Hospital, just 20 miles south of Gilroy, declared a fiscal emergency and authorized a bankruptcy filing in November. And Santa Cruz County’s Watsonville Community Hospital, roughly the same distance to the west of Gilroy, declared bankruptcy in 2021 and its CEO resigned in March. If these two hospitals ultimately fail, Smith said its patients likely would head north to find care in Santa Clara County.

The instability at Hazel Hawkins is already forcing Santa Clara County to make staffing changes. In late February, more than 50 healthcare workers were shifted to Saint Louise in Gilroy to handle increased patient caseloads.

In addition, Smith said that the Bay Area’s high cost of living, recent layoffs and a cohort of workers doing seasonal work, with inadequate insurance or none at all, are pushing more people to the county’s system.

They are examples of the county’s “missing middle” population — a term used to describe those who aren’t in dire poverty but face major economic pressures from the area’s high cost of living.

“They make it through the day-to-day,” Smith said. “But if they need surgery or have a medical problem, they fall off the economic ledge.”

Developments at the state level also have added to the crunch. Over the last decade, Medicaid, known in this state as Medi-Cal, has been slowly increasing eligibility for residents. In May, the state started allowing those 50 and older, regardless of immigration status, to enter the program. With a wider swath of people eligible for Medi-Cal, more patients are moving away from private hospitals and pushed into the public system.

As a result, Smith said that the county could quickly see an influx of an additional 200,000 residents needing care on an annual basis. The county currently serves roughly 400,000 patients a year.

For county hospital workers, the possible purchase of another system is drawing mixed reactions.

Gregg Adams, a trauma surgeon at Valley Medical for 23 years, said he understands the mounting pressure on the system and how bringing another facility into the fold could be beneficial to lessen the load.

But he is also concerned about maintaining patient standards. Adams is concerned that O’Connor and Saint Louise haven’t fully transitioned into the county system since they were brought in four years ago — and believes their standards of care aren’t at the same level as the county’s main hospital in San Jose. He acknowledges that the pandemic — which came a year after the two hospitals were taken over —  shifted the county’s priorities.

Bringing other hospitals into the county’s fold “is a cultural problem,” he said. “It is sort of like if you’re going to franchise your brand. You want the cheeseburger that you buy at McDonald’s in Fresno to taste like the one you get in Redding.”