Daly City Hospital’s Path Out of Bankruptcy Gets Bumpier

The owner of the safety net hospital is seeking relief in bankruptcy court for "unenforceable" sale conditions by the state.

Seton Medical Center in Daly City just hit another roadblock to financial solvency.

The current owner Verity Health System filed a motion in bankruptcy court this week to have conditions placed on the sale by the California Attorney General last week, declared unenforceable.

“Absent relief from the court, the sale of the hospitals to the KPC Group likely will collapse, jeopardizing the continued operation of these facilities as hospitals,” said Verity CEO Richard Adcock in a statement, “which would result in the loss of access to critical healthcare in underserved communities, as well as thousands of jobs and anticipated recoveries to trade vendors, retirees, physicians, employees and other creditors.”

Sale conditions requires Strategic Global Management, a subsidiary of KPC Group of Companies and the sole bidder, that Seton Medical Center continue to operate for at least six more years as an acute emergency care hospital and contribute roughly $1.1 million annually in charity care for the area. Seton is not only one of the only major hospitals in northern San Mateo County, but a safety net hospital whose vast majority of patients use Medicare and MediCal — and include several San Francisco residents.

Verity, which owns another Seton in Coastside and two in southern California, bought the hospital system in 2015 under similar conditions and declared bankruptcy in 2018 — marking two financial crises for the hospital in just three years. Sticking points this time around include capital improvement requirements, operating a cancer unit until 2022, and requiring seismic retrofitting to complete by July 2022.

“It’s critically important for San Francisco and San Mateo County residents that Seton Medical Center and Seton Coastside remain open as full-service, acute care hospitals,” said Sal Rosselli, president of the National Union of Healthcare Workers, which represents more than 700 Seton employees. “Seton workers are committed to making sure both hospitals serve future generations and are willing to work with all parties to achieve that goal.”

The motion argues that conditions placed by Attorney General Xavier Becerra trigger SGM’s termination rights by dramatically altering the deal. It also notes that Verity is operating at a daily loss of $450,000 each day.

San Mateo County Supervisor David Canepa doesn’t think that this puts the sale in true jeopardy, but that Verity and SGM will try to loosen some of the sale conditions through bankruptcy court. But the impacts would be dire, as the hospital staff and surrounding community warned since bankruptcy was declared in 2018. Canepa is looking at ways to provide safety net hospitals like Seton with more financial stability, perhaps through a fee placed on for-profit hospitals in the wealthier parts of the county.

“I will be very disappointed if the buyer walks out of the deal,” Canepa said. “There would be adverse consequences, obviously, to public health. We put a lot of sweat equity in this — now it’s time to make it happen.”

A hearing is scheduled for Oct. 15 in the U.S. Bankruptcy Court for the Central District of California.

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