O’Connor to transfer family health center to new operator

Published in the April 27, 2012 issue of Silicon Valley Business Journal

by David Goll

Ownership of the O’Connor Family Health Center, an outpatient clinic that serves as the family medicine residency training program for doctors at O’Connor Hospital in San Jose, will be taken over by the Indian Health Center of Santa Clara Valley Inc. in June.

This transfer of services will allow the outpatient clinic catering to low-income patients to remain open and the 35-year-old residency program to stay intact, said Jim Dover, O’Connor’s CEO. The O’Connor Family Health Center, with an annual budget of $1.2 million is operated by the Los Altos Hills-based Daughters of Charity Health System. The health center was losing $700,000 annually, Dover said.

“We’re transferring responsibility for the clinic from our books to theirs,” Dover said. “Under the new owner, the clinic should break even or do even better.”

He said the nonprofit Indian Health Center is a Federally Qualified Health Center under the auspices of the U.S. Department of Health and Human Services. It receives federal funds not available to O’Connor.

Liz Hunt, CEO of the Indian Health Center, said health center serves a similar population as O’Connor.

“We wanted to make sure clients served by O’Connor continued to receive health care,” Hunt said. “O’Connor was losing money on this and needed a solution.”

The O’Connor Family Health Center, at 455 O’Connor Drive across from the 358-bed O’Connor Hospital, records about 14,000 visits from patients annually.

“For patients in this category, their continuity of coverage for primary care is very important,” Dover said. “The Indian Health Center will be able to do a better job and provide dentistry, which we don’t have now.”

Eighty-two percent of Indian Health Center clients don’t have private health insurance and 84 percent live at or below 200 percent of the federal poverty level, according to Hunt. This year, that’s defined as an annual income of $22,340 for one person and $46,100 for a family of four. Her organization, with an annual budget of nearly $12 billion, has nearly 40,000 annual visits and operates a clinic at 1333 Meridian Ave. in San Jose’s Willow Glen neighborhood.

Dover said O’Connor’s residency program, a cooperative effort with Stanford Hospital & Clinics, will continue to operate under the Indian Health Center’s ownership. The outpatient clinic staff includes up to 24 faculty-physicians, resident-physicians and physician assistants who work there on any given day.

The competitive and rapidly consolidating health care market has been tough on operators like Daughters of Charity, which treats all patients regardless of their ability to pay. The organization, which operates O’Connor, Saint Louise Regional Hospital in Gilroy and four other medical centers in California, is negotiating a merger with St. Louis-based Ascension Health Alliance, the nation’s largest Catholic health care system. Ascension operates 76 hospitals and medical facilities in 20 states and Washington, D.C., and had fiscal 2011 revenue of nearly $16 billion.

Daughters of Charity, with fiscal 2011 revenue of $1.4 billion, has been struggling with expenses that are eclipsing revenue. The nonprofit has been feeling the pinch in wages, benefits and investments in new technologies. The provider has a low percentage of patients with private insurance at 22 percent, while 48 percent are on Medicare and 24 percent Medi-Cal.