Valley Health System lays out plans to protect safety‑net care as federal funding faces cuts

The Santa Clara Valley Health and Hospital System presented a multi‑point plan Feb. 25 to shore up operations and protect safety‑net care if federal Medicaid and other funding streams are cut.

Paul Lorenz, CEO of the health system, told the Board of Supervisors that nearly half of the system’s patient mix is covered by government programs: about 48% by Medicaid (Medi‑Cal) and another roughly 36% by Medicare. Lorenz said the system depends on both base fees and a complex array of supplemental and directed Medicaid payments and that many of those supplemental revenue streams are at risk under proposals circulating in Congress. “We are, in fact, facing some unprecedented times relative to health care,” Lorenz said.

Key elements of the health system strategy

- Protect and maximize supplemental Medicaid revenue streams: the system negotiated an increase in quality‑incentive and directed payments that buys time while system changes are implemented. - Drive up fee‑for‑service revenue and improve revenue cycle performance: the system plans targeted revenue‑cycle initiatives and payer negotiations to increase baseline reimbursement. CEO Lorenz described opportunities to improve contract rates with family health plans and insurers for delegated managed‑care lives. - Operational efficiencies and service‑line strategy: leaders emphasized shifting toward primary‑care and prevention to reduce emergency department demand, and centering higher‑cost specialty services where the system has regional expertise (burn, rehab, trauma, rehab) to maintain margin that supports safety‑net care. - Regional Medical Center transition: the health system reported it was on track to operate Regional Medical Center beginning April 1. Early staffing and credentialing have proceeded, and the system expects to ramp surgical and trauma capacity with upfront start‑up costs that it plans to manage within the current budget through targeted savings.

The board and health system also discussed the specifics of how the system would respond to various federal scenarios. One concrete concern is proposals under consideration in the House resolution that would change the federal match for Medicaid or convert Medicaid financing to block grants or per‑capita caps — each of which could shift substantial costs to states and counties.

Why it matters: Valley Health is the county’s largest health provider for Medi‑Cal patients and operates the local public hospital system. System leaders said cuts to Medicaid supplemental payments or to the federal match would materially affect both inpatient and outpatient capacity for low‑income residents.

What officials said: “One of the strategies … is to not only protect those dollars but to find other ways to which we can ensure some financial sustainability going forward,” Lorenz said. County Executive James Williams added that the county will push at the state and federal level to preserve funding streams and that the county’s hospital system is an asset not only for Santa Clara County but the broader region.

Next steps: the health system will continue monthly reporting to the Board’s Health and Hospital Committee and present further detail on supplemental revenue assumptions and the Regional Medical Center operational plan. The board approved a county motion to receive the report and requested an annual outcome report on a vendor marketing contract for Valley Health Plan (separate item) to track enrollment impacts.