Prime Backs Out of Buying Hospitals

On Tuesday, Prime Healthcare withdrew its offer to buy six California safety-net hospitals from the Daughters of Charity Health System.

California Attorney General Kamala Harris (D) approved the sale last month but imposed a series of conditions on the deal Prime officials on Tuesday called “onerous and unprecedented.”

“The conditions placed on the sale by the California Attorney General are so burdensome and restrictive that it would be impossible for Prime Healthcare — or any buyer — to make the changes needed to operate and save these hospitals,” said Prime Chair Prem Reddy.

Harris said the hospitals provide crucial services for their communities and must be protected.

“The Daughters of Charity health facilities and the emergency, trauma and surgical services, among others that they provide, are essential to the communities who rely on them,” Harris said. “Following an in-depth review by independent health care consultants, 44 hours of public meetings and review of 14,000 comments from concerned community members, I imposed conditions to ensure the continuity of these health care services, including that the most essential health care services remain in place for 10 years. In December of last year, the independent health care consultants recommended the 10-year conditions and Prime was notified at that time. Now, after two-and-a-half months, Prime is saying these conditions are a deal breaker.”

Harris said the fact that Prime is pulling out of the deal speaks to some of the concerns raised by consumer advocates and legislators.

“Prime is choosing to walk away from this transaction after publicly stating that it had no issue with the 10-year conditions and intended not to close any of the hospitals or end essential services,” Harris said. “By walking away, Prime is confirming many of the concerns heard at multiple community meetings that the continuity of vital health care services in these communities is not its priority,” Harris said. 

Whether another buyer can swing a deal remains to be seen.

According to a statement released Tuesday by the nurse’s union at St. Francis Medical Center in Lynwood (Los Angeles County), one of the six facilities included in the proposed sale, Blue Wolf Capital, a private equity investment firm based in New York City, has already made an offer. Union representatives urged the sellers to work out a deal with Blue Wolf.

“We encourage Daughters [of Charity] to move forward immediately with a new buyer in order to keep the system intact and running. Luckily this buyer already exists: Blue Wolf,” said Bill Rouse, union negotiator for United Nurses Associations of California/Union of Health Care Professionals. “There is still a great opportunity to save the system and the jobs of hospital staff.”

The sale affects four Northern California hospitals and two in Southern California: O’Connor Hospital, San Jose; St. Francis Medical Center, Lynwood; St. Vincent Medical Center, Los Angeles; Saint Louise Regional Hospital, Gilroy; Seton Coastside, Moss Beach (San Mateo County); and Seton Medical Center, Daly City.

According to Daughters of Charity officials, the six hospitals have been losing $10 million a month, or roughly $150 million a year because of high labor costs and low Medi-Cal and Medicare reimbursement rates.  

“It was with a heavy heart that we came to this decision,” Reddy said, “as we had sincerely hoped for [Daughters of Charity Health System] to become a part of the Prime Healthcare family and did everything possible to try to make that happen. We have great respect for the mission of the Daughters of Charity and wish the best for the communities we had hoped to serve.”

In a written release, the general counsel for Prime, Troy Schell, said the conditions imposed by Harris were unworkable.

“Maintaining all services for 10 years regardless of whether the services are needed or essential for the communities served is unprecedented and untenable,” Schell said. “In essence, the Attorney General is telling Prime Healthcare to operate the hospitals exactly as [Daughters of Charity] has and expect different results.”

On Feb. 20, Harris imposed several conditions that went beyond the parameters of the sale as negotiated between Daughters of Charity and Prime:

  • Prime needed to ensure continuation of services and charity care for 10 years instead of five, including the skilled nursing services of Seton Coastside;
  • Prime was required to be certified to participate in the Medi-Cal and Medicare programs and to have Medi-Cal managed care contracts at all six hospitals;
  • The hospitals had to offer reproductive health services; and
  • Prime was required to revise its debt-collection practices and procedures to comply with state law.

Two large, statewide health care worker unions were on opposite sides of the proposed sale to Prime. The Service Employees International Union-United Healthcare Workers West opposed the sale and the California Nurses Association supported it.

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