Sale of Six Hospitals to Prime Advances; Next Stop, Attorney General’s Office

Six California safety-net hospitals owned by the Daughters of Charity Health Systems will be sold to Prime Healthcare, officials announced last week.

Concerns have been raised about Prime Healthcare by union officials and legislators. Union leaders say the company has a poor reputation in the health care community and that it has a practice of using its emergency departments to admit a higher percentage of patients to more-expensive hospital stays. Prime is under investigation by HHS and the California Department of Justice for possible Medicare “upcoding” fraud for its high reported rates of septicemia and kwashiorkor, a form of severe malnutrition usually found in poor countries in the midst of a famine but reported in relatively high numbers at Prime facilities in the northern counties of California.

Union leaders from SEIU-United Healthcare West and some legislators say for-profit Prime would not be a good owner for Charity’s four hospitals in the Bay Area and two in Los Angeles and are asking state Attorney General Kamala Harris (D) to deny the sale.

A decision from Harris is expected in three to four months.

Officials at Prime Healthcare responded with a written statement from Edward Barrera, director of corporate communications at Prime, based in Ontario, near Los Angeles.

“These accusations are the last, tired remnants of an SEIU-engineered corporate campaign begun in 2010 and invoked now to block Prime Healthcare’s bid to save six struggling California hospitals at risk of closing,” the statement said.

“We are cooperating fully with investigators, have provided them access to thousands of medical records, and are confident their administrative review will uphold our physicians’ diagnoses and hospital billing practices. … Administrative reviews of this kind are not uncommon in our industry. In selecting Prime Healthcare as the most qualified provider to sustain its six California hospitals, the Daughters of Charity Health System has also seen through another SEIU smokescreen that only serves to advance the union’s own self-interests over the well-being of local communities.”

The six facilities for sale are O’Connor Hospital in San Jose; Saint Louise Regional Hospital in Gilroy; Seton Hospital in Daly City; Seton Coastside in Moss Beach; and two hospitals in Los Angeles County — St. Vincent Medical Center and St. Francis Medical Center.

In August, three California lawmakers — Sens. Jim Beall (D-San Jose), Jerry Hill (D-San Mateo) and Bill Monning (D-Carmel), who have all received union support — sent a letter to Harris criticizing a possible sale of the system to Prime.

Prime Healthcare Services filed a lawsuit this summer against employee unions for interfering in its bid to purchase the struggling system.

Officials from Daughters of Charity said they conducted a thorough review of Prime’s practices, and felt comfortable that the company will continue the same level of care and quality at the six hospitals.

“The future looks very bright today,” said Robert Issai, president and CEO of the Daughters of Charity Health System, on Friday. “Prime has been selected to take over the whole health system — lock, stock and barrel.”

The six facilities have combined operating losses of about $10 million a month, Issai said. That’s due, in part, to the high percentage of Medi-Cal and Medicare in those hospitals’ payer mix, he said.

“We have about 70% Medi-Cal and Medicare patients,” Issai said. “During the [recent recession], we lost a lot of our commercial business.”

Issai said the six facilities don’t have much negotiating power with vendors, unions and health plans because they’re too small and geographically isolated.

“Because of our size, the reimbursement is subprime, for lack of a better word,” Issai said. “If our six hospitals were in one market they would have a strong voice. But right now, we’re not market essential. With Prime, we will become market essential.”

Combine the larger negotiating power of a bigger company with a slight shift in payer mix and you have a viable business operation, Issai said.

“When you look at the 70% [Medicare and Medi-Cal] payer mix, if you convert just 5% of that into private insurance, that’s $50 million a year.”

None of that adds up for Dave Regan, president of SEIU United Healthcare Workers West.

“That would all sound good if it were believable, but it’s just not,” Regan said. “I don’t believe any of that for a minute.”

Saying there won’t be any changes in patient care is nice but not credible, he said.

“The reason it’s for sale in the first place is because of $160 million in losses on $1.3 billion in revenue,” Regan said. Throw in the cost of the acquisition itself, along with Prime’s need to turn a profit, and that will add up to big changes to these safety-net facilities, he said.

“There are numerous reasons to reject this [buyout],” Regan said, “beginning with Prime’s checkered history in terms of quality and provision of services. This is a provider that made its name by admitting large numbers of people through the ER.”

The Daughters of Charity haven’t done that, Regan said.

“[Daughters of Charity] has shown a willingness to use outpatient services. They’re key safety-net providers, dedicated to helping this population,” Regan said. “The values at Prime are diametrically opposite. It’s simply not believable that they’ll suddenly change.”

Prime Healthcare, Issai said, has experience dealing with safety-net hospitals work, and the levels of care will remain constant, he said.

“We don’t expect many changes. They have [12] hospitals, and five of them are disproportionate,” meaning they have higher percentage of Medi-Cal and Medicare patients, he said.

“They do not walk away from taking care of Medi-Cal and the uninsured,” Issai said.

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