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State Attorney General OKs Sale of Hospitals to Prime, but With Conditions

The state Attorney General last week approved the sale of six California safety-net hospitals to Prime Healthcare after a long and contentious approval process.

Attorney General Kamala Harris (D) added a number of conditions to the sale. Prime officials have not yet announced whether they would abide by the new requirements and complete the sale. Prime officials could not be reached for comment over the weekend.

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

Harris imposed several conditions that go beyond the parameters of the sale as negotiated between Daughters of Charity and Prime:

  • Prime must ensure continuation of services and charity care for 10 years instead of five, which includes the skilled nursing services of Seton Coastside;
  • During that time, Prime must be certified to participate in the Medi-Cal and Medicare programs and is required to have Medi-Cal managed care contracts at all six hospitals;
  • Reproductive health services are required services at all six hospitals; and
  • Prime must revise its debt-collection practices and procedures to comply with state law.

The Attorney General’s office also reiterated that Prime must invest $150 million in capital improvements over three years, something the company has already committed to do.

In addition, Harris stipulated that Prime will assume and guarantee all pension obligations for current and retired employees at the facilities, which affects an estimated 17,000 people.

If the sale is completed, Prime officials will need to file a compliance report every year for a decade with the Attorney General’s office.

Health care worker unions were on opposite sides of the debate over the sale — Service Workers International Union and United Healthcare Workers opposed it and the California Nurses Association supported it. 

“While we haven’t reviewed the entire document, based on the provisions cited in the Attorney General’s statement, we would hope that Prime will comply with these conditions, which will keep the hospitals open just as nurses, nuns, patients and community residents have rallied to achieve,” said RoseAnn DeMoro, executive director of the CNA in a written statement.

SEIU officials said the tougher conditions on the sale make it much more palatable:

“If Prime lives up to both the letter and spirit of the conditions placed on this sale, community health care and services for low-income families will be protected,” said Dave Regan, president of SEIU-UHW. “But given our history with Prime, that’s a big if.”

According to Robert Issai, president and CEO of the Daughters of Charity Health System, the six facilities combined for operating losses of about $10 million a month. Issai attributed those losses primarily to low reimbursement rates from the state.

Issai said in an October 2014 interview that the hospitals have a payer mix with 70% Medi-Cal and Medicare patients, and said the small local hospitals had no real collective bargaining power. That might change with the shift in ownership to Prime, Issai said in the earlier interview.

“If our six hospitals were in one market they would have a strong voice. But right now, we’re not market-essential,” Issai said. “With Prime, we will become market-essential.”

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