Buyer of six Daughters of Charity hospitals in California pulls out of sale

Prime Healthcare Services, poised to purchase the six struggling hospitals in the Daughters of Charity Health System in California, withdrew from the sale Tuesday, saying conditions imposed by California's attorney general were too "burdensome and restrictive."

Although stunned by Prime's action in the final moments of the sale that has been negotiated for months, Robert Issai, DCHS president and CEO, told NCR he remains hopeful that another buyer will be found.

"When one door closes, God opens another one," he said, noting "a lot of interested parties" have contacted him since Prime announced its withdrawal. "Far more than we expected."

In a Feb. 20 ruling, Attorney General Kamala Harris had given "conditional approval" to the $843 million sale with strong conditions, including keeping four of the hospitals open as full service acute and emergency care for 10 years. Prime wanted to make only a five-year commitment.

Because the six hospitals were being sold to a for-profit company, state law required that the attorney general give final approval.

Harris also insisted that Prime participate in Medi-Cal and Medicare programs, continue to provide charity care at "historical levels," invest at least $150 million in capital improvements, and honor all pension obligations for the system's 17,000 current and retired employees.

Prem Reddy, Prime's chairman, in a statement announcing the withdrawal said the conditions were "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."

Issai said he's been "pleasantly surprised" by the level of new interest in buying the hospital system as a whole or purchasing individual hospitals. "All options are on the table and we are not putting bookends to those options," he said.

Harris said Prime's withdrawal confirmed what many critics had been saying -- that for Prime "continuity of vital health services in the communities [served by the hospitals] is not its priority."

Over the past several months, the Service Employees International Union-United Healthcare Workers West (SEIU-UHW), headquartered in Oakland, had waged an aggressive campaign to block the sale, saying Prime has a poor record of living up to its promises when buying other hospitals. Supporters of the sale included the California Nurses Association and National Nurses United.

DCHS had said the sale to Prime was the only way to keep the hospitals open since the other offers did not meet key criteria set by the DCHS board of directors. The four hospitals in northern California and two in southern California were running a monthly debt of $10 million, a cost DCHS said it could not sustain.  

Issai told NCR on Thursday that DCHS is now in a better financial situation because of improved reimbursements and other management strategies that should make the system more attractive to buyers.

In backing out of the deal, Prime said constant change within the health care industry makes the 10-year condition not economically feasible. Prime also expressed concern that other hospital sales within the state have only had a five-year requirement.

Harris said the 10-year requirement had been known to Prime since December, and she questioned why they waited more than two months to say it was a deal-breaker.

Previously, Issai had said DCHS would file for bankruptcy if the Prime sale fell through. That remains an option but is not the current direction, he told NCR.

Santa Clara County has indicated it is ready to make an offer for two hospitals -- O'Connor Hospital in San Jose and St. Louise Regional Hospital in Gilroy. Issai said their offer would need to be "significantly higher than the amount they offered earlier."

Other hospitals in the system are Seton Medical Center in Daly City, Seton Coastside in Moss Beach, St. Francis Medical Center in Lynwood and St. Vincent Medical Center in Los Angeles.

Issai said DCHS is continuing with the lawsuit it filed Feb. 23 against SEIU-UHW for allegedly interfering with the sale to Prime. Blue Wolf Capital, a private equity firm whose purchase bid had not been accepted, is also named in the suit. It accuses both groups of "conspiring to hold hostage a proposed sale of DCHS for illegal and extortive purposes."

Dave Regan, SEIU-UHW president, said the suit is "designed to punish workers for speaking out against selling the system to Prime."

Issai said he hopes the next buyer will be "less controversial" and the sale "less political."

[Monica Clark is NCR West Coast correspondent. Her email address is mclark@ncronline.org.]