Prime Passes On Daughters of Charity

California Attorney General Kamala Harris said yes. But Prime Healthcare said no. And the fate of six hospitals in and around San Jose and Los Angeles hang in the balance.

After months of negotiations and often raucous pronunciations by those opposed to the deal, Ontario-based Prime Healthcare Services passed up on the chance to acquire the hospitals operated by Daughters of Charity Health System earlier this week, claiming the conditions attached to closing the transaction were too onerous. 

"Prime Healthcare has been committed to saving the six struggling DCHS hospitals and securing their mission of care," said Prime Chairman Prem Reddy, M.D. "Unfortunately, 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."

Under the agreement, Prime must have kept the six hospitals open for at least the next 10 years, more than the five years originally proposed and recommended in an independent review authorized by Harris’ office. Prime would have also had to maintain the levels of specialty servies and charity care that had been provided, with various adjustments for inflation. It would have also had to keep Medi-Cal managed care and other government payer contracts in place. And it would have had to keep outpatient clinics operated by St. Francis Medical Center in Lynwood open for at least five years.

Altogether, Prime officials said that more than 300 conditions were attached to the consummation of the deal.

Harris blasted Prime’s decision. She issued a statement on Tuesday that Prime chose 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.  By walking away, Prime is confirming many of the concerns heard at multiple community meetings that the continuity of vital healthcare services in these communities is not its priority.” 

The decision by Prime to withdraw puts Daughters of Charity into a difficult position. The chain has been under financial duress, losing as much as $10 million a month. Officials with the chain have suggested that without a deal in place, it likely would have to file for bankruptcy protection and cut services.

We are disappointed that Prime Healthcare has decided not to go forward with the purchase of our hospitals,” Daughters of Charity said in a statement. “We strongly disagree with Prime's position on the Attorney General conditions. We are confident that Prime could successfully turn around the DCHS hospitals. We remain committed to finding the best solution for our patients, communities we serve, physicians, employees, retirees and creditors. We recognize that time is of the essence as we navigate these challenging financial obstacles. Over the coming days, we have difficult decisions to make and we will communicate those decisions after we have a chance to consult with our advisors, boards of directors and the Daughters of Charity.”

The Service Employees International Union-United Healthcare Workers West, a long-time adversary of Prime and an opponent of the deal, urged Daughters of Charity to find another buyer as quickly as possible. The chain has about 7,500 employees, a large number of whom are SEIU-UHW members.

"This announcement sets the path for other buyers more compatible with Daughters' commitment to public health to jump in immediately to purchase either the entire health system or individual hospitals," said SEIU-UHW President Dave Regan. "Daughters management needs to move quickly to select a buyer to continue Daughters' mission of serving the sick and poor in our communities."

Meanwhile, Prime has been undeterred in acquiring properties outside of California, where it began making the bulk of its acquisitions about five years ago, when the regulatory climate in California grew more intense.

Prime announced last week it acquired Dallas Regional Medical Center in Mesquite, Texas and Riverside Regional Medical Center in Gadsden, Ala. That brings the total of hospitals under Prime’s ownership to 34 nationwide.