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Prime Pulls out of Purchase of Daughters of Charity Health System after Attorney General Conditionally Approves the Deal

Posted by Ine Collins, Healthcare Systems Policy Analyst on March 18th, 2015
Photo credit flickr user UMHealthSystem (CC BY-NC-SA 2.0)

On February 20th, the Attorney General, Kamala Harris,  announced her decision to conditionally approve the sale of Daughters of Charity Health System (DCHS)—a non-profit chain of six struggling California hospitals—to Prime Healthcare Services, a controversial for-profit company that owns hospitals in California, Nevada, Kansas, Pennsylvania, and Rhode Island, for a total of $843 million. Her approval came with several conditions aimed at addressing many of the concerns opponents have voiced about Prime purchasing the health system. Some health access protective measures include:

  • Continuing to operate St. Francis (Los Angeles), O’Connor Hospital (San Jose), Saint Louise (Gilroy), and Seton Medical Center (Daly City) as acute care hospitals and offer emergency services for ten years
  • Remaining certified for Medi-Cal and Medicare and have Medi-Cal managed care contracts at all facilities for ten years
  • Maintaining charity care and community benefit programs at least at historical levels  
  • Continuing to provide essential health care services with specific protections for reproductive health care between five and ten years depending on the facility

However, these and other conditions proved too onerous for Prime who announced on March 10th that they would no longer be pursuing the purchase of the health system. Originally, Prime pledged to keep all hospitals open for at least five years. But in December the state tentatively announced their recommendation of ten years instead for some facilities which is further than conditions have gone in the past. These conditions were imperative to preserving services in the safety-net areas that

Tensions Rise in Sale of Daughters of Charity Health System to Prime Healthcare
Since the regional Catholic non-profit Daughters of Charity Health System (DCHS) went on sale earlier this year the health system has been mired in controversy. DCHS operates six hospitals throughout California, one located in South Los Angeles--St. Francis Medical Center in Lynwood, CA--one of the few remaining safety-net hospitals in South Los Angeles.

DCHS serves, such as South Los Angeles. Prime reviewed the conditions to determine the feasibility and financial viability of complying with them and had to ensure that Prime’s investors were still behind this deal in light of these terms.  In the end Prime Reddy, the CEO of Prime, said that 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.” Since Prime did not go through with the deal, it will lose the $40mil i currently held in escrow.

Now it is up to DCHS to find a new buyer for the entire system as they had hoped or for individual hospitals. For example, Santa Clara County is still willing to buy two hospitals in Gilroy and San Jose that it unsuccessfully bid for last year. With every passing day, without a buyer, DCHS continues to bleed money at the rate of $10 million a month. If they cannot find another buyer, DCHS will have to execute the contingency bankruptcy plan it developed which could set off a cascade of health care access issues.

For more information, please contact Community Health Councils’ Policy Analyst, Ine Collins at ine@chc-inc.org.

Posted in 2015