Prime mulls conditions after state approves Daughters of Charity takeover

O'Connor Hospital, Daughter's of Charity Health Care, photo from Facebook

Prime Healthcare Services' $843 million takeover of Daughters for Charity Health System has been approved, but with stipulations that could make the contentious takeover more complex than thought.

After months of heated debates and protests by union leaders, California Attorney General Kamala Harris on Friday gave the green light to Prime's  bid to acquire the six hospital nonprofit network with facilities in Los Angeles and the Bay Area. But the deal's conditions include keeping all the hospitals open for 10 years — with four of them as acute care facilities — maintaining charity care and community benefit spending, participating in Medicaid, and providing essential health and reproductive services.

[Also: Kaiser Permanente: No we don't back Prime's bid for Daughter's of Charity]

The deal was the largest consolidation plan ever reviewed by the California attorney general, which oversees nonprofit organizations. Prime is still reviewing the 78-page decision and deciding whether to proceed.

Last fall, privately-held Prime proposed acquiring the financially stressed Daughters of Charity System for $843 million in cash, the assumption of uncertain debt and at least $300 million in pension liability for some 17,000 current and former employees.

The plan set off a fractious debate in California, with healthcare unions, major media and local lawmakers all varying in their opposition or support to a Prime takeover of the historic nonprofit health system.

[Also: Battle rages over Daughters of Charity sale to Prime]

Fearing for facility closures, layoffs and pay cuts, the SEIU-United Healthcare Workers West mobilized a public relations campaign trying to convince Harris to block the sale, she did in another Prime bid. In 2011, Harris vetoed Prime’s proposed acquisition of a community hospital in Victorville, over concerns that the presence of Prime’s nearby Desert Valley Hospital would give the company too much local power. Victorville is also the longtime home of Prime founder Prim Reddy, MD, a cardiologist who opened Desert Valley Hospital in 1994 and later expanded to a national system of 29 hospitals nationwide.

Now, the SEIU-UHW sees the terms set by Harris as a fair deal. “If Prime lives up to both the letter and spirit of the conditions placed on this sale, community healthcare and services for low-income families will be protected,” said Dave Regan, president of SEIU-UHW.

Among the other conditions imposed by Harris, Prime must invest $150 million in capital improvement over the next 3 years — as promised the initial acquisition deal — and revise its policies for debt collection practices. The company also must agree to provide adequate reproductive services, including those that may have been banned previously in Daughters’ hospitals in accordance with the "Ethical and Religious Directives for Catholic Health Care Services." Harris said Prime will have to document compliance with the conditions in annual reports.

Prime has pitched itself as well-suited to saving the Daughters of Charity, which has been losing $10 million a month and is at risk of closing. Beyond California, concerns of workforce and service reductions have come with Prime’s acquisitions, but Reddy and other company leaders argue that the system is able to make non-clinical operations more efficient to preserve or expand patient care.

Follow Healthcare Finance on Twitter and LinkedIn.

Prime’s recent acquisitions include the St. Joseph Mercy Port Huron in Michigan from Trinity Health, St. Joseph Medical Center and St. Mary's Medical Center in Missouri from Ascension Health and the Riverview Regional Medical Center in Alabama and Dallas Regional Medical Center in Texas, both from for-profit Community Health Systems.

The company will likely have more public hurdles in its expansion.

In Prime’s home state of California, leaders at its Chino Valley Medical Center are dealing with legal scrutiny of its inpatient admissions. The day before Harris approved the Daughters’ takeover, a California Superior Court Judge in San Bernardino concluded that the Chino Valley Medical Center was violating 14 orders of an injunction requiring the hospital to change admissions practices. According to a complaint filed by a physicians group, the hospital has been “needlessly admitting” emergency room patients, rather than keeping them in observation or or notifying their established physicians.  

Read the full decision below:

Twitter: @AnthonyBrino