Daughter's of Charity sues SEIU for fouling up Prime deal

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

The Daughters of Charity Health System has filed a lawsuit against the Service Employees International Union-Healthcare Workers West, claiming the labor union's outspoken protest over the system’s pending sale to Prime Healthcare may have soured the deal.

California-based Daughters claims that the SEIU tried to thwart the $843 million acquisition agreement with Prime Healthcare Services, by conspiring with rival takeover bidder Blue Wolf Capital Partners.

“By using extortionist threats and bid-chilling tactics to frustrate this sale as leverage for other commercial gains they seek, the defendants have cost DCHS at a minimum tens of millions of dollars in continuing operational losses and professional fees,” lawyers for Catholic health system wrote in lawsuit in Superior Court in Santa Clara County. “DCHS continues to face the possibility that the sale will not close, with potentially catastrophic consequences.”

[Also: Prime deal approved, with conditions]

The lawsuit came just days after California attorney general Kamala Harris approved the acquisition with a range of conditions. Prime is set to make its final decision on the terms in a few days. Among the conditions required by Harris, Prime would have to keep all the six Daughters hospitals open for 10 years, maintain charity care and community benefit spending, participate in Medicaid and provide essential health and reproductive services.

If Prime does not go forward with the merger, Daughters of Charity will collect a termination fee of $5 million but could end up closing due to its perilous financial state, executives have warned. The health system has been losing up to $10 million per month, and the fierce public campaign by the SEIU -- trying to convince lawmakers and regulators like Harris to reject a takeover by Prime -- has harmed its future prospects, the lawsuit argues.

At least two other bidders, Alecto Healthcare Services and Strategic Global Management, were dissuaded from pursuing an acquisition by the SEIU, according to the lawsuit, which seeks unspecified compensation for losses and punitive damages.

The proposed takeover 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.

The union responded to the suit on Friday, calling the move another bully tactic by the health system.

"We will not be intimidated and we will not back down," said William Adkins, a certified nursing assistant at O'Connor Hospital in San Jose, a the unions statement. "We are going to fight to protect community health, continue improving our wages and benefits, and protecting our pensions."

"The more Daughters' management tried to intimidate us in recent months, the stronger we got and the more motivated we were to stand our ground and push back," said Karen Linzy, a mental health worker at St. Francis Medical Center in Lynwood. "This lawsuit just charges us up even more to provide the best possible care to our patients and stand up for our future."

Last fall, privately held Prime -- which is preparing an IPO -- 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 17,000 current and former employees.

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

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.

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, like 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.

Among the other conditions imposed by Harris, Prime must invest $150 million in capital improvement over the next 3 years 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.

Twitter: @AnthonyBrino