Prime Healthcare Services sues California attorney general over Daughters of Charity deal, accuses her of caving to union

Prime Healthcare in California has sued California Attorney General Kamala Harris, claiming she abused her constitutional powers by imposing strict conditions on the sale of the Daughters of Charity Health System that ultimately caused the deal to fall apart.

The suit also alleges that Harris was swayed by union influence, according to the company.

The lawsuit alleges Service Employees International Union – United Healthcare Workers West promised to support Harris using up to $25 million in political contributions through an independent expenditure fund if she denied the Daughters of Charity sale or imposed deal-killing conditions.

Prime withdrew its offer to buy the Daughters of Charity after Harris imposed conditions.

The lawsuit was filed Sept. 21, the same day Prime Healthcare announced it would acquire the 88-bed Lehigh Regional Medical Center and related businesses in Lehigh Acres, Florida from subsidiaries of Community Health Systems. The financial terms were not disclosed.

[Also: Prime backs out of Daughters of Charity deal]

According to the lawsuit, Harris conditioned regulatory approval of the Daughters of Charity Health System on Prime's agreement to accept the demand of Service Employees International Union – United Healthcare Workers West, to unionize.

"Attorney General Harris abused her constitutional authority by placing her need for political financial support over the health-care needs of the people," said Troy Schell, general counsel for Prime Healthcare. "By imposing restrictive conditions on Prime and only Prime, she forced the company to withdraw its offer for the DCHS hospitals, jeopardizing health care in these underserved communities."

The lawsuit accuses Harris of being a puppet of the SEIU-UHW, which wanted to Prime to allow the SEIU-UHW to unionize all its hospitals.

Prime was selected by the DCHS board of directors to take over the financially failing hospitals in October 2014 after an exhaustive search that included consideration of hundreds of competing bids. Board members said Prime's $843 million offer, which protected the unfunded pensions of 17,000 current and former employees, preserved charity care and essential services and continued the Daughters of Charity's healthcare mission, far exceeded all other proposals.

[Also: Daughters of Charity gets $250 million lifeline from BlueMountain Capital Management]

The sale had the overwhelming support of the public, physicians and nurses, including the California Nurses Association. The only organized opposition was created by the SEIU-UHW.

According to the complaint, during Prime's negotiations with SEIU-UHW, Dave Regan, the union president, repeatedly told Prime that Harris would deny or effectively deny with onerous conditions the DCHS sale if Prime did not agree to SEIU-UHW's demands.

Regan said Harris would "do what [he] told her to." Regan also told Prime that a UHW deal was the price of doing business in California.

[Also: New Daughters of Charity deal could face same AG hurdle over terms]

Prime was told the same thing by DCHS and various political consultants and confidants of Harris, according to the company.

Prime refused to give in to the SEIU-UHW demands.

Harris imposed a litany of conditions that essentially forced Prime to continue hospital operations unchanged for 10 years, "a requirement that would have made it impossible to save the hospitals," according to the lawsuit.

In all other hospital transactions before or since, Harris has placed only five-year conditions on services, which is considered the national standard, according to Prime.

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Prime, which has rescued more than 35 failing hospitals nationwide, was forced to withdraw its purchase offer due to Harris' sale conditions.

In the months since, mitigation plans have been put in place to eliminate many essential services at the DCHS hospitals – services that Prime had pledged to keep open, including women's health and pediatrics. The hospitals continue to lose millions of dollars a month.

The DCHS decision was not the first time that Attorney General Harris caved to the SEIU-UHW over a failing hospital in California. In a case described in detail for the first time in the lawsuit, Harris in 2011 overruled the recommendations of her own staff and without explanation denied Prime's purchase of Victor Valley Community Hospital, the suit alleges.

Twitter: @SusanMorseHFN