Battle rages over Daughters of Charity sale to Prime Healthcare
California attorney general controls the fate of the deal as unions, pols demand its defeat.
Photo courtesy O'Connor Hospital
Leaders at California’s Daughters of Charity Health System are scrambling to lock up its controversial acquisition by Prime Healthcare despite a union and government protest that’s intent on quashing the deal.
The struggling Daughter’s of Charity received 133 acquisition inquiries and three bids before the board picked California-based Prime, the nation’s fastest growing for-profit hospital chain.
“Daughters’ historic mission of providing care to the needy and vulnerable doesn’t fit with Prime’s business model of revenue maximization and service elimination,” said Dave Regan, president of SEIU-United Healthcare Workers West. The union has joined more than a dozen local, state and federal lawmakers to press state Attorney General Kamala Harris to veto the deal.
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“Prime continues to face federal investigations for billing irregularities, and the fact the company must turn to the junk bond market for financing is itself an indication of the underlying problems and instability of its business model,” Regan said.
Daughters of Charity CEO Robert Issai stands by the decision to go with Prime, arguing that the company made the best bid for workers and patients. Along with a pledge for $150 million in capital improvements, Prime has agreed to continue paying pensions for some 17,000 union and non-union workers and retirees, honor union contracts, and has preserved the service missions at the four Catholic hospitals it already owns, Issai said.
“Prime Healthcare is not just the best choice, it is the only choice to keep our hospitals functioning,” Issai said recently.
[See also: Prime acquisition continues for-profit hospital takeover wave.]
The SEIU alleges Prime will take the six hospital Daughters of Charity Health System through bankruptcy, while also devoting more $11 million to executive compensation, and that the company’s takeover will likely lead to service reductions, employee wage cuts or layoffs.
Instead, SEIU favored another bidder, Blue Wolf Capital. The New York-based private equity firm is new to healthcare -- its sole hospital project is a nonprofit joint venture to capitalize community-based services at the Brooklyn Hospital Center. Regan said Blue Wolf would devote $300 million to capital improvements, twice as much as Prime, and preserve pensions.
The California Nurses Association and a local registered nurses branch of the SEIU have endorsed the sale to Prime, while also poking holes in Blue Wolf’s bid. Blue Wolf “failed to guarantee employee pensions, offered management contract, not a sales agreement, and wanted a $24 million management fee per year,” the organizations said in a statement.
Harris has until Feb. 12 to make a decision, and her track record suggests she could go either way. In 2011, Harris blocked Prime’s proposed acquisition of a community hospital in Victorville — the longtime home of Prime CEO Prem Reddy, MD, a cardiologist-turned-entrepreneur who’s overseen the acquisition of more than 20 hospitals since founding the company 14 years ago. Victorville is not far from the Desert Valley Hospital that he opened in 1994, sold and then repurchased in 2001 as the launching pad for Prime.
The Daughters of Charity Health System spans the California coast, including hospitals in San Jose, Daly City, and Los Angeles, where the Daughters’ ministry opened the city’s first hospital, what is now St. Vincent Medical Center, in 1856.
Prime Healthcare is not just the best choice, it is the only choice to keep our hospitals functioning.
But the health system’s finances have fallen apart amid private and public reimbursement pressure and the rise of larger integrated delivery systems. “Our six hospitals are losing $10 million a month and in danger of closing or filing for bankruptcy,” Issai said, calling on Attorney General Harris to approve the deal soon.
Prime now operates 29 hospitals, and could run more than 40 by mid-2015, which would make it among the top 10 health systems in the country. Reddy recently suggested he could take Prime to an initial public offering around 2017.
Prime is also buying the Riverview Regional Medical Center in Alabama and Dallas Regional Medical Center in Texas from publicly-traded, for-profit Community Health Systems, as well as St. Joseph Mercy Port Huron in Michigan, from Trinity Health East, and St. Joseph Medical Center and St. Mary's Medical Center is Missouri, from Ascension Health.
