Q&A: What’s next for Prime Healthcare, Daughters of Charity hospitals

Six struggling Catholics hospital in California are up for sale, and their future is in the hands of a fast-growing hospital chain based in the Inland Empire.

Prime Healthcare Services Inc., a for-profit company with headquarters in Ontario, has offered to buy the financially struggling Daughters of Charity Health System for about $843 million.

On Feb. 20, California Atty. Gen. Kamala D. Harris approved the sale -- with several key conditions. She said Prime Healthcare must keep all of the hospitals open for 10 years, while offering the same services and providing the same amount of charity care for indigent patients as Daughters of Charity has been offering.

Now it’s up to Prime Healthcare to decide whether to accept the conditions or walk away. A decision is expected in the next few weeks.

What’s the latest?

Prime Healthcare is reviewing Harris’ decision and all the conditions she imposed. It is also consulting with its lenders and with Daughters of Charity staff to determine whether the purchase is financially feasible. On Feb. 25, the company said a decision “will likely require weeks of analysis.”

Is there a deadline?

Harris didn’t put a deadline on the deal, but Daughters of Charity bondholders expect the deal to close within 45 days of approval, which would be April 6, said Robert Issai, chief executive of Daughters of Charity. “I don’t want to give Prime a deadline, but I will ask them sooner, rather than later, to make a decision.”

What were the terms of the sale?

Prime Healthcare offered to pay about $843 million in cash and assumed debt to acquire the hospitals. A key part of the sale was Prime Healthcare’s promise to guarantee about $300 million of pension benefits for more than 17,000 current and former Daughters of Charity employees.

What hospitals are involved?

Daughters of Charity owns two hospitals in Los Angeles County – St. Francis Medical Center in Lynwood and St. Vincent Medical Center near downtown L.A. – and four in Northern California: O’Connor Hospital in San Jose, St. Louise Regional Hospital in Gilroy, Seton Medical Center in Daly City and Seton Coastside in Moss Beach, near Half Moon Bay.

Why is Kamala Harris involved?

Under California law, the attorney general must approve the sale of any nonprofit hospital in the state. That’s because these businesses have received significant tax breaks through the years and are considered vital to the communities they serve.

What is Prime Healthcare?

It is a privately held chain of 30 hospitals in nine states that specializes in buying financially struggling hospitals and making them profitable, often through cost-cutting and aggressive negotiations with insurers. It was founded in 2001 by Dr. Prem Reddy, a cardiologist and medical entrepreneur.

Why has Prime Healthcare been criticized?

There has been a significant amount of negative publicity about Prime Healthcare in recent years.

The company is the subject of an ongoing criminal investigation by the Justice Department for allegedly filing fraudulent claims for reimbursement by Medicare.

Kaiser Permanente accused the company in a lawsuit of needlessly admitting its patients after they sought treatment in Prime Healthcare emergency rooms. Prime Healthcare denies the allegations.

What did Daughters of Charity employees think of the sale?

The proposed sale divided labor, with unions holding public rallies for and against the sale to Prime Healthcare.

The SEIU-United Healthcare Workers West union, which represents thousands of Daughters of Charity workers, warned that Prime Healthcare often cuts important but unprofitable services and places the bottom line ahead of patient care.

The California Nurses Assn. supported the proposed sale, saying Prime Healthcare was the best option to keep the hospitals open and protect jobs and employee pensions.

Both sides said they supported Harris’ decision.

Why is Daughters of Charity for sale?

The Catholic hospital chain was losing about $10 million a month and decided in 2013 that it could not afford to continue operations. Its board of directors decided that selling the hospitals was the best way to avoid bankruptcy.

In a yearlong effort, Daughters of Charity reached out to more than 100 potential buyers and received six offers for the system before picking Prime.

What will happen if sale doesn’t go through?

If Prime backs out, Daughters of Charity will file for bankruptcy, Issai said. “We would be closing a lot of services, including services that the attorney general has said Prime must keep open for 10 years.”

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