Daughters of Charity hospitals sale falls through [updated]

Prime Healthcare has backed out of a high-profile and contentious deal to purchase six Daughters of Charity hospitals, including St. Vincent and St. Francis Medical Centers in Los Angeles.

Prime said in a statement that it chose not to move forward because of "onerous and unprecedented conditions" placed on the sale by California Attorney General Kamala Harris.

Harris reviewed the deal and last month approved the sale with a number of conditions – most notably that Prime keep acute care services open for 10 years.  The Ontario-based company had offered to maintain acute care services for five years.  Under state law the attorney general must review sales of nonprofit health care facilities.

"Maintaining all services for 10 years regardless of whether the services are needed or 'essential' for the communities served is unprecedented and untenable," Prime General Counsel Troy Schell said in a statement. "In essence, the Attorney General is telling Prime Healthcare to operate the hospitals exactly as [Daughters of Charity] has and expect different results."

Harris accused Prime of flip-flopping on the 10-year condition.

Daughters of Charity President and CEO Robert Issai notified his staff in an email Tuesday that Prime had backed out.

"We have done everything possible to secure a different outcome," Issai wrote in his email, adding that "we've spent hours meeting with Prime and also meeting with the Attorney General's office to come to an agreement on a path forward."

Issai assured his staff that "we remain committed to finding the next best solution for our patients, communities we serve, physicians, employees, retirees and creditors. Time is of the essence as we navigate the challenging operational and financial obstacles."

In an interview with KPCC, Issai said that Daughters has contingency plans in place to keep its hospitals operating for a few months while it looks for a new buyer.

Daughters of Charity has been trying to sell the chain because it is hundreds of millions of dollars in debt.  Prime noted that in addition to maintaining acute services for at least five years, it was prepared to fully fund employee pensions and invest more than $150 million in capital improvements.

Harris sharply criticized Prime for pulling the plug on the sale. She said in a statement that the 10-year condition was recommended last December by independent health care consultants who had reviewed the proposed deal, and that Prime - "after publicly stating that it had no issue with the ten-year conditions" - is now "walking away."

By turning down the deal, Prime "is confirming many of the concerns heard at multiple community meetings that the continuity of vital healthcare services in these communities is not its priority," asserted Harris.

The proposed sale was under fire for months from labor unions and community members who argued that Prime would cut essential services to the low-income neighborhoods served by the hospitals.

SEIU-United Health Workers West, which led the charge against the Prime purchase, said it will work with Daughters of Charity to find a buyer.

"Now the Daughters themselves, our union and other concerned parties can focus on finding a solution and a responsible buyer to take over the system," said Dave Regan, president of SEIU-UHW. "We hope to be working as constructively as possible with Daughters to find a solution that is in everybody's interest."

Issai said he isn't sure how the two groups will be able to work together. Last month, Daughters of Charity filed a lawsuit against SEIU-UHW, alleging it used "extortionist tactics" to impede the sale.

Another opponent of the sale, State Assemblyman Anthony Rendon (D-Lakewood), said in a statement that "it is my belief there is still a viable buyer that will carry out [Daughters of Charity's] mission of serving the poor and working on behalf of the community."

Rendon's district includes St. Francis Medical Center.

SEIU-UHW had favored a bid by New York-based venture capital firm Blue Wolf Capital Partners. Blue Wolf said it has no comment on the latest developments.

This story has been updated.