Daughters of Charity to sell six California hospitals to Prime Healthcare

November 1, 2014

The Daughters of Charity Health System Board of Directors approved the sale of the system's six California hospitals and medical foundation to Prime Healthcare Services and Prime Healthcare Foundation, the systems announced on Oct. 10. Financial terms were not disclosed.


Robert Issai, president and chief executive of Daughters of Charity Health System, said the sale requires the approval of the Vatican and the California Attorney General. The sale could close in about four months, he said.

The Los Altos Hills, Calif.-based Catholic nonprofit system began looking for a buyer early this year, with the list of more than 100 parties contacted by the system narrowed to four finalists before Prime Healthcare Services was selected. The Ontario, Calif.-based for-profit Prime Healthcare owns and operates 29 acute care hospitals with 4,700 beds in nine states. According to its website, its Prime Healthcare Foundation currently owns six nonprofit hospitals in California and Texas. Prime Healthcare also has a definitive agreement to buy two Kansas City, Mo., area Carondelet Health hospitals from Ascension Health (see story).

Issai said the Daughters of Charity Health System faced operating losses of about $10 million a month in recent months, due to increasing labor costs, low medical reimbursement rates and changes in the health care marketplace. Elizabeth Nikels, Daughters of Charity Health System vice president for marketing and communications, said, "DCHS has been suffering from an operating budget deficit estimated to be $150 million (in) fiscal year 2015."

According to its website, Prime Healthcare acquires and turns around financially distressed hospitals.

The Daughters of Charity congregation started their health care mission in California in 1858 with the opening of Los Angeles Infirmary, now St. Vincent Medical Center, one of the hospitals being sold. The others are St. Francis Medical Center in Lynwood, O'Connor Hospital in San Jose, Saint Louise Regional Hospital in Gilroy, Seton Medical Center in Daly City, Seton Coastside in Moss Beach and the DCHS Medical Foundation, an entity that employs California physicians and other health care providers.

Prime Healthcare committed to maintaining each of the six hospitals in the communities they serve and said it would spend at least $150 million in capital improvements at the hospitals over the next three years.


Under Prime ownership, five of the six hospitals will become for-profit. Prime Healthcare will maintain the nonprofit status of St. Vincent Medical Center, the DCHS Medical Foundation and the hospitals' philanthropic foundation, according to Nikels.

When the sale is finalized, the hospitals will become secular facilities and will not abide by the Ethical and Religious Directives for Catholic Health Care Services, according to Fr. Gerald Coleman, SS, Daughters of Charity Health System vice president for corporate ethics. Most religious symbols will be removed from the hospitals, but items that relate to the history of a hospital will remain.

The Daughters of Charity Health System has asked Prime Healthcare to consider having a Catholic ethicist in each of the hospitals "as an ex officio member of each ethics committee," according to Fr. Coleman.

Prime Healthcare said it will maintain the Daughters of Charity Health System's charity care policies, and fund a pastoral care program.

Sr. Marjory Ann Baez, DC, chair of the Daughters of Charity Health System board, said of the decision to sell to Prime Healthcare, "We were looking at which option promotes the most good and attending to Gospel values and to our own mission and values." Sr. Baez said selling to Prime Healthcare would enable the system to be faithful to promises it had made to debtors, vendors and to associates related to pensions. Reddy said as part of the transaction, Prime Healthcare agreed to assume Daughters of Charity Health System's more than
$300 million in pension liabilities.

The Daughters of Charity Health System launched a website, dchsprime.com, to inform the community about the sale.


Copyright © 2014 by the Catholic Health Association of the United States
For reprint permission, contact Betty Crosby or call (314) 253-3477.

Copyright © 2014 by the Catholic Health Association of the United States

For reprint permission, contact Betty Crosby or call (314) 253-3490.