California attorney general approves Daughters of Charity sale

March 15, 2015

California Attorney General Kamala Harris has approved — with conditions — the sale of the Daughters of Charity Health System's six California hospitals to Prime Healthcare Services and Prime Healthcare Foundation. The Daughters of Charity Health System is working with Prime to evaluate the conditions of the approval in order to determine how best to proceed.

For more than a year, the Los Altos Hills, Calif.-based Daughters of Charity Health System has been seeking a buyer for its six hospitals. The nonprofit Catholic system has faced sharp operating losses due to increasing labor costs, low reimbursement rates and changes in the health care system, according to system leaders. The system expects to have an operating budget deficit of about $140 million for fiscal year 2015, which started July 1, 2014, and ends June 30. The system said it contacted more than 100 organizations during its search for a buyer before selecting four finalists. The system approved a sale to Ontario, Calif.-based Prime in October.

Harris issued her conditional approval of the deal Feb. 20. Among the state's requirements:

  • For at least 10 years, Prime will operate four of the Daughters of Charity Health System hospitals as acute care hospitals offering emergency services. Those hospitals are O'Connor Hospital in San Jose; Saint Louise Regional Hospital in Gilroy; St. Francis Medical Center in Lynwood; and Seton Medical Center in Daly City.
  • Prime will operate a fifth hospital, St. Vincent Medical Center of Los Angeles, as an acute hospital with emergency services for at least five years.
  • For at least 10 years, Prime will continue to run Seton Coastside of Moss Beach as a skilled nursing facility with a 24-hour standby emergency department. The state of California says standby emergency care is provided in a specifically designated area of a facility that is equipped at all times to receive patients with urgent medical problems and that can provide physician service "within a reasonable time."
  • For at least 10 years, Prime will remain certified to participate in Medi-Cal and Medicare and maintain the Medi-Cal contracts of the Daughters of Charity Health System hospitals. Medi-Cal is California's Medicaid program.
  • Prime will provide "essential health services" as defined by the attorney general, including reproductive health care services. The hospitals under Prime ownership no longer will be Catholic and therefore will not be held to the Ethical and Religious Directives for Catholic Health Care Services.
  • Prime will invest $150 million in capital improvements at the campuses over the next three years.
  • Prime will provide charity care and community benefit at the levels provided historically by the facilities.
  • Prime will assume and guarantee pension obligations for Daughters of Charity Health System employees and retirees.

In a statement following the decision, Prime thanked Harris for the approval. The system said the conditions imposed on the sale "are extensive and many are unprecedented, including maintaining four hospitals as acute care hospitals and a fifth as a skilled nursing facility for a minimum of ten years."

As Catholic Health World went to press, Prime and the Daughters of Charity Health System had not yet made a decision on how to proceed.

Daughters of Charity Health System spokeswoman Elizabeth Nikels said that "if the sale doesn't go through, we are prepared to proceed with eliminating services and jobs in preparation for bankruptcy."

The Daughters of Charity Health System is awaiting Vatican approval, and Nikels said the system expects to hear back "any time" from the Vatican.

 

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