Prime Healthcare Drops Bid for Charity Hospitals; Cites Conditions From California Attorney General

At a time of rapid change and consolidation in healthcare, California's attorney general put conditions on the Daughters of Charity sale that would restrict Prime Healthcare's growth and limit its ability to negotiate managed care contracts.

An $843 million deal for Prime Healthcare to take over 6 struggling nonprofit Daughters of Charity hospitals in California fell apart this week, after the would-be buyer said California Attorney General Kamala Harris put “unprecedented” and “onerous” restrictions on the sale that left Prime no choice but to walk away.

The result leaves the Daughters of Charity system in limbo while it bleeds $10 million a month, and while public officials wonder how long it will fill safety net and trauma needs.

At issue was Harris’ insistence on several 10-year commitments that would tie Prime’s hands at a time of rapid change in healthcare. Key among them was a mandate that Prime keep its contracts Medi-Cal managed care plans, which Prime said would destroy its negotiating leverage needed to drive better terms from those payers. Prime identified the Charity systems’ payer contracts as one of its biggest challenges.

Harris also wanted to limit Prime’s plans to buy other troubled hospitals, stunting its growth. Finally, Prime would inherit all existing pension obligations at the Daughters of Charity system.

Today in California, finger-pointing was well under way, with Harris—considered a candidate to replace retiring US Senator Barbara Boxer—accusing Prime of putting profit first. “By walking away, 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,” she said.

Prime, for its part, said it could not expected to run the charity hospitals the same way they had been run and expect different financial results. “Maintaining all services for 10 years, regardless of whether the services are needed or ‘essential’ for the communities served is unprecedented and untenable,” Troy Shell, Prime’s general counsel, said in a statement.

The charity hospitals had already lost a potential buyer when Ascension Health backed out of a merger, after concluding the pension obligations required that the hospitals be resold to a single entity. Now, it remains unclear what will happen to the hospital chain, and bankruptcy is feared.

According to the Los Angeles Times, Los Angeles County Health Services Director Mitchell Katz wrote in a report last year that St. Francis Medical Center, a Daughters of Charity hospital in that county, was a “cornerstone” of the trauma network, handling 2100 cases a year, including the highest rate of gunshot and stab wounds.

Losing St. Francis would be a loss to the community and “pose a substantial stress to surrounding trauma centers,” he wrote.

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