Prime Health­care’s prob­lems make Daugh­ters deal too risky

Modern Healthcare - - COMMENT -

Our so­ci­ety loves the story of a “self­made” man, and even more the one who be­comes a baron of in­dus­try. That fascination seemed to be the driv­ing theme be­hind the ar­ti­cle about Prime Health­care (“Prem Reddy’s turn­around strat­egy,” Dec. 1), which, un­for­tu­nately, down­played the grave con­se­quences of the company’s business prac­tices and per­for­mance.

Per­haps the largest omis­sion from the ar­ti­cle is the chaotic state of the company and its fi­nances. It’s a sig­nif­i­cant fac­tor given the company’s ex­pan­sion plans to buy an ad­di­tional 11 hos­pi­tals, in­clud­ing the six-hos­pi­tal Daugh­ters of Char­ity Health Sys­tem in Cal­i­for­nia.

The company has seen its credit rat­ing mired in “junk” sta­tus, its ex­ec­u­tive ranks dec­i­mated by high turnover and its fu­ture clouded by the con­tin­u­ing whis­tle-blower law­suits, doc­tor law­suits and a fed­eral in­ves­ti­ga­tion into its Medi­care billing prac­tices.

Ac­cord­ing to Moody’s, Prime’s credit rat­ing is poor be­cause of the company’s heavy re­liance on gov­ern­ment pro­grams, on­go­ing lit­i­ga­tion, gov­ern­ment in­ves­ti­ga­tions, ag­gres­sive growth strat­egy and its ge­o­graphic con­cen­tra­tion of hos­pi­tals. The Moody’s re­port is es­pe­cially prob­lem­atic in light of Prime’s plan to buy Daugh­ters of Char­ity by is­su­ing bonds, which would sad­dle the company with mil­lions more in in­ter­est costs. In fact, Moody’s states that a large, debt­fi­nanced ac­qui­si­tion could put Prime at risk for a fur­ther rat­ing down­grade.

Also, Prime has faced enor­mous man­age­ment up­heaval that un­der­mines its abil­ity to ex­pand. The owner’s broth­erin-law, Lex Reddy, left the company two years ago, as did a se­ries of ex­ec­u­tives who fled or were shown the door, in­clud­ing the company’s chief la­bor coun­sel, who quit last month. The tur­moil begs the ques­tion of how Prime can en­dure the fi­nan­cial and man­age­ment de­mands of buy­ing 11 more hos­pi­tals.

It’s for th­ese rea­sons—and the fact that there are bet­ter of­fers for the Daugh­ters sys­tem from more sta­ble bid­ders—that the planned sale of Daugh­ters of Char­ity to Prime has drawn more op­po­si­tion than any other hos­pi­tal ac­qui­si­tion in Cal­i­for­nia his­tory. Almost 50 cur­rent and for­mer state legislators have urged the state at­tor­ney gen­eral to block the sale, in ad­di­tion to San Francisco Mayor Ed Lee, nu­mer­ous county of­fi­cials, com­mu­nity or­ga­ni­za­tions and la­bor unions rep­re­sent­ing 2 mil­lion work­ers in the state.

The re­sis­tance is un­par­al­leled be­cause the pro­posed sale is so clearly flawed. It’s time for Daugh­ters of Char­ity to cut its losses and move on to the bet­ter of­fers that are on the ta­ble.

Dave Re­gan Pres­i­dent, SEIU-United Health­care Work­ers West Oak­land, Calif.

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