Prime Healthcare’s problems make Daughters deal too risky

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.