Deadline for sale of hospitals to Prime

Daughters of Charity awaiting state approval

State Attorney General Kamala Harris has until the end of the week to decide whether to approve the sale of six nonprofit Daughters of Charity hospitals to a for-profit Southern California company that has come under federal investigation for questionable billing practices and has a reputation for slashing services.

There’s a saying among charitable endeavors: “There’s no mission without a margin.” Executives of the Catholic hospital chain say they’re not only teetering on the edge of bankruptcy, but down to their last Hail Mary pass. And that would be a sale to Prime Healthcare Services.

“For the attorney general to turn this down and not approve the sale, it would be devastating for the community,” said Joanne Allen, president and chief executive officer of Daly City’s Seton Medical Center and Seton Coastside in Moss Beach, two Daughters of Charity hospitals that would be included in the deal.

The other hospitals are O’Connor Hospital in San Jose, Saint Louise Regional Hospital in Gilroy, and two Los Angeles County hospitals — St. Vincent and St. Francis medical centers.

Harris, whose office held a series of public hearings on the proposed sale in January, has a deadline of Friday to approve, reject or impose additional conditions on the deal. Because Prime intends to convert the hospitals to for-profit

status, Harris is required by state law to weigh in. No matter what she decides, some powerful forces won’t be happy.

The potential sale has pitted two major unions against each other. Leading the charge against the sale to Prime are the Service Employees International Union and its United Healthcare Workers West. On the other side is the California Nurses Association, which wants the hospitals to stay open and sees Prime as the only buyer ready and willing to meet the terms.

Elected officials are also at odds on the issue, with political leaders including San Francisco Mayor Ed Lee and state Sen. Jim Beall, D-San Jose, critical of the sale, and San Jose Mayor Sam Liccardo and others lining up in support.

The main concern among critics is Prime’s track record on billing practices. The Ontario (San Bernardino County) company has also gained a reputation of being antiunion and has been accused of transferring Medicare patients from its emergency room to hospital beds as a way to generate more profit.

SEIU officials have urged Harris to block the sale. “It’s very difficult for us to believe them when they say they’ll live up to conditions. We think they’ll try to get out of them,” said David Miller, SEIU research director.

But supporters said that Prime CEO Dr. Prem Reddy has experience turning around troubled hospitals. “We have a viable buyer committed to the mission of the Daughters, maintaining Medi-Cal contracts, keeping hospitals open, providing charitable services to the poor,” said Allen, Seton’s CEO.

As part of its proposal, Prime has agreed to assume about $350 million in pension debt and pay off more than $400 million of the Los Altos Hills chain’s tax-exempt bonds and other debt. The company has also promised to keep the hospitals open for at least five years after the sale, and retain most of the Daughters of Charity’s employees. A consultant’s report commissioned by the attorney general’s office recommended the hospitals be kept open at least 10 years.

SEIU has argued that if the sale is blocked, others would step in to purchase the hospitals. The union backs potential buyer Blue Wolf Capital Partners, a private-equity firm. But supporters of the sale say there are no other acceptable buyers for the chain that has been losing more than $140 million a year.

“We aren’t saying Prime is a white knight. What we’re saying is it’s the only company that has made the agreements to continue these services,” said Debra Amour, a nurse in Seton’s intensive care unit who serves on the negotiating team for the California Nurses Union.

In 2011, Harris denied the sale of Victor Valley Community Hospital in Victorville (San Bernardino County) to Prime, saying that it was not in the public’s interest. It’s unclear whether that sets a precedent, but SEIU officials found the decision encouraging.