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GILROY—Attorney General Kamala D. Harris on Thursday granted conditional approval of a transaction that will allow a change of control and governance of the Daughters of Charity Health System, a network of hospitals that includes Saint Louise Regional Hospital in Gilroy.
Harris’ approval includes strong conditions to ensure the continuity of essential health care services for vulnerable communities at the network’s six health facilities and requires many essential health care services to remain in place for at least 10 years.
“This approval will maintain the charitable purpose of the Daughters of Charity Health System, ensuring that low-income Californians will continue to have access to critical health care services, including emergency, trauma, surgical, and reproductive health services,” Harris said.
Along with Saint Louise, the transaction includes St. Vincent Medical Center in Los Angeles, St. Francis Medical Center in Lynwood, O’Connor Hospital in San Jose, Seton Medical Center in Daly City and Seton Coastside in Moss Beach.
Under the system restructuring and support agreement, Integrity Healthcare, LLC and certain funds managed by BlueMountain Capital Management, LLC will execute a 15-year management agreement and will pay $100 million for the option to purchase the Daughters of Charity Health System, according to a news release from the attorney general’s office..
These certain funds will also provide $150 million of guaranteed financing to support the health system’s financial and capital needs and help with the $180 million capital expenditures commitment, the release notes.
Under the terms of the agreement, the health system’s name will be changed to Verity Health System of California, Inc. and its corporate status will be changed from a nonprofit religious corporation to a nonprofit public benefit corporation.
Another condition stipulates that for at least the first three years of the agreement, the health system will continue to operate as a nonprofit public benefit corporation. After three years and before the expiration of the 15-year agreement, the certain funds managed by BlueMountain Capital Management, LLC can exercise their option to purchase the health system.
The attorney general’s office notes that this is the largest and most complex nonprofit hospital transaction in California history. If the parties agree to Harris’ conditions, the proposed transaction can protect the health system—which is currently losing millions of dollars a year—from bankruptcy.
Harris approved the transaction with conditions designed to ensure continuity of care for Californians who rely upon the health system for health care services. Her conditions include:
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For 10 years, St. Francis, O’Connor, Saint Louise and Seton Medical Center must operate as acute care hospitals and offer emergency services.
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For ten years, the six facilities must provide the same types and/or levels of emergency and non-emergency services to Medi-Cal beneficiaries and maintain Medi-Cal managed care contracts at each of the facilities.
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$180 million must be invested in capital improvement expenditures at the facilities.
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Charity care for needy patients and community benefits must be provided at historical levels.
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Essential health care services must continue to be provided at all facilities.
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At each of the facilities and the medical office buildings, there shall be no restriction or limitation on providing or making reproductive health care services available, and this requirement must be explicitly set forth in the facilities’ policies and procedures.
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Substantially all of the 7,000 jobs at the health facilities will continue, with comparable salaries, wages, and job duties.
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All facilities must meet seismic compliance requirements until 2030.
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All facilities and the medical office buildings’ policies and procedures shall explicitly prohibit discrimination against lesbian, gay, bisexual or transgender individuals.
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All of the facilities will be required to submit to the Attorney General an annual report describing in detail their compliance with the conditions.
According to the news release, the attorney general’s decision comes after consideration of public comments, consultation with an independent health care expert, and discussions with concerned community members. The transaction involved a competitive bidding process administered exclusively by the Daughters of Charity Health System.
The Attorney General’s decision conditionally approving the transaction with the full list of conditions can be found here: https://oag.ca.gov/sites/all/files/agweb/pdfs/charities/pdf/chs.pdf
