GILROY—Following the largest review of its kind, California Attorney General Kamala Harris ruled Friday that new owners can take over six medical facilities from a Roman Catholic health system nearing financial ruin, but not without rigorous, 10-year conditions.
The deal, if accepted by Prime Healthcare, includes Saint Louise Regional Hospital in Gilroy, De Paul Medical Center in Morgan Hill, O’Connor Hospital in San Joe and four others.
Four of the Daughters of Charity Health System facilities must continue to be operated by Prime for at least 10 years as acute care hospitals with emergency services and charity care, according to some of the dozen conditions contained in the decision that came after five months of review and was the subject of fierce debate about the facilities’ futures.
“It’s a relief that it’s an approval, but the devil’s always in the details and we’ll be spending the weekend studying every line of the conditions,” DCHS chief executive Officer Robert Issai told the Dispatch of the 78-page decision.
He said Harris’ conditions are not negotiable and must be accepted or rejected by Prime.
Prime’s founder and owner, Dr. Prem Reddy, echoed Issai’s remarks in an emailed statement.
He called some conditions—like the requirement to keep hospitals operating as acute-care facilities for 10 years—“unprecedented” and said they need careful review.
“Prime Healthcare and DCHS remain committed to ensuring a future for these hospitals that will allow them to continue their legacy of service and deliver the highest quality of compassionate care to their communities,” Reddy’s statement reads.
“It was the right decision,” said Malinda Markowitz, president of the California Nurses Association, which backed the sale to Prime.
“We’re asking Prime to agree to these conditions so the hospitals will stay open and fully functional,” said Markowitz, a registered nurse at Good Samaritan Hospital in San Jose.
However, Harris’ ruling quickly drew the ire of the County of Santa Clara, a failed bidder for two DCHS facilities in the county.
The Harris action “jeopardizes the health of the county’s neediest and most vulnerable residents by reducing their access to critical medical services,” reads a statement emailed from a county public affairs office.
It alleges Prime has a “history of eliminating vital community services,” and claims the decision will place “undue hardship” on county healthcare facilities.
In the proposed $843 million deal, Prime had offered to and will be required under the conditions to assume and guarantee pensions for 17,000 DCHS employees—both current and retired.
Harris also will require that the Ontario-based company commit $150 million to capital improvements over the next three years and match the Roman Catholic religious order’s historic commitment to charity care.
Also under the Harris decision, Prime must participate in Medi-Cal and Medicare programs for a decade, maintain Medi-Cal contracts, provide reproductive healthcare and adopt nondiscrimination policies related to gays, lesbians and others.
In its announcement, Harris’ office said, “The sale of the Daughters of Charity facilities is the largest transaction ever reviewed by” a state attorney general.
Harris’ ruling comes after 44 collective hours of public hearings held up and down the state, including one in Gilroy last month, and review of more than 14,000 comments submitted to her office.
The Gilroy City Council, Chamber of Commerce and Economic Development Corporation, and the Morgan Hill Chamber of Commerce supported the sale to Prime, citing concerns Saint Louise’s doors would shutter if the deal was delayed or denied. The Morgan Hill City Council did not take a position for or against the deal but urged continued quality medical care for residents.
Santa Clara County Supervisor Mike Wasserman supported the sale of DCHS facilities to the county.
In addition to the county, opposition to the sale also came from the Service Employees International Union—United Healthcare Workers.
The union Friday called the decision’s “tough” conditions “a victory for protecting community health needs.”
It had preferred the bid from a private equity firm in New York called Blue Wolf Capital, which offered $300 million in capital improvements, and had accused Prime of cutting services to balance its bottom line.
Here’s a list of key conditions set down by the attorney general:
• For 10 years, Prime must operate St. Francis, O’Connor, Saint Louise and Seton Medical Center (in Daly City) as acute care hospitals and offer emergency services.
• For 10 years, Prime must operate Seton Coastside (in Moss Beach) as a skilled nursing facility with emergency services.
• For 10 years, Prime must be certified to participate in the Medi-Cal and Medicare programs and have or maintain Medi-Cal managed care contracts at each of the facilities.
• Prime must continue to provide essential health care services at the facilities including reproductive health care services.
• Prime must invest $150 million in capital improvement expenditures at the facilities over the next 3 years.
• Prime must continue to provide charity care and community benefits at historical levels.
• Prime will assume and guarantee all pension obligations covering approximately 17,000 current and retired employees.
• 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.
• Prime must meet seismic compliance requirements until 2030 at all the facilities, including retrofitting the patient tower at Seton Medical Center.
• Prime must revise its policies, tools, procedures, guidelines and training materials for its debt collection practices to ensure it does not violate state and federal debt collection laws and regulations.
• At each of the facilities and the medical office buildings, there shall be no discrimination against lesbian, gay, bisexual or transgender individuals, and this requirement must be explicitly set forth in the facilities’ policies and procedures.
• All of the facilities will be required to submit to the Attorney General an annual report describing in detail their compliance.
• The transaction includes six medical facilities, including SLRH, O’Connor Hospital, St. Vincent Medical Center, St. Francis Medical Center, the Seton Medical Center and Seton Coastside.
