Prime Healthcare Has No Wiggle Room with Attorney General Mandate in Hospital Deal

February 24, 2015

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Source: San Jose Mercury News

Take it or leave it. That’s the message to a Southern California for-profit company from Attorney General Kamala Harris who late last week laid out a dozen requirements for Prime Healthcare Services’ $843 million deal to buy six cash-crunched nonprofit hospitals.

On Monday, with the Daughters of Charity Health System running dangerously low on cash, Prime officials said they are diligently studying the mandates and hope to make a decision within a week. Daughters’ president and CEO Robert Issai acknowledged Monday there is no wiggle room. “We’re simply trying to understand what the recommendations mean and the implications for us,” he said.

To move forward, Prime must agree to operate four of the Daughters’ six hospitals — including O’Connor in San Jose, Saint Louise Regional in Gilroy, Seton Medical Center in Daly City and St. Francis Medical Center in Los Angeles — as acute care hospitals for 10 years, instead of the five years Prime had originally offered Daughters in its agreement last fall.

Harris also stipulated that all Daughters hospitals would have to meet seismic compliance requirements until 2030 at all the facilities, including retrofitting the patient tower at Seton Medical Center at a cost of $350 million.

“The bottom line is she really does not want it approved,” said Los Angeles-based consultant Steve Valentine. No other hospitals in California have been forced to uphold 10-year-long agreements, he said, and the requirement for seismic compliance by 2030 will cost about $3 million per bed in each hospital.

Valentine said that alone could make it tough for Prime to obtain financing for such a massive expense.

But another consultant, who did not want to be quoted because he has ties to the deal, said many of the services Harris listed that must be provided at the acute-care hospitals tend to be moneymakers, including emergency room services, intensive care services, and coronary services, among others.

However, he acknowledged, other required services, such as obstetrics and pediatrics, tend to be money losers. But the consultant said the hospitals should be able to make up the difference in the other, more lucrative areas.

He called it a “reasonable trade-off” for Prime, and the cost of doing business for the Ontario-based for-profit company that owns 32 hospitals nationwide, including 15 in California.

Under state law, the attorney general must approve the sales of nonprofit hospitals to for-profit health care companies like Prime. The proposed deal has raised alarm, especially among Service Employees International Union workers, who accuse Prime of cutting services for low-income patients and threatening union jobs and benefits. The nurses, however, support Prime and say the deal is a must to protect their pensions health care in the community.

Los Altos Hills-based Daughters owns four Bay Area hospitals and two in Los Angeles.

Meanwhile, Santa Clara County officials — who last year had tried to bid on O’Connor and Saint Louise to expand the county’s health care facilities — in a statement Friday said they are deciding whether to acquire “one or more medical facilities in the county, including the possible use of the eminent domain process.”

County Executive Jeff Smith on Friday clarified that the county is focused on obtaining the shuttered hospital at DePaul Health Center in Morgan Hill, which is included as part of the Saint Louise Regional Medical Center portion of the deal between Prime and Daughters of Charity.

If acquired, Smith said, the DePaul hospital could help treat South County residents instead of San Jose-based Valley Medical Center. On Monday, Smith declined to elaborate on the matter.

Issai called that idea “the action of a sore loser.” He questioned how the county could attempt to seize the property that would come under Prime’s ownership if a deal went through.

“We’re not living in the Soviet Union,” he said on Monday. “There are rules and courts and justice.”

Prime spokesman Fred Ortega said Prime had no comment on the issue. While there is no official deadline to make a decision, Daughters of Charity officials have said the health system has up to 14 days cash to operate the hospitals.

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