The gladiator-style of American healthcare was on full display Tuesday when Prime Healthcare walked away from an $843-million deal to buy six financially-stressed Catholic hospitals serving low-income patients in California. The stumbling block was terms of care and ownership imposed by Attorney General Kamala Harris.

The Daughters of Charity sought to sell the money-losing facilities (four in the Bay Area, two in L.A. County) to the controversial Ontario, California-based chain known for cost-cutting measures and questionable business practices. A deal was struck in October and the attorney general added some additional terms in February.

A key condition, and one cited by Prime as the deal killer, required compliance with terms of the agreement for 10 years, not the five negotiated with Daughters. Those conditions included maintaining operation of St. Francis Medical Center, Saint Louise Regional Hospital, O’Connor Hospital and Seton Medical Center as acute care hospitals that offer emergency services, and Seton Coastside as a skilled nursing facility with emergency services.    

Harris wanted Prime to be “certified to participate in Medicare and Medi-Cal programs and have or maintain Medi-Cal managed care contracts” at all six facilities, which also includes St. Vincent Medical Center. St. Vincent and St. Francis are in Los Angeles County and the other four are in the Bay Area.

Essentially, Harris was requiring that the chain commit to keeping the hospitals open and provide the same level of care that the Daughters of Charity have. The attorney general, an announced candidate for U.S. Senator Barbara Boxer’s seat in 2016, had a say in the deal because it would convert nonprofit hospital to for-profit.

Prime called the conditions “onerous” and “unprecedented,” and said no company could make a profit under them. A statement from Daughters said, “We strongly disagree with Prime’s position on the attorney general’s conditions. We are confident that Prime could successfully turn around the DCHS hospitals.”

Harris didn’t use the phrase “good riddance,” but did question how big a loss it would be:

“Prime is choosing to walk away from this transaction after publicly stating that it had no issue with the ten-year conditions and intended not to close any of the hospitals or end essential services. By walking away, Prime is confirming many of the concerns heard at multiple community meetings that the continuity of vital healthcare services in these communities is not its priority.”

Observers have speculated that if Prime Healthcare passed on the deal, the hospitals were headed for bankruptcy. But Daughters President and CEO Robert Issai said, “We are off on our way looking for another buyer.” Although Daughters has indicated it preferred selling all six to one buyer, individual sales are still possible.

Santa Clara County said Tuesday it is willing and able” to purchase O'Connor and Saint Louise hospitals, according to the San Jose Mercury News.

–Ken Broder

To Learn More:

Prime Healthcare Pulls Out of Deal to Save Local Hospitals (by Victoria Colliver, San Francisco Chronicle)

Prime Healthcare Passes on Daughters of Charity Deal (by Tracy Seipel, San Jose Mercury News)

Prime Healthcare Pulls Plug on Daughters of Charity Deal (by Chris Rauber, San Francisco Business Times)

Prime Healthcare Deal Falls Through (by Samantha Gallegos, Capitol Weekly)

Prime Healthcare Deal to Buy Six Roman Catholic Hospitals Collapses (by Melody Petersen, Los Angeles Times)

Harris OKs Sale of 6 Troubled Hospitals to Cost-Cutting Prime Healthcare—with Conditions (by Ken Broder, AllGov California)