Buyer backs out of Seton hospital deal

A Southern California-based hospital chain Tuesday withdrew its offer to buy six financially troubled hospitals in the state, including four in the Bay Area.

Prime Healthcare Services chairman Prem Reddy said the reason was “burdensome and restrictive” sale conditions imposed by California Attorney General Kamala Harris last month. Those conditions would make it “impossible for Prime Healthcare — or any buyer — to make the changes needed to operate and save these hospitals,” Reddy said in a statement.

The hospitals are run by the nonprofit Daughters of Charity Health System, which is based in Los Alto Hills and has a mission of serving the sick and the poor.

Reddy said:

“It was with a heavy heart that we came to this decision, as we had sincerely hoped for Daughters of Charity Health System to become a part of the Prime Healthcare family.”

The four Bay Area hospitals are Seton Medical Center in Daly City, Seton Coastside in Moss Beach, O’Connor Hospital in San Jose and Saint Louise Regional Hospital in Gilroy. The other two hospitals are St. Francis Medical Center and St. Vincent Medical Center in Los Angeles County.

Daughters of Charity Health System said last year it was losing $10 million per month and had reluctantly decided to seek a buyer that could preserve its legacy of providing affordable, high-quality care.

Last October, the system accepted a bid from Prime Healthcare, which is based in Ontario, a city in San Bernardino County, for an $843 million buyout that would include $394 million in cash and the assumption of $449 million in debt.

Harris had the authority under state law to decide whether to approve the deal because the transaction was a sale by a non-profit corporation to a for-profit company.

Prime Healthcare General Counsel Troy Schell said one of the conditions it found too onerous was a requirement that the hospitals maintain most of their current services for 10 years:

“Maintaining all services for 10 years regardless of whether the services are needed or essential for the communities served is unprecedented and untenable. In essence, the Attorney General is telling Prime Healthcare to operate the hospitals exactly as DCHS has and expect different results.”

Prime Healthcare had offered to keep all the hospitals open for at least five years, fully fund the pensions of 17,000 current and former employees and maintain or increase charity care. Daughters of Charity Health System said its leaders were disappointed and hadn’t decided on their next steps, in a statement provided by spokeswoman Elizabeth Nikels:

“We are disappointed that Prime Healthcare has decided not to go forward with the purchase of our hospitals. We strongly disagree with Prime’s position on the attorney general conditions. … We remain committed to finding the best solution for our patients, communities we serve, physicians, employees, retirees and creditors.”

The statement added:

“Over the coming days, we have difficult decisions to make and we will communicate those decisions after we have a chance to consult with our advisors, boards of directors and the Daughters of Charity.”

Harris issued a statement defending the conditions and charging that Prime Healthcare was “walking away” from a deal it failed to object to when the conditions were tentatively announced in December:

“I imposed conditions to ensure the continuity of these health care 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.”

A union that represents 2,600 medical workers in the six hospitals urged Daughters of Charity to move quickly to select another buyer or possibly several buyers for the hospitals.

Dave Regan, president of SEIU-United Healthcare Workers West, said:

“This announcement sets the path for other buyers more compatible with Daughters’ commitment to public health to jump in immediately to purchase either the entire health system or individual hospitals.”

California Nurses Association spokesman Charles Idelson said:

“We believe there remains action behind the scenes and our position continues to be that these hospitals must be kept open.”

Santa Clara County Executive Jeffrey Smith said his county — which unsuccessfully bid last fall to buy the hospitals in San Jose and Gilroy — remains:

“… willing and able to purchase O’Connor and Saint Louise hospitals in order to continue the critical services which they provide to the community. … Our commitment to see these hospitals provide services continues.”

City Councilman David Canepa of Daly City said:

“The decision of Prime Healthcare not to purchase Seton Medical Center is a huge setback for healthcare in our community. It is imperative that we do not close our emergency room and acute care services. … I am calling on the Daughters of Charity Health System to find a buyer who is going to faithfully serve our community.”

Seton Medical Center is Daly City’s largest employer, with 1,200 workers.