VICTORVILLE, Calif.—The California attorney general's office declined to approve the sale of Victor Valley Community Hospital, Victorville, to Prime Healthcare Services Foundation, Ontario, Calif., according to a letter posted on the attorney general's website. The letter does not offer specific reasons for the decision, but reads in part: “We have concluded that this proposed sale is not in the public interest and will likely create a significant effect on the availability or accessibility of healthcare services to the affected community.”

In July, tax-exempt Victor Valley accepted a $35 million offer from the Prime foundation, set up by Dr. Prem Reddy, owner of investor-owned Prime Healthcare Services, also based in Ontario. The hospital, which operates about 60 beds, filed for Chapter 11 protection in U.S. Bankruptcy Court in Riverside, Calif., in September 2010. The investor-owned Prime owns the only other hospital in Victorville, 83-bed Desert Valley Hospital.

The Prime foundation originally reached an agreement to buy Victor Valley for $35 million last year, but it was trumped at a bankruptcy auction by affiliates of Dr. Kali Chaudhuri, who is the controlling shareholder of Integrated Healthcare Holdings, Santa Ana, Calif. Chaudhuri's affiliates were not able to complete their $37 million proposed purchase.

In a statement, the Prime foundation described the decision as inexplicable. The foundation noted that an expert hired by the attorney general's office had recommended approval with conditions, and the foundation has agreed to those conditions. The foundation owns and operates two California hospitals.