Healthcare Business News
Robert Issai, CEO of Daughters of Charity Health System

Daughters of Charity reports smaller loss; Prime surfaces as possible buyer

By Melanie Evans
Posted: August 14, 2014 - 6:15 pm ET

Daughters of Charity Health System saw operating losses decline last year to $15.6 million compared with losses of $90.7 million the year before. As the California system was reporting those results, talk also surfaced that Prime Healthcare could be a bidder for the troubled system.

Prime decline to comment on whether it was considering a purchase of Daughters. Daughters has been seeking a buyer since early this year.

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The smaller loss last year came not because of gains in revenue, but rather was attributable to a $130 million infusion from the Los Altos Hills, Calif.-based system's foundation, said Robert Issai, CEO of Daughters of Charity Health System.

The system continues to struggle with declining demand from patients. Revenue from patient services declined about 11% to $1.09 billion for the year compared with $1.27 billion the year before, the system said in its newly released unaudited financial statements for the year that ended June 30. Patient discharges for the six-hospital system dropped roughly 4% in the year that ended in June from a year ago.

Operating expenses declined 1.6% to $1.41 billion last year from the prior year's $1.43 million.

Fewer patients, more insurers that pay hospitals at lower rates and smaller rate hikes contributed to the system's poor performance in fiscal 2014, according to the unaudited statements.

Issai said the financial statements do not include revenue from California's hospital fee program, which cannot be reported until the program wins approval from the CMS. The system is expected to receive $49.6 million for the year that ended June 30 under the program and $302 million total throughout the program's three-year period, which was scheduled to start in January.

The Daughters of Charity Health System also will see lower interest expenses in coming years after using the foundation's $130 million and reserves to retire roughly $140 million in debt, Issai said.

Daughters of Charity Health System officials in January announced plans to seek a buyer after a possible acquisition by Ascension Health, St. Louis, failed. Multiple potential buyers are considering a deal and have undertaken due diligence. Issai said there is no timeline for a deal.

A California union identified acquisition-hungry Prime Healthcare as one bidder for the system.

David Miller, a spokesman for SEIU-UHW, said Prime's chief executive said the company was a candidate to acquire Daughters of Charity Health System during a July meeting with the union's top official.

Prime's spokesman, Edward Barrera, declined to confirm whether the company is seeking to buy the distressed system. “Prime Healthcare is unable to comment on any possible acquisition opportunities, but we are always looking both in and outside of California for partners,” he said.

Follow Melanie Evans on Twitter: @MHmevans

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