(Story updated at 2:15 p.m. ET.)
Daughters of Charity Health System, the six-hospital organization that has been struggling to stay solvent, has entered into a deal with private-equity firm BlueMountain Capital Management that will provide a $250 million capital injection.
The Los Altos Hills, Calif.-based system earlier this year saw its sale to for-profit Prime Healthcare Services fall apart after the California attorney general imposed arduous conditions on the transaction. Daughters will remain a not-for-profit entity and BlueMountain will have the option to purchase the system after three years.
BlueMountain also has created a new entity, Integrity Healthcare, to manage and operate Daughters' six hospitals and medical foundation.
The transaction has received approval from each hospital's board of directors, as well as the Daughters parent system. However, it still needs the go-ahead from California Attorney General Kamala Harris.
The deal will preserve pension benefits for current and former employees, as well as maintain Daughters' philanthropic foundations and collective-bargaining agreement with its unions.
The $250 million in new capital will be used to repay Daughters' debt and allow it to make upgrades to its facilities and operations.
Daughters has been seeking a buyer over the past year as its financial picture has deteriorated. The system in November warned bondholders that it was in danger of running out of funds, and its latest quarterly earnings report for the period ended March 31 showed it had only 20 days of cash on hand. An adverse payer mix and lower-than-expected reimbursement-rate increases contributed to a $55.3 million operating loss in the quarter.
Ontario, Calif.-based Prime had bid $843 million for the system but walked away from the deal in March after Harris imposed more than 300 conditions on the transaction.
A number of political figures and the Service Employees International Union-United Healthcare Workers West opposed the controversial takeover. The SEIU-UHW had backed another private-equity firm, Blue Wolf Capital Partners, which also bid for Daughters.
In a statement, SEIU-UHW President Dave Regan said the union is still waiting to see the details of the BlueMountain proposal. “We had a much stronger grasp of the Blue Wolf bid, and were confident it protected critical health services for local communities,” he said.
The California Nurses Association, which represents 1,800 nurses at Daughters' hospitals, said in a statement that it intends to meet with BlueMoutain and will press the firm to continue operating the hospitals, maintaining jobs, preserving existing patient services and upholding pension agreements.
Integrity Healthcare's leadership team includes two veterans of Apollo Medical Holdings, Mitchell Creem and Mark Meyers. Creem is the former CEO of the University of Southern California's Keck Hospital and Norris Cancer Hospital, both in Los Angeles. Meyers formerly served as senior vice president of operations for Dignity Health's Los Angeles service area.