Daughters of Charity Health System, the six-hospital organization that has been struggling to stay solvent, last week 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 has also created a new entity, Integrity Healthcare, to manage and operate the system's hospitals and its foundation.
The transaction was approved by 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 $250 million in new capital will be used to repay Daughters' debt and make upgrades to its facilities.
The system in November warned bondholders that it was in danger of running out of funds, and its latest quarterly earnings report 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 Daughters' system nurses, said it will press BlueMountain to preserve existing patient services and uphold 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.