Prime Healthcare Services is suing California Attorney General Kamala Harris for the hefty conditions that she imposed on the sale of Daughters of Charity Health System.
The Ontario, Calif.-based chain, which was forced to walk away from the $843 million deal earlier this year, accuses Harris of entering into an “illegal scheme” with the Service Employees International Union-United Healthcare Workers West in exchange for the union's financial and political support. The SEIU chapter has been one of Prime's greatest critics, but Prime counters that it has been the target of a corporate smear campaign for refusing to unionize its workers.
Harris imposed more than 300 conditions on the deal, many of which extended beyond the original terms. One condition, for instance, required Prime to keep the hospitals open and maintain services for as long as 10 years—twice the amount of time to which it had committed.
The conditions were necessary to ensure continuity of care, the attorney general's office said. And Prime's refusal to abide by them suggests that the services would have been at risk.
“Prime's decision to walk away, and this lawsuit, reaffirms the concerns voiced at multiple community meetings, that Prime never intended to prioritize the continuity of vital health services,” Kristin Ford, press secretary for the attorney general's office, said in an e-mail. “After an in-depth and independent review, 44 hours of public meetings and 14,000 public comments, Attorney General Harris set conditions as part of a transaction with Prime Healthcare to ensure that community members who relied upon Daughters of Charity health services would continue to receive the care they need.”
But Prime, which vows that it has never closed any of the struggling hospitals it has acquired, insists that accepting the conditions would have set an adverse precedent.
“It's not that we had any intentions of closing the hospitals, but for a number of reasons, the conditions were onerous,” said Dr. Kavitha Reddy Bhatia, the chain's vice president of clinical transformation. Some of the services that Prime would have been forced to preserve had never been deemed essential and could even be obsolete in 10 years as the standard of care changes, she added.
The suit seeks unspecified monetary damages (PDF). But Prime also wants California's Non-Profit Transfer Hospital Statute to be deemed unconstitutional and unenforceable. The statute requires the attorney general to review and approve any not-for-profit hospital sale.
The suit argues that the law gives the attorney general limitless power without any objective criteria over what conditions can be imposed.
“The monetary damages are the least of everything,” Bhatia said. “The suit is about recognizing the injustice that occurred. "
If Prime had agreed to the conditions, she added, "We think it could set a precedent—a dangerous precedent—on all hospital sales.”
Even after Prime officially walked away from its takeover, the two organizations continued to discuss potential partnerships, Bhatia said. However, concern persisted that Harris would continue to intervene to block a deal.
It was only after the two parties concluded that they had no future together did Prime file its lawsuit, Bhatia said.
Daughters of Charity, running low on cash, in July received a $250 million lifeline from private equity firm BlueMountain Capital Management. The management agreement includes an option for BlueMountain to acquire the six-hospital, Los Altos Hills-based system after three years. Harris must approve that deal as well.
Prime said it is concerned that the Daughters' hospitals could discontinue essential services under BlueMountain's mitigation plan.