Conflict and controversy surround sale of California Catholic hospitals

A California-based private health care network, believed to be a strong contender to buy the struggling Daughters of Charity Health System (DCHS) in California, has filed a lawsuit against a union that opposes the purchase. This is the latest move in a conflict between Prime Healthcare Services and the Service Employees International Union (SEIU). The Daughters say a buyer must be found "through a fair and responsible" process or the hospitals are likely to close.

SEIU alleges that Prime will put the six Catholic hospitals into bankruptcy unless it gets major contract concessions from unions representing health care workers. Prime argues SEIU and SEIU-United Healthcare Workers West are conspiring to "target and attack" in order to unionize Prime, altering Prime's cost structure and business model or eliminating Prime from the market.

On Aug. 25, Prime filed its suit in U.S. District Court in San Francisco under the federal Racketeer Influenced and Corrupt Organizations Act.

Days earlier, Robert Issai, president and CEO of DCHS, issued a statement, saying, "The concern voiced by a handful of groups and individuals against a potential buyer of our hospitals is misleading and in the self-interest of those voicing the criticisms."

Prime is one of seven health systems that have submitted purchase bids since the Daughters announced in February that they were putting the hospitals up for sale. The DCHS network is expected to lose more than $150 million this fiscal year.

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"Without a buyer with the financial wherewithal to right the ship, our hospitals are in danger of shutting down," Issai said in an Aug. 21 opinion piece published in the San Jose Mercury News. The newspaper has reported that Santa Clara County is interested in buying the two hospitals in its area, but the Daughters say they want to sell all six hospitals together. They hope to announce a buyer agreement in the fall.

Issai, in an Aug. 18 statement, said a key concern is finding a buyer who can keep the hospitals "operating without jeopardizing the pensions of current and retired employees." He said the buyer must also meet obligations "to our associates, our bondholders and our communities."

Last year, the four hospitals in northern California and two in southern California provided more than $159 million in uncompensated care and services to people living in poverty, in addition to $22 million in traditional charity care, according to Issai's office. Reimbursements for Medicare and Medi-Cal patients, who make up the bulk of DCHS patients, do not cover operating costs.

Some critics of the sale to Prime worry that in addition to potential loss of jobs, benefits and pensions, charity care will be eliminated.

Mayor David Canepa of Daly City, Calif., where DCHS' Seton Medical Center is located, said the hospital is the city's largest employer and is the only full-service hospital serving a large geographic area. On Aug. 11, the Daly City Council asked California Attorney General Kamala Harris to review the potential sale of Seton to ensure that health care for the sick, poor and elderly will be sustained. Because the health system is a nonprofit organization, its sale requires Harris' approval.

Three other elected officials in the Bay Area have also written to Harris, protesting the sale of DCHS to Prime.

Established in 2001 by a cardiologist in southern California, Prime now owns 29 hospitals in California and eight other states. Its motto is "Saving Hospitals, Saving Jobs and Saving Lives."

On Aug. 15, Prime acquired St. Mary's Hospital in Passaic, N.J., from the Sisters of Charity of Saint Elizabeth. As part of the deal, Prime committed to investing $80 million in the hospital, including $30 million in capital improvements, maintaining charity care levels, hiring all existing employees, upholding an existing collective bargaining agreement, and honoring Catholic ethical and religious directives.

Four months before the sale was completed, St. Mary's announced layoffs and cutbacks on staff work hours. Critics said Prime required the action as a condition of the sale, a move the hospital denied.

Prime has been accused of pressuring doctors at some of its hospitals to admit patients for overnight stays to improve revenues. There have been allegations of overbilling Medicare and billing for incorrect diagnoses that are being investigated by the federal government. SEIU members and the California Nurses Association have held demonstrations outside several of the DCHS hospitals to protest Prime's proposal to buy the system.

Issai said DCHS' board of directors is following its established criteria for evaluating potential buyers. These include the ability to invest in capital improvements at its aging facilities, some of which need significant seismic retrofitting; avoiding bankruptcy of the hospitals; and continuing to meet the health care needs of the surrounding communities.

DCHS includes a medical foundation and six hospitals: O'Connor Hospital in San Jose, St. Francis Medical Center in Lynwood, St. Louise Regional Hospital in Gilroy, St. Vincent Medical Center in Los Angeles, Seton Medical Center in Daly City, and Seton Coastside in Moss Beach.

[Monica Clark is an NCR West Coast correspondent.]

A version of this story appeared in the Sept 12-25, 2014 print issue under the headline: Conflict surrounds sale of Catholic hospitals .

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