Los Altos Hills, Calif. — The struggling Daughters of Charity Health System, which owns six hospitals in California, has accepted a proposal by BlueMountain Capital Management to provide over $250 million to “recapitalize” the hospital chain. In doing so, DCHS will transfer control of the hospitals to an independent board of directors and to Integrity Healthcare, which BlueMountain has formed to manage and operate the facilities.
Once the transaction is approved by California’s attorney general, the Daughters of Charity will no longer be associated with the hospitals and the hospitals will cease to have any religious affiliation, said Elizabeth Nikels, DCHS vice president of marketing and communications. The hospitals will remain open as non-profit hospitals. The current DCHS board of directors will appoint the new five-member board. BlueMountain will have one representative.
In three years, BlueMountain has the option to purchase the system. If BlueMountain declines to do so, the hospitals will continue to operate as a non-profit system under its board of directors, Nikels said.
For more than a year, DCHS had been trying to sell the system which was on the verge of bankruptcy. An offer by Prime Healthcare Services to purchase the system for $843 million was withdrawn in March after Attorney General Kamala Harris imposed a requirement that Prime keep four of the hospitals as acute care facilities for 10 years.
The sale to Prime, a for-profit health system based in southern California, had been strongly opposed by the Service Employees International Union and its United Healthcare Workers West. They feared Prime would not live up to its promises to honor union contracts and that pension and retirement plans would be at great risk.
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BlueMountain has agreed to honor current collective bargaining agreements with the hospital unions and will work collaboratively with the unions, said Nikels.
As part of the transaction, Nikels added, all pension and retirement plans that are currently “church plans” will become subject to the Employee Retirement Income Security Act of 1974.
DCHS expects to submit its application to the attorney general within the next week. She will have 105 days for review.
Robert Issai, DCHS president and CEO, said BlueMountain was the “strongest bidder who could provide the greatest long-term financial stability” for the system. It had not submitted a proposal when the system was for sale last year, but several members of the new Integrity Healthcare participated in the earlier process, said Nikels.
The Daughters of Charity opened their first hospital in California in 1858. Called Los Angeles Infirmary, it is now known as St. Vincent Medical Center. The other hospitals involved in the BlueMountain transaction are St. Francis Medical Center in Lynwood, O’Connor Hospital in San Jose, St. Louise Regional Hospital in Gilroy, Seton Medical Center in Daly City and Seton Coastside in Moss Beach.
The statewide DCHS Medical Foundation will also be included in the transaction.
[Monica Clark is an NCR West Coast Correspondent. Her email address is email@example.com.]