Our View: Attorney General must approve sale

The move by the Daughters of Charity Health System to sell Saint Louise Regional Hospital in Gilroy and De Paul Medical Center in Morgan Hill might be the Roman Catholic religious order’s best decision since it was founded in France in 1633 by St. Vincent de Paul to care for the poor.

Best for the nuns, to be sure. Their questionable business model and mission to treat patients regardless of ability to pay have created a financial disaster that cannot be resuscitated in its current form.

But is it best for the south Santa Clara County communities of Gilroy, Morgan Hill and San Martin, which make up most of the facilities’ service area and are home to about 75 percent of their patients?

Cut through the complexities and absurdities of healthcare, politics and union and corporate egos and the simple answer is, yes.

The proposed sale of the DCHS medical facilities to Prime Healthcare makes the best sense in terms of healthcare and the best business sense.

The alternatives—a private equity firm or the County of Santa Clara—are iffy and, in the county’s case, unrealistic and scary. The county hospital system loses tens of millions of taxpayer dollars.

The sale requires review by California Attorney General Kamala Harris, who can approve or reject the bid or approve with conditions.

Harris, a superstar in state Democratic Party circles who wants to be California’s next U.S. Senator, will decide by Feb. 20. Her announced run for the seat being vacated by Barbara Boxer begs the question: will politics influence her decision about Prime’s bid to buy the DCHS facilities?

We applaud the attorney general’s diligence and that of her staff—and urge her to approve the sale with conditions that will ensure continued, quality care while not being so onerous as to chase away the anointed buyer-in-waiting and put the future of South County’s heath care delivery system at risk.

We also urge her to resist mixing politics into her decision, no matter how badly she wants the financial support and votes of the Service Employees International Union-United Healthcare Workers, which opposes the sale to Prime and prefers another bidder.

Uions have important roles to play, but when their self-serving motivations take priority over what’s best for all the people, they dilute their importance in the discussion. After all, a union’s fiduciary responsibility is and should be to its membership.

The Harris decision should not be about unions or political office. If the people of south Santa Clara County and other areas impacted by the sale of DCHS facilities—San Jose, Daly City and Half Moon Bay in northern California—are to continue to receive quality care, Harris’ decision on Prime must focus on two issues:

•    Will its business model keep hospital doors open?

•    Will Prime deliver sustained, quality care, including to the poor, that is substantially equal to or better than what DCHS provided?

Prime’s record must not be discounted. Under founder Dr. Prem Reddy, a cardiologist turned hospital entrepreneur, the firm has rescued 30 hospitals, saved 35,000 jobs in nine states and won awards and the gratitude of communities.

Unlike other bidders, Prime has promised to respect union contracts and pension plans, assume DCHS’s debt, spend $150 million on capital improvements and continue care to the poor. It has never closed or sold a hospital, according to Reddy and its literature.

That Prime is a for-profit company should not be a deal killer.  It offered better terms and is the only viable bidder that would not force DCHS to go through bankruptcy. And bankruptcy proceedings are likely if the Daughter’s system becomes insolvent or a different buyer insists on it in order to shed financial liabilities before taking over.

If bankruptcy happens—a requirement if the county buys DCHS facilities—then how the system is run and to whom it is sold would be up to a bankruptcy judge and a creditors’ committee, with no local say in the matter. Could the county outbid private healthcare or equity firms that would line up to buy at liquidation prices? 

Arguments for approval are reasonable, unclouded by politics, give access to healthcare priority and come from a cross section of constituencies, including—tellingly—hospital workers bucking their own union.

The Silicon Valley Leadership Group has endorsed the sale. So have the California Nurses Association, a lot of SEIU-UHW’s local members, the City of Gilroy and its chamber of commerce, the Gilroy Economic Development Corporation and the Morgan Hill Chamber of Commerce.

Economically, DCHS employs more than 500 people, has a payroll in excess of $58 million and spends another  $130 million—easily nearing $200 million a year flowing into local cash registers and bank accounts.

DCHS executives and around 45 employees in its administrative operation will lose their jobs if sold and will leave with severance checks, customary in the industry—not the improper windfalls critics suggest.

Arguments against the sale don’t all add up, even if some are well founded—fears of some job loss (Prime says mostly middle management positions), programs being cut and not all insurance plans accepted.

Others, such as Prime being under investigation for its billing practices, mislead. Many hospitals undergo such probes and some have paid big fines. Prime says it has never been charged with wrongdoing or fined.

If Harris rejects the sale and hospital doors close, it would mean long drives, even in medical emergencies, for South County residents—and even for some as far away as Hollister, which accounts for about 10 percent of Saint Louise’s patients.

If Harris approves the sale, her consultants have recommended conditions that are designed to make sure quality care continues. While some are for five years, most of the conditions are suggested to last for 10 years.

That’s a potential problem for Prime. Changes in the nation’s healthcare system are inevitable. The Affordable Care Act is a good example. Virtually overnight it has changed the medical landscape.

In most cases, the 10-year assurances are prudent. But they raise questions: is the consultant suggesting that for a decade Prime must continue business as usual at DCHS facilities and expect better financial outcomes? And is Prime to have no flexibility to adjust if the medical landscape shifts and what seems doable now becomes impossible in the future?
Approval of the sale to Prime with doable conditions that protect services is what’s in the best interest of Gilroy, Morgan Hill and San Martin.