GILROY—After walking away from the purchase of six Daughters of Charity hospitals in March due to “onerous and unprecedented conditions” placed on the transaction by California Attorney General Kamala Harris, Prime Healthcare has filed a lawsuit alleging she abused her constitutional authority.
The Ontario-based company filed a lawsuit in U.S. District Court Monday accusing Harris of placing the interests of a labor union—whose leadership opposed the sale of the nonprofit system to Prime—above the needs of the communities served by the six hospitals, including Gilroy’s Saint Louise Regional Hospital.
The $843 million transaction was approved in February and its conditions would have required Prime to continue operating five of six facilities as acute-care hospitals for 10 years, as part of Harris’ approval. The Attorney General’s Office reviews the sale of all nonprofit hospital systems, but this was the largest review of its kind.
Harris also stipulated that Prime assume and guarantee all pension obligations for the ailing Catholic hospital system.
It was those conditions that ultimately killed the deal, according to Troy Schell, general counsel for Prime.
“By imposing restrictive conditions on Prime and only Prime, [Harris] forced the company to withdraw its offer for the DCHS hospitals, jeopardizing health care in these underserved communities,” Schell said in a statement.
The lawsuit alleges Harris entered a pay-for-play deal with the Service Employees International Union–United Healthcare Workers West (SEIU-UHW), whose leadership opposed Prime’s bid to purchase the hospitals.
The labor group said in a press release, “Prime puts profits over patients and doesn’t share Daughters’ mission of serving the poor,” anticipating Prime’s executives would cut essential services and staff in order to balance the books.
Many on the Santa Clara County Board of Supervisors echoed those concerns, as did 18 congressional representatives from California—primarily Democrats.
“It is our belief that under Prime, patient care and healthcare worker rights will suffer at these hospitals,” read a Dec. 11 letter that was signed by the group, including U.S. Reps. Mike Honda (D-San Jose), Zoe Lofgren (D-San Jose).
But by placing her conditions on the sale, Prime argues Harris—who is seeking Sen. Barbara Boxer’s seat in 2016—secured the SEIU-UHW’s future support for her candidacy.
According to Prime, the attorney general effectively “sold her political office” by implementing the conditions, which the lawsuit declares was a “quid pro quo exchange for the union’s continuing financial support of her political career.”
In a statement, the Attorney General’s Office said Prime’s decision to abandon the DCHS transaction, coupled with the lawsuit, “reaffirms the concerns voiced at multiple community meetings that Prime never intended to prioritize the continuity of vital health services.”
The transaction was reviewed after 44 hours of public meetings, including one at Gilroy City Hall in January, and after more than 14,000 public comments were received. Harris’ conditions were put in place to ensure community members who depended on the hospitals “would continue to receive the care they need,” according to her office.
“Prime chose to walk away from the transaction months after publicly stating that it had no issue with the 10-year conditions and intended not to close any of the hospitals or end essential services,” the statement reads.
DCHS chief executive Robert Issai expressed surprise after Prime announced it was not purchasing the Catholic hospitals in March.
“I didn’t think those conditions would be too much for Prime,” he previously told the Dispatch.
Moving forward, DCHS officials are optimistic a private investment company selected in July to recapitalize the Daughters of Charity’s operations will provide long-term financial stability while honoring existing obligations to employees, retirees and other stakeholders.
The Daughters and New York-based hedge fund BlueMountain Capital Management, have hammered out an agreement for the investment company to inject more than $250 million into the facilities, which will be managed and operated by a new company, according to a DCHS statement.
That agreement must be approved by the Attorney General’s Office, which has the authority to implement conditions on the transaction.
