LOS ANGELES — California Attorney General Kamala Harris approved a management agreement for Daughters of Charity Health System, saying it would stave off bankruptcy for the hospital owner.
DCHS, which owns six hospitals in the San Francisco Bay Area and Los Angeles, reached the agreement with private investment firm BlueMountain in July, after restrictions imposed by Harris on a previous deal to sell the hospitals to Prime Healthcare Services caused that deal to crater.
Under the deal that Harris approved Thursday, Blue Mountain will invest $250 million in the California hospital nonprofit, which has more than $400 million of junk-rated bond debt. Under the terms of the agreement, the roughly $280 million 2005 long-term revenue bonds will remain outstanding. The $125 million in 2014 short-term bonds, which had their maturity date of July 15 extended to Dec. 15, 2015, were to be repaid. The $250 million in capital provided by BlueMountain will enable DCHS to repay outstanding obligations, provide needed operational liquidity, and invest in physical plant improvements and operations. BlueMountain is a global investment firm with more than $21 billion under management, including healthcare facilities.
Integrity Healthcare, an entity wholly owned by BlueMountain, was formed to oversee the hospital group. It will manage and operate the six California hospitals and the medical foundation, enabling the system to maintain its nonprofit status.
Harris granted conditional approval and
"This approval includes strong conditions that will maintain the charitable purpose of the Daughters of Charity Health System, ensuring that low-income Californians will continue to have access to critical health care services, including emergency, trauma, surgical, and reproductive health services," Harris said in a statement.
Calling it the largest and most complex nonprofit hospital transaction in California history, Harris said if the parties agree to her conditions, the proposed transaction can protect the health system — which is currently losing millions of dollars a year — from bankruptcy.
Under the 15-year management agreement, BlueMountain will pay $100 million for the option to purchase the hospital chain. It will also provide $150 million of guaranteed financing to support the health system's financial and capital needs and commit $180 million for capital expenditures. The health system's name will be changed to Verity Health System of California, Inc., and its corporate status will be changed from a nonprofit religious corporation to a nonprofit public benefit corporation.
For at least the first three years of the agreement, the health system will continue to operate as a nonprofit public benefit corporation. After three years and before the expiration of the 15-year agreement, BlueMountain can exercise the option to purchase the health system.
Harris required the six facilities to provide the same types and levels of emergency and non-emergency services to Medi-Cal beneficiaries and maintain Medi-Cal managed care contracts at each of the facilities. Another requirement was that the facilities must meet earthquake requirements by 2030.
Substantially all of the 7,000 jobs at the health facilities have to be preserved, with comparable salaries, wages, and job duties, as part of Harris' conditions.
SEIU-United Healthcare Workers West came out in support of the Harris' decision.
"The Attorney General's approval of the Daughters of Charity sale to BlueMountain includes conditions we believe will protect the hospital system's historic mission of serving the sick and poor in the their communities," Marc Quarles, a radiology technician at Saint Louise Regional Hospital in Gilroy, said in a statement. "It protects patients and the system's caregivers, and preserves retirement benefits for current and former employees. We urge BlueMountain to accept the conditions and close the transaction so that everyone can put their full attention on providing the best patient care."
