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Prime Healthcare deal for 6 hospitals collapses; bankruptcy is an option

'Every option is on the table, including bankruptcy,' Daughters of Charity CEO says after Prime deal collapses

Prime Healthcare Services Inc.'s proposed deal to buy six financially struggling Catholic hospitals has collapsed, raising questions about how the nonprofit chain will keep its doors open.

On Tuesday, Ontario-based Prime Healthcare blamed California Atty. Gen. Kamala Harris for imposing "impossible" conditions on its planned purchase — which included St. Vincent Medical Center and St. Francis Medical Center in L.A. County.

In turn, Harris lashed out at Prime, saying it had signaled that it was OK with the terms of the deal she had outlined.

And Robert Issai, chief executive of the Roman Catholic hospital chain known as Daughters of Charity Health System, said he disagreed that the conditions announced last month by Harris were too onerous.

"I was disappointed and surprised," Issai said of Prime's decision. "The conditions were very much workable."

Issai said he is now consulting with financial advisors and the hospital system's board of directors about how to keep the six hospitals operating.

"Every option is on the table, including bankruptcy," he said.

Issai has said the hospital chain, which specializes in providing care to the poor, has been losing $10 million a month. In 2013, its board decided that selling the hospitals was the best way to avoid filing for bankruptcy.

On Feb. 20, Harris approved the proposed $843-million sale to Prime, but said she would require the company to keep all of the hospitals open for 10 years. She also said the hospitals would have to provide the same level of charity care to poor patients as Daughters of Charity had.

The deal has been closely watched because the hospitals employ 7,600 workers and provide needed medical services to a number of lower-income communities.

In a statement, Harris berated Prime for backing out of the deal.

"Prime is choosing to walk away from this transaction 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," Harris said. "By walking away, Prime is confirming many of the concerns heard at multiple community meetings that the continuity of vital healthcare services in these communities is not its priority."

Prime Healthcare, which is privately held, now owns 34 hospitals across the country. It specializes in acquiring distressed hospitals and making them profitable, often through cost-cutting and aggressive negotiations with insurers.

Prime's founder, Prem Reddy, said Tuesday that the company had been committed to buying the six Catholic hospitals, but that the 78 pages of conditions made the deal "untenable."

"Unfortunately, the conditions placed on the sale by the California attorney general are so burdensome and restrictive that it would be impossible for Prime Healthcare — or any buyer — to make the changes needed to operate and save these hospitals," Reddy said in a statement.

He noted that Prime had agreed to keep the hospitals open at least five years, maintain or increase charity care and fully fund pensions of 17,000 current and former workers.

The proposed sale to Prime had divided the hospitals' labor unions.

The California Nurses Assn. had supported the proposed deal, saying Prime was the best option to keep the hospitals open and protect jobs and employees' pensions.

But the SEIU-United Healthcare Workers West union warned that in the past Prime has shown it puts profit above patient care.

Scott Byington, president of the St. Francis Registered Nurses Assn., said Tuesday he was relieved Prime backed out of the deal.

"The attorney general did California many favors by making the conditions so strong," he said. "We dodged a big bullet here."

Across the country, many community hospitals and smaller nonprofit chains like Daughters of Charity are fighting to survive because they often lack the bargaining clout to win favorable reimbursement rates from insurers.

Besides the two hospitals in L.A. County, Daughters owns four in Northern California: O'Connor Hospital in San Jose, Saint Louise Regional Hospital in Gilroy, Seton Medical Center in Daly City and Seton Coastside in Moss Beach, near Half Moon Bay.

Standing on a sidewalk outside St. Vincent in downtown L.A. on Tuesday afternoon, Maricela Mora, a phone operator, said the mood inside the hospital was somber.

Mora said the hospital's managers had been in and out of meetings all day discussing what would happen to the chain.

She has worked at the hospital for a year, she said, and has tried to avoid the politics surrounding the sale. She said she just wants a buyer for the hospital to be found.

"That's my only concern," she said. "Are we going to have to apply for other jobs? I'm worried about what's going to happen to us."

melody.petersen@latimes.com

Twitter: @melodypetersen

javier.panzar@latimes.com

Twitter: @jpanzar

Times staff writer Chad Terhune contributed to this report.

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