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Investment firm offers cash infusion to Daughters of Charity hospitals

Daughters of Charity’s six Catholic hospitals include St. Vincent Medical Center in Los Angeles, above, and St. Francis Medical Center in Lynwood.
Daughters of Charity’s six Catholic hospitals include St. Vincent Medical Center in Los Angeles, above, and St. Francis Medical Center in Lynwood.
(Brian van der Brug / Los Angeles Times)

A private investment firm will make a $250-million cash infusion in a struggling chain of six Catholic hospitals in California under a deal announced Friday.

The firm, BlueMountain Capital Management in New York, also would oversee management of the chain, called Daughters of Charity Health System, which would keep its nonprofit status.

Daughters of Charity’s properties include St. Vincent Medical Center in Los Angeles and St. Francis Medical Center in Lynwood.

BlueMountain also would receive an option to buy Daughters of Charity outright after three years.

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The proposed deal comes four months after Prime Healthcare Services Inc., an Ontario-based hospital operator, backed out of plans to purchase Daughters of Charity for $843 million.

Prime said it withdrew because of “impossible” conditions that would have been imposed by California Atty. Gen. Kamala Harris to gain her approval for the acquisition. The BlueMountain deal also will need her approval.

“Our office will review this transaction, as required by law, to ensure continuous access to care for the communities currently served by these hospitals,” Harris spokeswoman Kristin Ford said in a statement.

Daughters of Charity’s future has been closely watched because its hospitals employ 7,600 workers and provide needed medical services to a number of lower-income communities.

Many community hospitals and smaller nonprofit chains like Daughters of Charity also have struggled because they lack the size and bargaining clout to win favorable reimbursement rates from insurers.

Daughters of Charity’s chief executive, Robert Issai, has said the chain has been losing $10 million a month. And after the Prime deal collapsed, he said the chain would explore bankruptcy among its options to keep operating.

But on Friday, Daughters of Charity said the BlueMountain deal “ensures the communities served by the hospitals will have uninterrupted access to high-quality healthcare and that current and former hospital employees will see their pension benefits remain the same.”

The deal calls for Daughters of Charity to transfer control of the hospitals to an independent board of directors, with a BlueMountain entity called Integrity Healthcare overseeing the chain with “key management services and day-to-day operational support.”

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About 2,675 of the chain’s workers, including janitors, food-service personnel and emergency medical technicians, are represented by the SEIU-United Healthcare Workers West union.

The union’s president, Dave Regan, said in a statement that “we are anxious to see the details of the BlueMountain proposal so we can understand what commitments they make to ensure the community receives the best possible healthcare.”

When Harris approved Prime’s purchase of Daughters of Charity in February, she required the company to keep all six hospitals open for 10 years. She also said they would have to continue their current level of charity care to poor patients.

Besides the two hospitals in Los Angeles County, Daughters of Charity 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.

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Prime said Harris’ conditions for the sale were too “burdensome and restrictive.” Harris, in turn, criticized Prime for backing out “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.”

james.peltz@latimes.com

Twitter: @PeltzLATimes


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