At first, the acquisition of six Daughters of Charity hospitals by Prime Healthcare Services looked like it would be a win-win.
The Daughters of Charity hospitals have been struggling financially, partly because their communities rely upon them to care for the poor. Everyone in the industry knows that the formula of low census on paying patients, combined with millions in unreimbursed care, is not a sustainable equation. Add an aging infrastructure with a desperate need for capital investment, and you have a recipe for disaster. As things stand, the DoC hospitals are losing an eye-popping $10 million per month.
But with the financial backing of Prime, a large corporation with the capital and expertise in turning hospitals around, it was beginning to look as though the struggling hospitals would be able to stay alive. True, Prime has faced criticism of its turnaround tactics, including job cuts and providing far less unreimbursed care for the poor, but the acquisition would have allowed for desperately needed capital investment. As part of the proposed $843 million buyout, Prime had committed in writing to funnel $150 million into DoC to shore up the infrastructure while staying committed to charity care.
Not everybody was satisfied with this outcome. Specifically, the SEIU-United Health Workers West reps felt there was a good chance that Prime would renege on the deal, and publicly protested the proposed sales plan. But DoC lobbied hard privately and publicly for the deal (which required the blessing of California Attorney General Kamala Harris) to go through. The hospital even bought TV ads that were criticized for suggesting that if the AG didn't sign off on the deal, "People will die."
Harris, a frontrunner to replace retiring Senator Barbara Boxer, was faced with the prospect of being at odds with at least one important labor union no matter what she chose, so she did the unexpected and sided with patients. She approved the deal, but demanded that Prime recommit to the state of California that it would inject the $150 million in capital already promised to DoC, as well as up the ante on charity care. Moreover, she mandated that Prime keep funding DoC's pension program, so that longtime workers would not have to sacrifice their retirements in order to save the hospitals.
And that's when Prime walked away from the table, leaving no doubt in the minds of their detractors that the SEIU that they were right to oppose the deal in the first place. In examining the aftermath of Prime's departure, the primary question is simple: What about the AG's plan was so different from the agreed-upon Prime/DoC plan that caused Prime to walk away? The AG’s capital infusion requirement was identical to the previous plan, with the key differences being the mandate for charity care at "historic" levels and for the pension fund to be saved. Prime also objected hotly to the AG's demand that it keep at least five of the six hospitals alive for 10 years after the deal closed. But the correspondence between Harris and Prime suggests that Prime, on principle, simply refused to give up that much control of operations.
Prime's dropping the deal under these circumstances suggests that the SEIU's earlier suspicions about the growing hospital chain were on target. The union didn't dispute that the corporation might put the hospital back in the black, but contended that this would come at the cost of indigent patients and healthcare workers, who would lose benefits and even their jobs.
Prime founder Prem Reddy has since told the Los Angeles Times that the conditions AG Harris imposed on the buyout made it financially unworkable—though he said that he might still be interested in the acquisition in the future, especially if the DoC hospitals filed for bankruptcy. The bankruptcy angle is no surprise: After all, if the DoC hospitals went bankrupt, Reddy would have much greater leverage in cutting costs, including worker salaries and benefits.
DoC is now moving forward with finding a different buyer, and they have other suitors who, SEIU argues, put better terms on the table prior to Prime entering exclusive negotiations with DoC. The hospital would do well to take a look at those earlier options, lest they wind up eating a second huge plate of "I told you so," served up by the very workers who turned out to be right the first time.