Hospital management firm backs out of proposed $843 million deal to buy California hospitals

A leading hospital management company on Tuesday backed out of a proposed $843 million deal to buy six nonprofit Catholic hospitals in the Los Angeles and San Francisco Bay areas.

Prime Healthcare Services Inc. had previously agreed to keep the financially struggling Daughters of Charity Health System hospitals operating for at least five years.

State Attorney General Kamala Harris last month approved the sale while imposing conditions that ultimately unraveled the deal. Harris required Prime to operate five of the hospitals for at least 10 years.

The conditions were "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," Dr. Prem Reddy, founder and chairman of Prime Healthcare, said in a statement.

By law, Harris' office must approve purchases of nonprofit hospitals by for-profit companies.

She said in a statement that by pulling out of the deal, Prime confirmed many concerns raised at community meetings that vital healthcare services in the areas was not its priority.

"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.

Daughters of Charity said the decision by Prime Healthcare was disappointing.

"We strongly disagree with Prime's position on the attorney general conditions," it said in a statement. "We are confident that Prime could successfully turn around the DCHS hospitals."

Daughters of Charity said it remains committed to finding a solution soon.

United Healthcare Workers West, which opposed the deal, urged Daughters of Charity Health System to immediately designate another buyer. The union had expressed concern that Ontario-based Prime would shut down the hospitals if it took control.

"This announcement sets the path for other buyers more compatible with Daughters' commitment to public health to jump in immediately to purchase either the entire health system or individual hospitals," union president Dave Regan said.

The six hospitals involved are O'Connor Hospital in San Jose, Saint Louise Regional Hospital in Gilroy, Seton Medical Center in Daly City, Seton Coastside in Moss Beach, St. Francis Medical Center in Lynwood and St. Vincent's Medical Center in Los Angeles.