Regulators Approve Sale of Los Altos Hills Hospital Chain with Stiff Conditions

State Attorney General Kamala on Thursday approved the takeover of the Los Altos Hills-based Daughters of Charity Health System by a New York-based private investment firm on the condition that it continue to operate most of the six hospitals in the system for at least 10 years.

The conditions imposed Thursday would require BlueMountain to maintain Seton Medical Center in Daly City, O’Connor Medical Center in San Jose and Saint Louise Medical Center in Gilroy as acute care hospitals with emergency services for at least ten years, state officials said today.

Seton Coastside in Moss Beach would also continue to operate as a skilled nursing facility with 24-hour emergency services and a minimum of 116 beds for the same time period under the terms outlined by Harris’ office today.

The requirement that BlueMountain maintain hospital services for 10 years is similar to a condition imposed on a previous $843 million deal to sell the Daughters of Charity chain to Prime Healthcare Services, an Ontario, Calif.-based hospital chain.

Prime withdrew its offer in March in response to what it called the “burdensome and restrictive” conditions imposed on the sale by Harris. The company specifically cited the requirement to guarantee continued operations for 10 years as a factor in its decision to drop the deal.

Harris said Thursday that she would also require facilities in the chain to continue to serve Medi-Cal patients and provide charity care and essential services at historic levels and maintain access to reproductive health care services. In addition, all 7,000 jobs in the chain must continue at comparable pay rates and duties.

“This approval includes strong conditions that will maintain the charitable purpose of the Daughters of the Charity Health System, ensuring that low-income Californians will continue to have access to critical healthcare services, including emergency, trauma, surgical and reproductive health services,” Harris said in a statement.

Daughters of Charity officials today expressed optimism that the deal with BlueMountain would go forward despite the conditions. The chain began searching for a buyer last year because it was losing $10 million a month.

“We continue to believe this transaction will close in the very near future,” Daughters of Charity spokesman Rick Rice said today in a statement.

BlueMountain officials said they were reviewing the terms and looked forward to “discussing its implications with all key stakeholders.”

Rather than offer to purchase Daughters of Charity outright, BlueMountain has offered to pay $100 million for the option to buy the chain within 15 years and provide $150 million in financing, according to state officials. In the meantime, the chain can continue to operate as a nonprofit.

The investment firm is also sponsoring Integrity Healthcare, an entity that it owns, to take over management and daily operations of the health system and its hospitals.

As part of the deal, the health system’s board of directors would have to turn over its power to an independent board of directors. BlueMountain will have the option of buying the health system after three years.

State officials described the Daughters of Charity transfer as the largest and most complex nonprofit hospital transaction in California history.

--City News Service, photo courtesy of Daughters of Charity