California Attorney General Kamala Harris will soon have to decide if she is on the side of patients and healthcare workers or a New York hedge fund looking to make easy money with little risk by buying six financially-struggling Catholic hospitals.
Starting Tuesday, the Attorney General's office began holding hearings on the sale of Daughters of Charity Health System to the hedge fund Blue Mountain Capital Management, with the first one at St. Vincent Medical Center in Lynwood. Once completed, the AG will review public comments and details of the transaction between Daughters and the hedge fund, Blue Mountain Capital Management. A consultant for the AG, who has regulatory oversight over the sale of nonprofit hospitals, has already submitted recommendations, which includes keeping many of the services and hospitals open for at least ten years. Harris will then approve the sale contingent on the buyer abiding by whatever recommendations she mandates.
The California Nurses Association, which has members at four of the hospitals, are asking for the AG to demand services not be cut, maintain safe staffing levels, preserve jobs and honor the collective bargaining rights earned by union members. That sounds reasonable. But it's the buyers that need scrutiny.
The Daughters system has been been losing $10 million a month, even though it has started laying off workers and cutting services. The threat of bankruptcy because of the financial drain has frequently been discussed. So why would a hedge fund, with little healthcare experience, commit $100 million in capital and provide a $150 million loan, with interest, to a dying hospital system?
In exchange for this generosity, Blue Mountain will enter into a management agreement with Daughters, with a 4% management fee attached, meaning it could make an estimated $55 million to $70 million per year in fees, according to the San Francisco Business Times, with an option to buy the system outright after three years. What the system will be worth in three years is unknown. Apparently, the land underneath the hospitals in Southern and Northern California are worth $1 billion.
We know what the system was worth to a previous buyer, Prime Healthcare. The deal was estimated at $843 million, which included preserving essential services, saving substantially all jobs and fully funding the pensions of 17,000 current and past workers. But Harris, at the behest of Service Employees International Union - United Healthcare Workers West, which is at war with Prime, placed unprecedented conditions to approve the deal. Prime's original offer was supported by the CNA, SEIU-UHW members at the facilities and hundreds of healthcare providers and community members. Because of the AG's conditions, Prime pulled out.
Daughters has already laid off nearly 300 workers, according to the San Jose Mercury News, and closed health care services at Seton Medical Center and Los Angeles' St. Vincent Medical Center. According to the News, Blue Mountains intends to close services in pediatrics and neonatal intensive care at O'Connor and obstetrics at Saint Louise.
Blue Mountain has profited handsomely on the misfortune of others in the past. The Attorney General should include conditions that limit what the company is allowed to cut and protect the safety-net hospitals after the ten years are up. She should protect healthcare workers and the healthcare of the community from the slash and burn tactics that hedge funds are so well known for. Blue Mountain shouldn't be allowed to create a mess and then pick at its carcass for riches.
