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? That's the question Attorney General Kamala Harris needs to answer correctly or thousands of jobs will evaporate and critical healthcare access for many residents will vanish. Maybe that's why she delayed her decision on whether to approve or deny the sale of Daughters of Charity Health System to the hedge fund Blue Mountain Capital Management. Due on Thursday, the choice is now slated for Dec. 3.
Daughters, which consists of six financially-struggling Catholic hospitals in Southern and Northern California, has been losing millions monthly and, according to the San Francisco Business Times, the deal has to go through before a Dec. 15 deadline for Daughters to repay or recapitalize a $125 million bridge loan.
The problem, as we've documented previously, is what are Blue Mountain's reasons for wanting the system. Could it be a $1 billion real estate play? Could it be a good way to avoid taxes? Both? The San Jose Mercury News detailed the fact that the deal would allow the hedge fund to run the hospital chain as a nonprofit for up to 15 years before it would have to decide whether to buy Daughters.
"That, according to some industry experts, would permit BlueMountain to take advantage of laws exempting nonprofits from taxes, as well as continue to use tax-exempt bonds to finance its acquisition of a hospital system."And, experts say, that could also allow the $21 billion hedge fund to reap millions in tax benefits if the hospital chain sells medical office buildings or other hospital real estate worth hundreds of millions."This is amateur night at the opera," said Wanda Jones, a San Francisco-based hospital and health care consultant who has worked in the field for 50 years. "The people running it (Daughters) now are poor, innocent lambs ready to be fleeced."'
"Potential candidates include labor unions such as SEIU's United Healthcare Workers West local — which played a huge role in sinking an earlier proposed deal between the Los Altos Hills-based Daughters of Charity System and Prime Healthcare Services — Prime Healthcare itself, or a dissatisfied insider or insiders connected with either the Daughters system or Blue Mountain."Another intriguing possibility is Blue Wolf Partners, the union-friendly New York private equity firm that SEIU supported in its unsuccessful bid to purchase the Daughters' hospitals, when it was up against SEIU bete noire Prime Healthcare."
