CA Attorney General Eases Conditions for Newest Buyer of Struggling Hospitals

In the end, it appears that Attorney General Kamala Harris eased up on certain conditions regarding the sale of a financially struggling Catholic hospital system compared to a previous buyer. 
Last week, Harris gave her conditional approval to allow hedge fund BlueMountain Capital Management to invest in the nonprofit Daughters of Charity Health System, with an option to buy it after three years. The conditions will force BlueMountain to keep all but one of six Daughters facilities open for 10 years; maintain Medi-Cal contracts and services at each site for 10 years, and provide charity care at historical levels. But the conditions are also not as stringent as conditions previously imposed on another buyer, Prime Healthcare. (I've followed this saga for a while, because I use to work at the company.) 
The number of clinics and service lines to remain open have been reduced, and while the charity care says it must be maintained at "historic" levels, the conditions' language give the potential owners an out, by adding that it can be reassessed depending on the effects of the Affordable Care Act on uninsured patients. The change is expected to save BlueMountain millions as more and more people become insured. 
The Daughters system has been been losing $10 million a month. BlueMountain, which has little healthcare experience, committed to investing $100 million in capital and to provide a $150 million loan. 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, while taking advantage of major tax breaks.
The hedge fund will have 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 is currently worth $1 billion.
The previous buyer, Prime Healthcare, struck a deal worth an 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 what the company said was "onerous" conditions on 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. But because of the AG's conditions, Prime pulled out.
BlueMountain will have to decide if the less onerous conditions allow it to reap the profits a hedge fund needs to make. 

Capitol Watchdog is owned and operated by nonprofit Consumer Watchdog. For more information about Consumer Watchdog visit