December 3, 2015

Attorney General Kamala D. Harris Grants Conditional Approval of Daughters of Charity Health System Transaction with BlueMountain

LOS ANGELES – Attorney General Kamala D. Harris today granted conditional approval of a transaction that will allow a change of control and governance of the Daughters of Charity Health System. The Attorney General’s approval includes strong conditions to ensure the continuity of essential healthcare services for vulnerable communities at the six health facilities and requires many essential health care services to remain in place for at least ten years.

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

The transaction includes the following six health facilities:

  • St. Vincent Medical Center (Los Angeles, CA)
  • St. Francis Medical Center (Lynwood, CA)
  • O’Connor Hospital (San Jose, CA)
  • Saint Louise Regional Hospital (Gilroy, CA)
  • Seton Medical Center (Daly City, CA)
  • Seton Coastside (Moss Beach, CA)

Under the system restructuring and support agreement, Integrity Healthcare, LLC and certain funds managed by BlueMountain Capital Management, LLC will execute a 15-year management agreement and will pay $100 million for the option to purchase the Daughters of Charity Health System. These certain funds will also provide $150 million of guaranteed financing to support the health system’s financial and capital needs and help with the $180 million capital expenditures commitment. Under the terms of the agreement, the health system’s name will be changed to Verity Health System of California, Inc. and its corporate status will be changed from a nonprofit religious corporation to a nonprofit public benefit corporation.

For at least the first three years of the agreement, the health system will continue to operate as a nonprofit public benefit corporation. After three years and before the expiration of the 15-year agreement, the certain funds managed by BlueMountain Capital Management, LLC can exercise their option to purchase the health system.

This is the largest and most complex nonprofit hospital transaction in California history. If the parties agree to the Attorney General’s conditions, the proposed transaction can protect the health system — which is currently losing millions of dollars a year — from bankruptcy.

Attorney General Harris approved the transaction with conditions designed to ensure continuity of care for Californians who rely upon the health system for health care services. The Attorney General’s conditions include:

  • For ten years, St. Francis, O’Connor, Saint Louise and Seton Medical Center must operate as acute care hospitals and offer emergency services.
  • For ten years, Seton Coastside must operate as a skilled nursing facility with 24-hour emergency services and a minimum of 116 licensed skilled nursing beds.
  • For five years, St. Vincent must operate as a general acute care hospital, providing 24-hour emergency medical services and a minimum of eight emergency treatment stations and six Fast Track treatment stations.
  • The six facilities must provide the same types and/or levels of emergency and non-emergency services to Medi-Cal beneficiaries and maintain Medi-Cal managed care contracts at each of the facilities.
  • $180 million must be invested in capital improvement expenditures at the facilities.
  • Charity care for needy patients and community benefits must be provided at historical levels.
  • Essential health care services must continue to be provided at all facilities.
  • At each of the facilities and the medical office buildings, there shall be no restriction or limitation on providing or making reproductive health care services available, and this requirement must be explicitly set forth in the facilities’ policies and procedures.
  • Substantially all of the 7,000 jobs at the health facilities will continue, with comparable salaries, wages, and job duties.
  • All facilities must meet seismic compliance requirements until 2030.
  • All facilities and the medical office buildings’ policies and procedures shall explicitly prohibit discrimination against lesbian, gay, bisexual or transgender individuals.
  • All of the facilities will be required to submit to the Attorney General an annual report describing in detail their compliance with the conditions.

The conditional approval of the transaction concludes an in-depth review process by the Office of the Attorney General, including five Health Care Impact Statements by an independent health care expert, six public meetings, and a public comment period. The Attorney General’s decision comes after careful consideration of public comments, consultation with an independent health care expert, and discussions with concerned community members. The transaction involved a competitive bidding process administered exclusively by the Daughters of Charity Health System.

The Attorney General’s decision conditionally approving the transaction with the full list of conditions can be found here: .