After a long, contentious process, the Daughters of Charity Health System has announced a deal with private investment firm BlueMountain Capital Management to recapitalize its six ailing hospitals, including two in Los Angeles County, with more than $250 million.
Daughters of Charity will transfer control of the hospitals, including St. Vincent Medical Center in downtown Los Angeles and St. Francis in Lynwood, to an independent board of directors, which will oversee operations as part of the deal.
New York-based BlueMountain will contribute capital and Integrity Healthcare, which is wholly owned by funds managed by the firm, will manage and operate the six California hospitals and medical foundation while still maintaining their non-profit status. The investment firm also has the option to purchase the health system after three years.
“In evaluating candidates to manage the hospitals, our priority was to seek the strongest bidder who could provide the greatest long-term financial stability while honoring the obligations to our associates, physicians, retirees and other constituents,” Daughters of Charity Chief Executive Robert Issai said in a statement.
BlueMountain, which has $21 billion under management, has invested in distressed opportunities, including turnarounds and recapitalizations.
“We are excited to provide substantial expertise and financial capital to DCHS, positioning the hospitals to meet the evolving health care needs of the region,” the firm said in a statement.
Daughters of Charity will use BlueMountain’s $250 million capital infusion for operational liquidity, to repay certain outstanding obligations and to invest in physical plant improvements and operations.
On the management side, Integrity Healthcare’s leadership team will include health care executives Mitch Creem and Mark Meyers. Creem previously led several hospitals during financial turning points and management transitions, including Keck Hospital of USC and the UCLA Health System. Meyers has two decades of experience as a hospital chief executive, including a decade as an executive with Dignity Health.
Deal terms also include BlueMountain fully assuming current collective bargaining agreements with the hospital unions.
The agreement still needs state Attorney General Kamala Harris’s stamp of approval.
Organized labor had strongly backed a reported bid by New York private equity firm Blue Wolf Capital Partners. The group, known for having close relationships with unions, was also a finalist in last year’s bidding process. That process resulted in Daughters of Charity choosing to partner with Ontario-based Prime Healthcare Services, to some unions’ chagrin.
“We had a much stronger grasp of the Blue Wolf bid and were confident it protected critical health services for local communities,” Dave Regan, president of Service Employees International Union-United Healthcare Workers West, said in a statement. “We are anxious to see the details of the Blue Mountain proposal so we can understand what commitments they make to ensure the community receives the best possible health care.”
California Nurses Association/National Nurses United today said in its own statement that it would press BlueMountain and Daughters of Charity to keep all the hospitals open, retain patient services and honor collective bargaining rights for employees.
Daughters of Charity’s deal with Prime fell apart earlier this spring when Harris approved the agreement, but added a lengthy list of strict conditions, including running St. Francis as an acute-care hospital and offering emergency services for 10 years.
It is unclear whether Harris will impose similar terms on the current deal, though she later told the San Jose Mercury News that “the offer we made to Prime was unique and tailored to Prime.’’
That prompted Prime’s general counsel to warn Harris that any new buyer should have to abide by the same rules she sought to impose on Prime.
When the deal fell apart, Daughters of Charity seemed to be teetering on the edge of bankruptcy as its hospitals hemorrhaged money. But it stanched the bleeding after receiving $54 million in delayed funds in February from a state program for hospitals treating a significant number of Medicaid patients. A turnaround plan announced in April, including layoffs and service reductions, also helped.
