California Attorney General Kamala Harris late Thursday granted conditional approval of Daughters of Charity Health System’s deal to transfer control of its six ailing hospitals, including two in Los Angeles County, to New York private investment firm BlueMountain Capital Management, along with a long list of conditions.

The deal is “the largest and most complex nonprofit hospital transaction in California history,” wrote Harris’s office in a statement. It added that if both parties agree to her conditions, the health system, which is hemorrhaging millions of dollars a year, could be saved from bankruptcy.

Daughters of Charity owns St. Francis Medical Center in Lynwood and St. Vincent Medical Center just west of downtown Los Angeles.

The deal includes a 15-year management agreement with BlueMountain subsidiary Integrity Healthcare, and the investment firm paying the system $100 million upfront for the option to purchase the hospitals. BlueMountain would also loan the chain $150 million, according to the agreement, and $180 million “must be invested”' in improvements at the hospitals. The deal would allow BlueMountain to keep the chain as a nonprofit for up to 15 years before it would have to decide whether to buy the system.

When Harris approved a previous deal between the Daughters of Charity and Prime Healthcare earlier this year, tacking on a stringent set of conditions, Prime balked and pulled out.

The Ontario hospital operator later filed a lawsuit against Harris, claiming she’d treated it unfairly with “onerous and unprecedented” stipulations, which Harris later told the San Jose Mercury News were “unique and tailored to Prime.’’ It remains to be seen whether this new approval and set of conditions are similar enough to the Prime deal to quash that suit.

Service Employees International Union-United Healthcare Workers West, a labor union that had vehemently opposed the sale to Prime, issued a statement Thursday commending the Harris’s conditions and urging BlueMountain to accept them.

However, others have voiced concern about the investment firm’s motives in taking over a chain of nonprofit hospitals as well as the deal structure, which includes setting up a separate nonprofit for the hospitals that a BlueMountain subsidiary will be paid to manage.

BlueMountain said in a statement Thursday it had just received the Attorney General's decision and is reviewing its terms.

For reprint and licensing requests for this article, CLICK HERE.