Unions Thwarting Attempted Rescue of California Hospital Serving the Poor

Costly contract provisions from the state attorney general are making it more difficult for a hospital to be sold, and saved.

We all know the meaning of being given an offer we can't refuse — a reference to Don Corleone's words in the movie, "The Godfather." Saying no in such a situation is not a "survivable" option. But California political observers are trying to figure out the meaning of an offer recently made by California Attorney General Kamala Harris.

Critics say she gave the potential buyer of a hospital chain an offer it might not be able to accept. Her actions threaten the survivability of the Daughters of Charity Health System, a Catholic nonprofit group that runs four hospitals in the Bay Area and two around Los Angeles. The hospitals mainly serve poor and elderly patients.

It has been losing $10 million a month. Two suitors emerged. The Daughters of Charity rejected an offer by a cost-cutting private-equity firm that wanted merely to manage the system and instead chose a sale to Prime Healthcare Services of Ontario.

This would seem like a good resolution given the situation. A financially troubled health system that serves the poor finds a buyer that will save it from insolvency, and which promises to keep all of the hospitals open for five years. But a nearly two-decade-old state law gives the attorney general godfather-like powers to approve, deny or impose conditions on any sale or transfer of a nonprofit health facility to a for-profit one.

Harris in February granted "conditional approval" of the ownership change from the Daughters to Prime — provided Prime agrees to a 78-page agreement filled with costly conditions. For the next 10 years, Prime would agree to keep all the hospitals open. It must spend $150 million on capital improvements in three years, assure the full pension benefits of retirees and current employees, and invest $350 million in seismic retrofitting.

Some observers see this as a means to scuttle the deal. Even some supporters say the conditions imposed on Prime are unprecedented. Prime is deciding whether to go through with the sale. The Daughters of Charity says it will file for bankruptcy if it doesn't. If Prime moves forward, these costly provisions could threaten its long-term health.

This convoluted deal is easier to understand in the context of union politics. The powerful Service Employees International Union/United Healthcare Workers West has been harshly critical of the sale to Prime, which it accuses of profiteering. By contrast, one of its rival unions,the California Nurses Association, has backed the sale as a way to save the hospital system.

"To protect some union perks, you're going to (possibly) force the shutdown of two to six hospitals?" asked Adrian Moore, vice president of the Reason Foundation [which publishes Reason magazine]. "It's crazy. How many indigents will not be treated so you can favor (the union)?" Hospitals are a business – and they change ownership all the time. He questions the state law that gives the attorney general this power.

The situation could have been worse. Last year, union-allied Democrats passed SB 1094, which would have authorized the attorney general "to amend conditions after the decision is issued under specified circumstances." It would have allowed an AG to go back after the deal is done and change its conditions. (The governor vetoed it.)

The goal: Keeping Catholic hospitals from acquiring facilities and then ending abortion procedures. But the result of such blatant politicking could mean freezing investments in health-care facilities. "Would you sign a contract if you knew the terms could be altered after you agreed to the deal?" asked columnist Bruce Maiman in the Sacramento Bee. Easy answer.

Instead of allowing private organizations to come up with the terms of their own purchases and transfers, the state has given the power to political officials and their union allies. Instead of helping the poor, it hurts them. In a lawsuit filed last month, the Daughters of Charity claim SEIU/UHW West's activities to delay the sale have cost it millions of dollars that could have been used to provide health care.

There's a reason our political system is more about checks and balances and less about empowering godfathers, who can impose questionable edicts one can't afford to refuse – or accept.