California Attorney General Grants Conditional Approval for St. Francis Sale
Posted on Jul 18, 2020
Court Addresses Cost Structure and Collective Bargaining Agreements
(Ontario, CA) – Prime Healthcare is pleased to announce that the California Attorney
General has conditionally approved Verity Health’s application to
transfer ownership of St. Francis Medical Center to Prime Healthcare.
The Attorney General’s decision follows an earlier decision by the
US Bankruptcy Court of the Central District of California granting Verity’s
request to reject the existing collective bargaining agreements which
impose legacy cost structures that contributed to bankruptcy.
Attorney General Xavier Becerra noted that his approval of the sale of
St. Francis to Prime Healthcare “protect(s) access to care for the
Los Angeles communities served” by St. Francis. He further noted,
“The COVID-19 public health crisis has brought home the importance
of having access to lifesaving hospital care nearby in our communities.
St. Francis Medical Center is not just an asset, it is an indispensable
neighbor, it is the workers who serve the patients, and the doctors who
save lives. We conditionally approve this sale to keep it that way.”
“Receiving conditional approval is an important step in ensuring
Prime is able to preserve the St. Francis mission for the benefit of associates,
members of the medical staff and most importantly the patients and Southeast
Los Angeles community that has relied on St. Francis for 75 years.”
said Rich Adcock, CEO of Verity Health.
Prime Healthcare is nationally recognized for its success in saving financially
distressed hospitals across the United States and clinical excellence,
with hospitals named among the nation’s best as “100 Top”
hospitals 53 times and more Patient Safety Excellence Awards than any
other health system in the country, according to Healthgrades.
In early April, the U.S. Bankruptcy Court approved the Asset Purchase Agreement
(APA) for the sale of St. Francis Medical Center to Prime. Under the agreement,
Prime will acquire St. Francis for a net consideration of over $350 million,
including a $200 million base cash price and $60 million for accounts
receivable. In addition, Prime has committed to invest $47 million in
capital improvements and extending offers of employment to substantially
all staff.
Additionally, the Court recently granted Verity’s request to reject
the existing collective bargaining agreements with two unions that represent
associates at St. Francis Medical Center, SEIU and UNAC. The Court noted
that Prime Healthcare was the only party to submit a qualifying bid for
St. Francis and that without rejecting the existing CBAs, “St. Francis
would not continue to operate as a going concern, and all of the UNAC
[and SEIU] represented employees would lose their jobs.”
The Court also noted that Prime and Verity had made multiple efforts to
negotiate in good faith with the unions, and the parties devoted “hundreds
of hours to negotiations,” but ultimately were unable to agree on
new CBAs. Furthermore, the Court determined that one of the reasons for
the hospital’s bankruptcy was the “legacy cost structure imposed
by the existing CBAs.”
The Court further stated that the proposals were rejected “without
good cause” by the unions. Prime negotiated in good faith and proposed
increasingly generous offers to UNAC and SEIU with wages far above Prime’s
existing agreements at its LA area hospitals. Prime’s latest offer
to SEIU maintained existing wages for roughly 90% of SEIU members, and
increase wages for some. Moreover, these wages would be substantially
higher than those recently voted in overwhelmingly by SEIU members at
three of Prime’s Los Angeles hospitals. Prime also proposed increasingly
generous offers to UNAC with wages far above existing agreements in the market.
“We are honored to be selected to continue the St. Francis legacy
and are working to review the conditions and finalize the sale as quickly
as possible,” said Sunny Bhatia, MD, CEO, Region I and Chief Medical
Officer of Prime Healthcare. “St. Francis’s mission is especially
critical during this pandemic and we honor the service of all caregivers.
Prime has already started investments at St. Francis that will enhance
patient care as we commit to continue every service line, community benefit
program, charity care and expand new services to the community.”
The Attorney General’s office conducted an exhaustive review of the
transaction for the past several months and carefully considered public
input on the proposed transaction. The Attorney General’s approval
includes conditions for the sale which Prime is currently reviewing. Pending
a final ruling by the Bankruptcy Court, the transaction is expected to
be completed this summer.