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Prime backs out of controversial hospital deal in California

Prime Healthcare Services, a for-profit hospital operator based in Ontario, Calif., has decided to pass on a deal to acquire Los Altos, Calif.-based Daughters of Charity Health System's hospitals, according to a San Jose Mercury News report.

The sale of the DCHS facilities is the largest transaction ever reviewed by the California Attorney General's Office, and the deal was conditionally approved in February.

The approval contained stern conditions for the transaction, and Prime released a statement that said, "Prime Healthcare, with DCHS, will need to evaluate the viability and future stability of the DCHS hospitals under these conditions."

After considering the deal for the past few weeks, Prime has decided not to pursue the transaction.

"I am disappointed to share the news that late yesterday afternoon, Prime Healthcare informed us that it has decided not to purchase the DCHS hospitals," Robert Issai, president and CEO of DCHS, wrote in an email to employees Tuesday morning, according to the report.

According to the email sent by Mr. Issai to employees, Prime believes the conditions placed on the deal will have "negative repercussions for its future transactions elsewhere in the United States."

Prem Reddy, MD, chairman, president and CEO of Prime, said the conditions imposed on the deal "are so burdensome and restrictive that it would be impossible for Prime Healthcare — or any buyer — to make the changes needed to operate and save these hospitals," according to a CBS Los Angeles report.

That is bad news for DCHS, as Mr. Issai previously told the San Jose Mercury News that if the deal with Prime didn't materialize it would be a "meltdown situation." Additionally, financial and legal experts said if the deal fell through and other buyers didn't come to the table, DCHS would likely have to file for bankruptcy.

With Prime backing out of the deal, the saga over the sale of the hospitals, which began in October 2014, is over. The transaction had been strongly opposed by SEIU-United Healthcare Workers West, and in December 2014, 18 members of Congress from California sent a letter urging the California attorney general to block the deal.

In their letter, the lawmakers focused on what they believed would have been the negative consequences of the deal going through. "It is our belief that under Prime, patient care and healthcare worker rights will suffer at these hospitals," the congressmen wrote.

They further stated they were worried about "Prime's history of unfair business practices that have resulted in civil and criminal investigations by government agencies for allegedly overbilling Medicare as well as violations of patient confidentiality."

More articles on healthcare industry transactions:

3 steps nonprofit health systems should take before merging
Healthcare deals up 24% in January
Current trends in hospital sales and partnerships

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