California Attorney General Kamala Harris Grants Conditional Approval to Protect Daughters of Charity Hospital

California Attorney General, Kamala Harris, gave her conditional approval for the largest nonprofit hospital transaction in state history and the first to involve a hedge fund. The Attorney General’s approval included strong conditions to ascertain the continuity of essential healthcare services for vulnerable communities at the six health facilities and needs many essential health care services to stay in place for at least ten years.

“This approval includes strong conditions that will maintain the charitable purpose of the Daughters of Charity Health System, ensuring that low-income Californians will continue to have access to critical health care services, including emergency, trauma, surgical, and reproductive health services,” said Attorney General Kamala D. Harris.

According to a spokesman for BlueMountain, the company is now in the process of reviewing and studying the terms that include keeping all but one of six Daughters facilities open for 10 years; maintaining all Medi-Cal contracts and services at each site for 10 years, and providing charity care at historical levels.

Harris’ conditional approval would enable BlueMountain to pay $100 million for the option to purchase Daughters. The hedge fund’s new health care management company, called Integrity Healthcare, will run the hospital chain, to be renamed Verity Health System. BlueMountain would also loan the chain $150 million, according to the agreement, and $180 million “must be invested” in capital improvements at the facilities. The deal would allow BlueMountain to maintain the hospital chain as a nonprofit for up to 15 years before it would have to decide whether to buy the system. Harris’ decision is being praised and acknowledged by employee unions and health care advocates, who said they were largely satisfied with the conditions.


Under the system restructuring and support agreement, Integrity Healthcare, LLC and certain funds managed by BlueMountain Capital Management, LLC, will prosecute a 15-year management agreement and will pay $100 million for the option to purchase the Daughters of Charity Health System.

These funds will also supply $150 million of guaranteed financing to support the health system’s financial and capital needs and help with the $180 million capital expenditures commitment. Under the terms of the agreement, the health system’s name will be changed to Verity Health System of California, Inc. and its corporate status will be changed from a nonprofit religious corporation to a nonprofit public benefit corporation.

At the least for the first three initial years of the agreement, the health system will resume to operate as a nonprofit public benefit corporation.  However, after three years and before the expiration of the 15-year agreement, the certain funds managed by BlueMountain Capital Management, LLC can utilize their option to purchase the health system.

This is the most huge and most complex nonprofit hospital transaction in California’s history.  If the parties agree to the Attorney General’s conditions, the proposed transaction can preserve the health system which is currently losing millions of dollars a year due to bankruptcy.

The Attorney General’s decision comes after careful consideration of public comments, consultation with an independent health care expert, and discussions with concerned community members.

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