Seton Medical Center DOCHS has been sold to Blue Mountain Capital Management

LOS ALTOS HILLS, Calif.–(BUSINESS WIRE)–The Daughters of Charity Health System (DCHS) Board of Directors has selected BlueMountain Capital Management (BlueMountain), a private investment firm to recapitalize its operations. BlueMountain is contributing over $250 million of capital and is sponsoring Integrity Healthcare to manage and operate the six California hospitals and medical foundation, thus assuring the communities served by the hospitals a continuance of care.

“The Daughters of Charity consider it an honor to have served the health care needs of the sick and those who are poor in California for 162 years”

Under the terms of the transaction, the DCHS board will transfer control of the hospitals to an independent board of directors, which will direct hospital operations. Integrity Healthcare, an entity owned by BlueMountain and formed to oversee the hospital group, will provide key management services and day-to-day operational support, while BlueMountain will provide significant new capital investment in the operations and facilities. BlueMountain is a global investment firm with more than $21 billion under management, having made several strategic equity and debt investments in companies and platforms that operate in complex sectors impacted by dynamic change and regulatory pressures, including healthcare facilities.

The transaction, which maintains DCHS and its hospitals as nonprofit entities, includes an option for BlueMountain to purchase the health system after three years. The DCHS board of directors and each hospital’s board of directors approved the transaction unanimously.

DCHS President and CEO Robert Issai announced the decision. “In evaluating candidates to manage the hospitals, our priority was to seek the strongest bidder who could provide the greatest long-term financial stability while honoring the obligations to our associates, physicians, retirees and other constituents,” said Issai. “The transaction represents an extremely attractive opportunity for DCHS, allowing it to continue its operations and mission as a non-profit system with the support and backing of strong and well-qualified partner organizations. We are extremely excited by today’s announcement.”

Issai said BlueMountain’s selection ensures the communities served by the hospitals will have uninterrupted access to high quality health care, and that current and former hospital employees will see their current pension benefits remain the same. Upon the close of the transaction, all pension and retirement plans that are currently “church plans” will be required by law to become plans that are subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA) and funded in accordance with ERISA’S requirements and standards. The transaction agreement must be reviewed and approved by the California Attorney General before it is finalized.

In a statement, BlueMountain said: “BlueMountain is honored to have been selected by the DCHS board. We are excited to provide substantial expertise and financial capital to DCHS, positioning the hospitals to meet the evolving health care needs of the region. We look forward to working with the DCHS family of physicians, employees and all stakeholders to strengthen the hospitals for the betterment of these communities.”

Integrity Healthcare’s distinguished leadership team includes Mitch Creem and Mark Meyers, seasoned health care executives with decades of experience successfully leading hospitals to financial stability in California and across the country. Mr. Creem has 33 years of experience in health care management and has led several hospitals through significant financial and cultural transformations. These include Keck Hospital of USC; the UCLA Health System; the Beth Israel Deaconess Medical Center, a Harvard teaching hospital; and Tufts Medical Center, a Tufts University teaching hospital.

Mr. Meyers has 37 years in health care leadership roles with 22 years as a hospital CEO and nine additional years supervising multiple hospitals. His career focus has been assisting health care organizations generate sustainable business models in the face of changing industry and market dynamics. Most recently he guided the formation of an Accountable Care Organization that now has 750 physician members.

The remainder of the Integrity management team includes executives with decades of experience in the nation’s premier health systems, presiding over successful hospital turnarounds while implementing leading-edge management and business development strategies. The team combines the discipline of investor-owned hospitals with the mission focus of non-profit health-care systems.

Daughters of Charity started its health care mission in California in 1858 with the opening of Los Angeles Infirmary, now known as St. Vincent Medical Center, which is among the hospitals included in the transaction. The other hospitals include St. Francis Medical Center in Lynwood, O’Connor Hospital in San Jose, Saint Louise Regional Hospital in Gilroy, Seton Medical Center in Daly City, Seton Coastside in Moss Beach, and the statewide DCHS Medical Foundation.

Details of the agreement between BlueMountain and DCHS include:

• Access to $250 million in new capital to enable DCHS to repay certain outstanding obligations, provide operational liquidity, and invest in physical plant improvements and operations.
• Immediate conversion of all pension and retirement plans that are “church plans” to become subject to ERISA’s standards and requirements.
• Full assumption of current collective bargaining agreements with the hospital unions.
• Maintaining philanthropic foundations.

“The Daughters of Charity consider it an honor to have served the health care needs of the sick and those who are poor in California for 162 years,” said Sr. Marjory Ann Baez, DC, DCHS board chair. “We owe a great deal of gratitude to all who helped us in this process, including other interested bidders and our advisory team. We are grateful for those who have lived our values and have remained faithful to us through this transition.”

About Daughters of Charity Health System

Daughters of Charity Health System (DCHS) is a regional health system spanning the California coast from the San Francisco Bay Area to Los Angeles. DCHS hospitals include: Seton Medical Center, Daly City; Seton Coastside, Moss Beach; O’Connor Hospital, San Jose; Saint Louise Regional Hospital, Gilroy; St. Vincent Medical Center, Los Angeles; St. Francis Medical Center, Lynwood; as well as the DCHS Medical Foundation based in San Jose. DCHS was formed in 2002 in response to the health care needs of the people of California. Every day, more than 8,000 associates and physicians serve patients and their loved ones, providing quality, compassionate care – body, mind and spirit. For more information, visit www.dochs.org.

About BlueMountain Capital Management

BlueMountain Capital Management, LLC (BlueMountain) is a leading private investment firm managing $21 billion of assets. BlueMountain provides its transaction partners and portfolio companies with flexible forms of long-term capital as well as strategic risk, operational and asset management expertise.