SAN JOSE -- A controversial Southern California-based hospital chain that buys financially struggling hospitals has surfaced as a bidder for the beleaguered Daughters of Charity Health System, which operates four Bay Area hospitals that serve the poor.

But the overture by Prime Healthcare Services isn't playing well with local hospital employee unions, who say the chain's checkered history shows it will turn its back on low-income patients and slash workers' pay and benefits.

For weeks, union members from SEIU-United Healthcare Workers West and the California Nurses Association have staged rallies and candlelight vigils to protest Prime Healthcare's pursuit of O'Connor Hospital in San Jose, Saint Louise Regional Hospital in Gilroy, Seton Hospital in Daly City and Seton Coastside in Moss Beach.

They have also cited an investigation by the federal government against Prime on allegations of overbilling Medicare by improperly diagnosing patients.

Prime Healthcare spokesman Edward Barrera confirmed the federal government is investigating its billing practices, but he disputed the union's other concerns.

"Despite the rhetoric, Prime Healthcare supports workers' rights," he said. He also insisted the company is committed to charity care. "We take care of anyone who comes to our hospital, regardless of ability to pay," Barrera said.


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After more than 160 years in the Bay Area, the nonprofit Daughters of Charity announced in January it was selling its six hospitals, including two in Los Angeles. So-called safety net hospitals -- which provide free or low-cost medical care to the poor and people without health insurance -- have been struggling to keep up with rapid changes in the health care industry, including the new federal health law and cuts in Medicare reimbursements.

'Disaster' for county

While Santa Clara County has submitted a bid to buy the hospitals in San Jose and Gilroy, Daughters has been looking to sell all its properties to one group.

That worries Santa Clara County Executive Jeff Smith. The county is facing a wave of residents newly insured under the federal health care law and is worried that its medical safety net is about to be severely strained.

"If a private for-profit group like Prime Healthcare takes over O'Connor and Saint Louise, it would be a disaster for the health care safety net, and it would have a negative effect upon all health care systems in the county," Smith said Friday. "I say that because groups like Prime make their profit by diverting low-pay patients to other systems, by overutilizing high-paying technologies and by overcharging for services.

"That approach to care puts everyone in the county at risk."

Local unions say Prime would not only undermine the mission of serving low-income residents, but would also cut staff, pay and benefits for its workers.

"They simply care about their profits," said Marc Quarles, 51, an ultrasound technician for the past 13 years at Saint Louise Regional Hospital in Gilroy.

Quarles acknowledges that "things have to change" and that the unions will have to make sacrifices because Daughters of Charity is swimming in debt.

Standard & Poor's downgraded Daughters of Charity's bond rating in April because the chain is saddled with hundreds of millions of dollars in debt and pension obligations. Five of its hospitals lost a total of $62 million in the last half of 2013. The Moss Beach hospital made a slight profit.

Attorney general's role

A Daughters of Charity spokeswoman would not say whether Prime is a potential bidder, though sources have confirmed its interest to the Mercury News. The company has bought 27 hospitals, many of which were struggling to stay afloat, Barrera said. He could not divulge whether Prime has bid for the hospital system.

The winning bidder for the system, the spokeswoman said, could be announced by early fall, but because the Daughters of Charity chain is a nonprofit, any sale must be approved by the state Attorney General's Office.

Steve Valentine, a veteran California hospital consultant, said he's heard a handful of both nonprofit and for-profit hospital chains are interested in submitting bids.

And while Valentine and industry analysts acknowledge that Prime has a reputation of playing hardball when it comes to cutting costs, he said any purchase by Prime means the company will keep Daughters of Charity open and running.

If Prime's bid is successful, Valentine said, it "will have to guarantee probably for a minimum of five years to keep the emergency room open and the charity policy in place," he said. The attorney general "will mandate certain requirements in order for them to buy this."

Contact Tracy Seipel at 408-920-5343. Follow her at Twitter.com/taseipel.