Verity Health System of California Inc, a non-profit operator of six California hospitals managed by billionaire former surgeon Patrick Soon-Shiong’s NantWorks LLC, filed for bankruptcy on Friday to help resolve a cash crunch while it seeks a buyer.
The health system’s bankruptcy filing follows a series of deals that left it saddled with more than $1 billion in pension liabilities and bond debt. Verity, which serves low-income communities in Los Angeles and San Jose, secured a $185 million loan to help it stay operational through the bankruptcy.
Verity Chief Executive Officer Richard Adcock told Reuters he expected the operator to remain in bankruptcy protection from creditors for a couple years as it restructures and works with potential buyers.
“We’ve had over 100 parties formally reach out to us,” he said of the sale process, which Verity started in July. He said potential suitors include large national operators, and could include deals for individual facilities.
He emphasized the bankruptcy would allow the operator to maintain patient care while restructuring.
The health system employed more than 6,000 people as of 2017.
Soon-Shiong, who has founded and sold multiple biotech companies and earlier this year invested in the Los Angeles Times and other California newspapers, acquired Verity’s management company in 2017 with the goal of helping to revitalize the hospital chain.
Adcock said Verity will examine all of its contracts, including the management deal with Soon-Shiong.
Verity filed for bankruptcy in the central district of California, Los Angeles division.
Its hospitals are St. Francis Medical Center and St. Vincent Medical Center in southern California, and O’Connor Hospital, St. Louise Regional Hospital, Seton Medical Center and Seton Medical Center Coastside in northern California. The non-profit also runs a physician network and medical foundation that encompasses urgent care centers and doctors’ offices.
Any sale would need approval of a bankruptcy court judge, as well as from regulators.
Verity has been losing close to $175 million per year on a cash flow basis, Adcock said.
U.S. hospitals are suffering from costs that are rising faster than revenue and the industry is on an unsustainable path, credit rating agency Moody’s said in a report this week.
Daughters of Charity of St. Vincent de Paul, Province of the West, a religious organization, originally owned Verity. In 2015, the Daughters selected hedge fund BlueMountain Capital Management LLC to recapitalize the system with an investment of about $250 million. (Reuters)