Missteps by Daughters of Charity CEO Robert Issai Have Brought Hospital System to the Edge of Insolvency, Says SEIU-UHW

OAKLAND, Calif., March 5, 2015 /PRNewswire-USNewswire/ -- He has been quoted countless times in recent months, confidently declaring what's best for his faltering company, Daughters of Charity Health System (DCHS). But more than anyone else, CEO Robert Issai is responsible for the company's failure and its current position on the edge of insolvency.

Issai took the reins of Daughters in 2006, and shortly thereafter the company began losing money at an alarming rate (see Table 1 below), chalking up $230.4 million in losses since 2008, including more than $107.7 million in fiscal year 2013 and the first six months of fiscal year 2014 (the DCHS fiscal year runs from July 1 to June 30). By his own admission, Issai's company continues to lose money at a rate of more than $10 million a month.

The company's failures, however, did nothing to diminish Issai's compensation, nor that of the next two highest paid Daughters executives. In fact, it was just the opposite. In 2012 and 2013, while his company was racking up $107.7 million in losses, Issai boosted his annual compensation from $1.39 million to more than $3.3 million. The compensation for Gerald Kozai, the president and CEO of St. Francis Medical Center in Lynwood, skyrocketed in those same years, from nearly $716,000 to more than $1.5 million. And Conway Collis, senior advisor and chief government affairs officer, saw his compensation jump from $561,000 to nearly $1.15 million during the same period (see Table 2 below).

It wasn't until January 2014 that it finally became clear to Issai and his management team that they would be unable to halt the losses and would have to sell the hospital system.

"The level of failure shown by Mr. Issai and the leadership of Daughters of Charity, both leading up to the sale and during the sale process, is stunning," said Dave Regan, president of SEIU-United Healthcare Workers West. "This is a crisis of Mr. Issai and by Mr. Issai."

As the following chronology shows, it is Issai's decision-making over the past 14 months that has particularly imperiled DCHS.

2012 – 2013
Issai and Daughters of Charity executives fail to reach an agreement to merge with Ascension Health despite two years of protracted talks and plans.

January 2014
After failing to merge with Ascension Health, and in the face of company losses of $74.5 million the previous fiscal year and $58.8 million the year before that, Issai and his management team are still slow to determine a path to save DCHS, but finally decide to put the system up for sale.

February to May 2014
Issai allows four months to go by and an estimated $40 million in losses before closing first-round bidding.

August 2014
Issai allows tens of millions in additional losses to pile up as DCHS accepts second-round bidding.

September to October 2014
After two months and another estimated $20 million in losses, Issai and his board can't make a decision on accepting a bid. Observers are puzzled as to why no decision is made throughout the month of September 2014, pointing out that with each passing day the company is getting weaker and weaker.

October 10, 2014
Ten months and an estimated $100 million in losses after they decided to sell, Issai and the DCHS board finally choose a lead bidder, Prime Healthcare, despite the fact that:

• In 2011, the last time it tried to buy a hospital in California, Attorney General Kamala Harris rejected Prime's bid for Victor Valley Community Hospital in Victorville, saying it was not in the public interest.
• Executives in both Prime and DCHS acknowledge that there is no better than a 50-50 chance the attorney general will approve the sale.
• It is clear that even if Harris gives the sale a green light, it will be with stringent conditions to ensure that Prime will continue the hospitals' community mission and protect healthcare workers and their pensions.

November 2014
Issai and Prime, in an effort to put pressure on the attorney general to approve the sale with relatively weak conditions, begin saying that the selling to Prime is the only option to keep the hospitals open, statements that are patently false as other bidders and hospital systems, and Santa Clara County, are ready to step in.

It is revealed that as part of the Prime deal, DCHS executives will split as much as $15 million in severance pay, and Issai himself will receive two times his gross salary when the sale is completed.

December 24, 2014
MDS, an independent, outside healthcare consulting company hired by Harris to study the Prime deal, recommends the attorney general put unprecedented conditions on the sale of DCHS. It is now all but certain that Harris will either reject the sale outright or will impose all or most of the MDS conditions. Still, as the company continues losing millions, DCHS refuses to cut Prime loose and move on to other qualified bidders, and there is no indication that Issai has a Plan B should the sale be rejected or Prime walk away.

January to February 20, 2015
Strong indications from the attorney general's office are that it will at a minimum impose the MDS conditions, and possibly strengthen them. Again, there is no indication that Issai has a Plan B. Instead, Issai again tries to increase pressure on Harris, this time by threatening to close down departments and services if the sale to Prime is not completed.

February 20, 2015
Harris approves the sale with virtually the same conditions that were recommended by MDS in December. Incredibly, Issai indicates that Daughters and Prime will only at that moment begin to analyze the conditions and their potential impact on the sale.

February 23, 2015
With the company teetering on the edge, Issai uses precious resources to file a lawsuit against SEIU-United Healthcare Workers West (SEIU-UHW), alleging that by exercising their right to speak out against the sale, SEIU-UHW members had harmed Daughters. The lawsuit, which also names another bidder, Blue Wolf Capital, is seen by many as an indication that Prime is backing away from the sale.

February 26, 2015
Issai indicates that the sale to Prime may be in trouble, telling the San Francisco Business Times that meeting the conditions is "challenging," and still indicating he has no alternative.

SEIU-United Healthcare Workers West (SEIU-UHW) is the largest hospital and healthcare union in the western United States with more than 150,000 members. We unite every type of healthcare worker with a mission to achieve high-quality healthcare for all. SEIU-UHW is part of the two million-member Service Employees International Union (SEIU), the nation's fastest-growing union. Learn more at www.seiu-uhw.org.

TABLES

Table 1: DCHS Financial Performance – 2008-2014

Source: Financials from DCHS's continuing disclosure bond filings, available at http://emma.msrb.org/IssueView/IssueDetails.aspx?id=MS69621

Table 2: Annual Compensation of Top 3 Paid Daughters Executives – 2008 - 2012

Source: IRS 990 filings

CONTACT: Sean Wherley
(323) 893-6831
[email protected]

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SOURCE SEIU-United Healthcare Workers West

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