The latest deal to sell Anaheim Memorial Medical Center collapsed Thursday when state officials nixed its $57-million purchase by Pacific Health Corp., which faces allegations that it defrauded Medicare and Medi-Cal.
This was the third time in about a year that an agreement to sell the financially struggling hospital has unraveled.
Atty. Gen. Jerry Brown's office cited several factors in the decision, including "pending criminal investigations" and a civil complaint filed last week by Los Angeles City Atty. Rocky Delgadillo accusing three hospitals of recruiting homeless people for costly and unjustified treatment.
Pacific Health owns two of the three, Los Angeles Metropolitan Medical Center and Tustin Hospital and Medical Center. The third, City of Angels Medical Center in Los Angeles, has a different owner.
"We have concluded that this proposed sale is not in the public interest and will likely create a significant effect on the availability or accessibility of healthcare services to the affected community," Chief Deputy Atty. Gen. James M. Humes said in a written decision.
His office had veto power over the sale because the 223-bed Anaheim Memorial is a nonprofit hospital that was being sought by a for-profit company.
James W. Young, Pacific Health's chief executive, said he was disappointed by the decision but confident his company would be cleared of the fraud allegations.
"Our concern is now for the community," he said in a statement.
"Anaheim Memorial Medical Center is an important healthcare facility, and we hope this latest setback does not jeopardize its future."
A spokeswoman for Memorial Health Services, which has owned the hospital since 1995 and put it up for sale in 2006, said the Fountain Valley company was weighing its options, but she declined to elaborate.
In February 2007 Memorial Health announced an agreement to sell the hospital to Prime Healthcare Services Inc. of Victorville for $55 million and a commitment of $25 million in capital improvements over five years.
Brown's office quashed the sale in July 2007, saying it could not conclude that it "reflects fair market value . . . and is consistent with the public interest." Regulators also questioned the propriety of the bidding process.
Two months later, Memorial Health said it would sell Anaheim Memorial to Integrated Healthcare Holdings Inc., which owned four other hospitals in Orange County.
But that deal fell through because of financing problems, and bidding reopened early this year.
Pacific Health emerged as the winner in March with an offer of $57.1 million and a promise to make $18 million in improvements.
The attorney general's decision only added to Pacific Health's recent difficulties. Its Anaheim General Hospital, which treats a large share of poor patients, was hit this year with dozens of citations for inadequate staffing and poor medical care.
The findings have put the hospital's public and private funding at risk.
Spokesmen for two sets of regulators that issued the citations -- the federal Centers for Medicare and Medicaid Services and the Joint Commission, a national hospital accreditation group -- said their reviews were continuing.
Young, Pacific Health's CEO, said previously that the issues cited had been corrected.
One of the largest medical centers in Orange County, Anaheim Memorial sits on 15 acres on La Palma Avenue in Anaheim. Its original hospital was built in 1958 and demolished 10 years later when a new facility was constructed.
Although the proposed sale had run into opposition from some union leaders, community activists and medical staffers, Dr. Mark P. Miller, a cardiologist and chief of staff-elect, said Thursday that he and others had hoped the deal would close.
"I think it's a disappointment to those of us here who wanted to see an ownership be established and move forward with necessary capital improvements," he said.
Over the next 10 years, the hospital will need at least $100 million in upgrades, including seismic retrofitting, according to an analysis prepared for the attorney general's office.
Miller said Pacific Health had made "a firm commitment" to make the improvements. Now, with that suitor out of the picture, it's as if Anaheim Memorial has been jilted again, he said.
"We're still in limbo, and our owner no longer wants us," he said.
"We feel like the bride who's come to the altar three times and has been left there three times. . . . And we're not that ugly. And we can cook."