PROVIDENCE – Prospect Medical Holdings, which owns two struggling Rhode Island hospitals, must pay more than $17 million to vendors within 10 days, Providence Superior Court Justice Brian Stern ruled Wednesday.
The decision grants a preliminary injunction that R.I. Attorney General Peter F. Neronha sought in a suit filed last November against Prospect, owner of Our Lady of Fatima Hospital and Roger Williams Medical Center.
In the lawsuit, Neronha said Prospect had violated several terms of a 2021 sale agreement that allowed the ownership change of the two safety-net hospitals.
Neronha said Prospect also violated a series of conditions meant to keep the hospitals open and operational, including failing to ensure vendors are paid on a timely basis. As of Oct. 31, 2023, Roger Williams and Fatima together owed more than $24 million in accounts payable to vendors that were 90 days or more past due and that several elected surgeries were canceled, jeopardizing the hospitals’ financial health and stability.
“I appreciate Judge Stern’s decision and careful consideration of this matter,” Neronha said in a statement. “...The decision unambiguously and correctly concludes that Prospect repeatedly failed to comply with important conditions set in our 2021 decision.”
On June 1, 2021, Neronha approved the ownership change of the two hospitals so long as Prospect put $80 million in an escrow account to provide enough for five years worth of operating costs and capital expenditure, among other conditions.
Under the ownership change, private equity firm Leonard Green & Partners sold its 60% stake in the company to Sam Lee, Prospect chairman and CEO, and David Topper, Prospect senior vice president, who formed a new parent company to run the hospitals. According to the state Hospital Conversions Act, changes in hospital ownership requires approval from the Attorney General and R.I. Department of Health.
According to court documents, Prospect and Leonard Green complied with certain conditions from the sale, but unpaid bills to vendors piled up by the end of 2022. Debts to vendors kept growing in 2023 – including when the hospitals faced a cyberattack and couldn’t pay bills for eight weeks in August and September.
In November, Prospect requested an extension and waiver from complying with some of the sale conditions from Neronha’s office, stating that the cyberattack affected its ability to pay vendors but it would be able to address debts in the next several months.
Days later, Neronha’s office filed the suit. Since then court documents show Prospect has further violated conditions of the 2021 agreement and requirements of other agencies. These include, the Occupational Safety and Health Administration reporting mold, bedbugs and mice, lack of “functioning buttons to monitor radiation exposure” and leaking ceilings and pipes. Overall, Stern said it appeared the hospitals were operating under a state of "great urgency around the clock" as a result of the credit issues and supply shortages.
In his ruling, Stern agreed with Neronha that Prospects “...use of the Hospitals as a private bank and treatment of accounts payable as a credit facility loan in violation of the Conditions and the HCA constitutes irreparable harm…"
Neronha also said the court “...confirmed the wisdom of our requirement that Prospect put $80 million in escrow in 2021, subject to our control, when it noted ‘[the Attorney General’s] trepidation in approving [Prospect’s] purchase of the Hospitals has proven to be well-placed as [Prospect] benefits from the Hospitals’ government assistance while refusing to pay the Hospitals’ expenses.’”
Stern closed the case’s hearings to the public, a decision Neronha publicly criticized. During the trial, Jeffrey H. Liebman, CEO of CharterCARE Health Partners which runs the hospitals, said he was unaware that surgeries were canceled because of credit issues.
Court documents show a task force made up of Prospect’s top leaders was created to address supply shortages and cancellations. Task force meeting minutes showed there were “critically low” supplies or no supplies at both hospitals. Prospect stated spreadsheets documenting supply levels were not accurate and made by someone who was “overzealous maybe in some of their entries.” During hearings Liebman repeatedly said he ‘didn’t recall’ solutions for urgent supply issues where spreadsheets showed items would run out in a few days.
Brad Dufault, a spokesperson for the United Nurses and Allied Professionals which represents about 1,200 employees at Roger Williams, Fatima Hospital and Prospect Home and Hospice, supports the ruling.
“The nurses and health professionals working at Fatima Hospital, Roger Williams Medical Center and Prospect Home Health and Hospice see the results of Prospect's lack of investment in these facilities on a daily basis. Our union has been sounding the alarm for years about the negative impact this has had on patient care, availability of supplies, safety and overall morale,” Dufault said in a statement.
Dufault said the decision highlights the need for the next owner of the hospitals to invest their own capital into the facilities.
“We simply cannot rely on saddling these hospitals with more and more debt as is being currently proposed. The owner of these facilities must be a true community partner who is willing to put their own skin in the game and invest in our patients, our workforce, our hospitals and our community,” Dufault said.
The ruling comes as Neronha and the R.I. Department of Health are nearing a decision on a $193 million proposal from the Atlanta-based nonprofit, The Centurion Foundation, to purchase the hospitals and other CharterCARE facilities to establish a nonprofit health system. UNAP has made it clear it opposes Centurion's bid, raising red flags about the nonprofit's inexperience in managing hospitals and plans to fully finance the transaction with debt, while others have said it's the best option to save the struggling hospitals.
The deadline for regulators to approve, deny or approve the proposal with conditions was June 11. Brian Hodge, a spokesperson for Neronha, said that regulators agreed to allow each side more time for further discussions, which is expected to be completed in the next several days.
(UPDATES with union comment beginning 15th paragraph, minor edits.)
Otis Brown, a spokesperson for Prospect, declined PBN’s request for comment.
Katie Castellani is a PBN staff writer. You may contact her at Castellani@PBN.com.
