PROVIDENCE – United Nurses and Allied Professionals, a union representing almost 1,000 employees at Our Lady of Fatima Hospital, Roger Williams Medical Center and Prospect Home Health and Hospice, says it does not support Centurion Foundation’s proposal to purchase the facilities from Prospect Medical Holdings.
Since November 2022 Centurion, an Atlanta-based nonprofit, has sought to purchase facilities from Prospect, a California-based private equity company. While the process was riddled with delays The R.I. Department of Health and R.I. Attorney General Peter F. Neronha’s office – the agencies that oversee hospital conversions in the state – made the application for Centurion’s proposal public on Jan. 29.
The two hospitals Centurion is seeking to acquire currently operate under the CharterCARE Health Partners system, which is owned by Prospect. If the transaction is approved Centurion plans to keep this name as a newly formed nonprofit CharterCARE Health of Rhode Island Inc. that will serve as parent company of the new proposed health system referred to in the application as the “New CharterCARE System.”
The proposed transaction comes as Prospect, which took over both hospitals in 2014, has been facing legal and financial troubles in recent years. PBN previously reported the company had taken on increasing debt that threatened its financial position, selling and leasing back hospitals. In three years the company went from having $67 million more in assets than liabilities, with liabilities exceeding assets by $1 billion.
Also, in November 2023, Neronha’s office sued Prospect for violating conditions set in 2021, including failure to pay vendors that provide supplies, equipment and staff at the two hospitals in Providence on a timely basis. As of Oct. 31, the two hospitals owed a combined total of more than $24 million in accounts payable to vendors that were 90 days or more past due, PBN previously reported.
Some have stated the transaction is a chance to save the struggling hospitals, however the union raised concerns over Centurion’s business model.
Specifically, union representatives stated in a news release that Centurion has never owned or operated a hospital or health care facility before and that they are not planning to bring any new capital to the facilities.
“We took a good hard look at the application when it was made public, and it didn’t take long to find a business model that is simply not credible or viable,” said UNAP general counsel Chris Callaci. “There are a number of significant issues in Centurion’s application…The closer we look, the worse this application gets.”
According to the application Centurion has been developing, acquiring and financing health care projects for more than 30 years. In total, Centurion has completed more than 20 transactions, financing 31 facilities across the U.S. with transactions totaling approximately $1 billion.
Otis Brown, spokesperson for CharterCARE and Centurion, said in a statement Monday that they were disappointed by UNAP’s decision to oppose the proposed acquisition.
“We want to be very clear. Centurion’s proposal provides the best path to economic and workforce stability for CharterCARE,” Brown said. “In fact, the Centurion acquisition will recapitalize CharterCARE and, ironically, provide the financial wherewithal for CharterCARE to offer our union employees, all employees, fair and market competitive compensation, which our present financial conditions prevent.”
The union has previously raised alarms that Centurion officials had stalled on formally committing to protections against layoffs, hospital closures and termination or reduction of services. On Feb. 6 Callaci told PBN the union had serious concerns about inconsistent discussions with Centurion starting in November 2022 that have yielded little progress, but more talks were scheduled in the following weeks.
On Monday Brown said Centurion has been negotiating with the union for several months and has committed to assuming the union’s existing collective bargaining agreement should the transaction be approved. This includes offering a health and benefits plan that doesn’t increase members’ costs. However, Brown said that the union requesting too much more than what members are already receiving is “...unrealistic and could threaten job security for employees.”
“UNAP has made several negotiating demands that are not achievable within CharterCARE’s present financial condition, nor are they reflective of current market and labor realities around the Rhode Island hospital industry,” Brown said. “UNAP should not make unmet union demands a condition of approval of Centurion’s proposal to acquire CharterCARE.”
The union’s concerns focused on Centurion’s model. In response Brown clarified the nonprofit is a financing company and not a hospital operator, meaning its role is to help stabilize CharterCARE.
Additionally, Brown said Centurion’s business model relies on local management who can “...effectively and efficiently…” operate CharterCARE hospitals, and this is the same local leadership that helped negotiate the most recent 3-year labor agreements with UNAP.
As a nonprofit, Centurion works with charitable organizations to increase health care access and lower costs and its overall business model is “completely opposite of the for-profit, private equity approach,” Brown said. Under this model Centurion has partnered with 11 nonprofit health systems realizing almost $300 million in savings and returning CharterCARE to nonprofit status and separating it from Prospect could provide an approximately $17 million to the bottom line, Brown said.
Centurion’s proposal will help keep the focus on Rhode Islanders by relying on local management and maintaining local control and independence under the new board.
The union also raised concerns over Centurion’s plan to borrow more than $133 million to help the facilities stay afloat and that the nonprofit has no plans to make any financial commitment to CharterCARE facilities or put up its own money in the transaction. This places the financial burden on CharterCARE’s already struggling facilities, the union said.
“We are going to do all we can to secure the future of CharterCARE. But having an out-of-state corporation from Georgia come to Rhode Island to take advantage of us is not the answer,” Callaci said. “This company wants to make us borrow a ton of money we can’t pay back. This doesn’t get us anywhere. In fact, it makes our financial situation much worse than it already is.”
Brown said CharterCARE’s new board and management team plans to reinvest any profits back into the health system, which will help insure hospitals meet community needs. Centurion’s plan also includes local oversight for CharterCARE $350 million in annual cash collections, so no monies will flow out of state, Brown said.
The price for Centurion to acquire the hospitals as well as other physician groups and offices Prospect operates is set at $160 million and the estimated cost for the entire project comes to a little more than $193 million, according to the application. This would be partially financed through issuing approximately $133 million in taxable and tax-exempt bonds with the remaining $60 million coming from outstanding PACE loans.
Centurion stated in the application that it plans to finance the transaction to allow CharterCARE Health of Rhode Island to function as a “…stand-alone self-sustaining health system.” To accomplish this, Centurion negotiated a net purchase price of $80 million, which is the same as 80 days cash on hand, and will place $80 million of cash on CharterCARE Health of Rhode Island’s balance sheet. Brown said this cash flow meets industry standards for financing nonprofit health systems.
Centurion says that returning the hospitals to nonprofit status will help refocus operations back to patients and communities as well as the potential to generate an economic benefit of up to $20 million in reduced expenses and increased capital from access to grants and research funding. Along with this, Centurion says the transaction has the potential to add 200 positions in Rhode Island and filling them would bring in around $19.5 million in additional salary income.
The union says Centurion is relying on “cost savings and new revenue” to help the health care facilities survive, but this hasn’t been accomplished in decades. Additionally, the union says Centurion is requiring CharterCARE facilities to pay fees and charges without specifying what those fees are for or how much they will be.
“Having an out-of-state corporation come to R.I. and take already scarce healthcare dollars away from us in the form of hidden fees and charges is the opposite of what we need to provide quality care,” said Lynn Blais, UNAP president. “Coming on the heels of Prospect’s disastrous ownership of these important community hospitals and healthcare facilities, it is imperative that the next owner is willing to put healthcare first and be a true community partner – someone who is willing to invest in the patients, the workforce, the hospitals and our community. Based on this application, Centurion clearly does not fit that bill.”
Brown said Centurion will receive one set annual fee and there are no extra fees or charges. CharterCARE will also establish fundraising programs and activities as well as identify local groups for charitable investments. Along with this, CharterCARE will partner with organizations to improve health care and quality of life in Rhode Island, Brown said.
UNAP says it has launched a public campaign Monday to inform the public of their concerns through radio, print, direct mail as well as social and digital media that will run until state regulators rule on the application.
According to the Hospital Conversion Act, state regulators have until June 11 to either approve, deny or approve the proposed transaction with conditions. Public hearings on the transaction are scheduled for March 19 and 24 from 4 to 6pm. in room 110 of Alger Hall at Rhode Island College at 600 Mount Pleasant Ave, with virtual options available.
(Update: Comment from United Nurses and Allied Professionals added through out.)
Katie Castellani is a PBN staff writer. You may contact her at Castellani@PBN.com.
