Neronha sues hospital owner for violating 2021 sale conditions

PROVIDENCE – The R.I. Superior Court on Friday granted Attorney General Peter F. Neronha’s motion to unseal the lawsuit his office filed last week against Prospect Medical Holdings Inc. which accused the company of violating the conditions set in 2021 that allowed the ownership change for Roger Williams Medical Center and Our Lady of Fatima Hospital. 

In his filing on Nov. 8, Neronha claims that Prospect violated a series of conditions, including failing to ensure that vendors serving the hospitals are paid on a timely basis. As alleged, as of Oct. 31, Roger Williams and Fatima together owed more than $24 million in accounts payable to vendors that were 90 days or more past due, jeopardizing the financial health and stability of the hospitals, and ultimately patient care.

“For nearly three years, this office has had significant concerns with the financial health of Prospect Medical Holdings and its impact on the continued operation of Roger Williams and Fatima hospitals,” Neronha said. “Prospect’s financial condition continues to deteriorate; they are closing and otherwise disinvesting in their hospitals across the country.

“We saw this train coming in June 2021, which is why we imposed unprecedented financial conditions on our approval of the ownership change, including an $80 million escrow. That escrow has provided significant leverage to ensure compliance and continued operation at these two community hospitals, and we have retained a substantial portion,” Neronha added. 

On June 1, 2021, Neronha green-lighted the ownership change of the two hospitals as long as Prospect put up $80 million in an escrow account that would provide enough money for five years of operating costs and capital expenditures at both hospitals, as well as $27 million in Coronavirus Aid, Relief and Economic Security Act funds. Also, Prospect could not sell or lease either hospital for five years. 

Neronha’s decision revived the ownership change proposed from California-based Prospect, which at the time owned 17 hospitals in five states, including the Roger Williams Medical Center and Our Lady of Fatima Hospital. The proposal allowed two partial owners of the company to buy out the private equity firm that has a 60% stake but requires approval from the attorney general and R.I. Department of Health under the state Hospital Conversions Act.

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Under the proposed ownership change, private equity firm Leonard Green & Partners will sell its share to minority owners Sam Lee, Prospect chairman and CEO, and David Topper, Prospect senior vice president. Lee and Topper would then form a new parent company to operate the hospitals. 

Prospect, which took over Fatima and Roger Williams Medical Center in 2014, had posted significant operating losses and taken on increasing debt in recent years that jeopardized its financial position, selling and leasing back some of its other hospitals to benefit shareholders while weakening its balance sheet. In 2017, the company had $67 million more in assets than liabilities. Within three years, its liabilities outstripped assets by $1 billion, Neronha said. 

A hearing is scheduled for Nov. 28 on Neronha’s petition for a temporary restraining order seeking immediate compliance. 

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