Prospect threatens to close R.I. hospitals in dispute with AG

PROVIDENCE – Prospect Medical Holdings has notified R.I. Attorney General Peter F. Neronha and the R.I. Department of Health that proposed financial conditions related to the company’s Hospital Conversions Act application may lead to the closure of two hospitals in Rhode Island. 

Prospect, a for-profit entity, operates Roger Williams Medical Center in Providence and Our Lady of Fatima Hospital in North Providence. The company threatened to sell or close both hospitals if a proposed financial condition that would require the company to put $120 million to $150 million in escrow to ensure the viability of the hospitals was imposed by Neronha.

The attorney general’s office is expected to issue a decision on the application Friday.

Neronha said in a statement Thursday that Prospect and its hospitals face financial viability risks, according to independent financial experts, and that the decision made by his office will require the company to adhere to a “minimum investment to protect the assets, financial health, and well-being of the new hospital and for community benefit.”

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“The public deserves the entire story and that will be contained in the decision we issue,”  he said. “Prospect has threatened to close these hospitals. That is something the law in this state does not allow them to do without approval of our Department of Health, and that this office will challenge.”

In a letter to Neronha and the Department of Health, Prospect’s legal counsel said that the escrow condition is “anomalous, if not unprecedented.”

“We are not aware of any other scenario where a regulator reviewing a hospital conversion transaction has enforced such an objectively onerous escrow condition,” Patricia Rocha, an attorney representing Prospect, said in the letter. 

The application is related to a deal that would grant Prospect Medical Holdings CEO Sam Lee and President David Topper sole ownership of a newly formed parent company, and allow for the buyout of private equity investor Leonard Green.

Prospect is arguing that the escrow stipulation “is unlawful and would exceed the scope of the attorney general’s powers under the HCA,” the company said in a statement Thursday. “The effect of the escrow condition would be catastrophic for the two hospitals, two vital elements of the state’s health care safety net, resulting in curtailing operations – including services to the underserved population.”

“The imposition of a $120-$150 [million] escrow jeopardizes the future existence of Rhode Island’s [third] largest hospital system and its 2,800 employees,” said company spokesman Bill Fischer. “The escrow condition the attorney general is seeking is unnecessary. Prospect is financially viable. Prospect is well capitalized with liquidity and resources enabling it to continue to invest in Roger Williams and Fatima. Prospect has approximately $325 [million] in cash on hand and an unused JP Morgan line of credit of $200 [million].”

Prospect said “is prepared to initiate a closure plan including a wind-down immediately of some services and ultimately the closure of both institutions.”

However, in its letter to state officials, Rocha noted that in the event of the escrow total remaining as proposed, prior to closing the hospitals, Prospect would “start the process to sell the hospitals in Rhode Island to an acceptable third party (and if the sale process is unsuccessful, to ultimately close them).”

The R.I. Department of Health did not immediately respond for comment.

This is not the first time the proposed deal has drawn scrutiny from state officials. Earlier this year, Senate President Dominick J. Ruggerio filed legislation that would impose a one-year moratorium on hospital conversions involving for-profit corporations, citing Prospect’s application.

Chris Bergenheim is the PBN web editor. You may reach him at