PROVIDENCE – The R.I. Department of Health and Attorney General Peter F. Neronha Thursday gave preliminary approval for the sale of Roger Williams Medical Center and Our Lady of Fatima Hospital to the Centurion Foundation but set numerous "stringent conditions" aimed at ensuring the financial viability of the hospitals and maintaining their level of care.
Neronha said he is imposing 40 conditions in part to address the "currently precarious status quo," including having Centurion and seller Prospect Medical Holdings Inc. guarantee they will add $80 million in cash financing to the hospitals' books and contributing an additional $66.8 million to a dedicated fund to support the hospitals themselves, not for executive compensation or management fees.
The two hospitals have been in financial danger in recent years – losing millions of dollars annually – and some health care workers say the facilities are suffering from a severe lack of investment.
Both Neronha and the Department of Health set conditions that Prospect must settle outstanding balances with vendors and pay for necessary repairs to the hospitals. A Superior Court judge ruled on June 13 that Prospect must pay the $17 million it owes to vendors within 10 days.
Neronha also said he would require Prospect and Centurion to pay for a "turnaround consultant" who would be approved by his office, and the RIDOH said the two entities must hire a "chief restructuring officer to manage business affairs, oversee financial management and explore strategic alternatives."
“Rhode Island needs a stable network of hospitals that supports the health and wellness of every community in the state,” said Dr. Jerome “Jerry” Larkin, RIDOH director. “In light of the historical and ongoing financial and operational challenges at the hospitals, RIDOH issued a decision today with conditions carefully developed to restore local control, help stabilize these two facilities, and help ensure that the new operators would be positioned to provide consistent, safe, high-quality care.”
The Department of Health said additional approvals of "change in effective control" applications are also required from the RIDOH.
All licensed health care facilities are subject to "change in effective control" reviews for changes that would affect 50% or more of the entity’s ownership, assets, membership interest, authority or control, RIDOH said.
Only hospital transactions are subject to an additional Hospital Conversions Act review. Only RIDOH issues decisions on "change in effective control" applications after the department director receives recommendations on those applications from the Health Services Council. RIDOH said it has not yet received complete "change in effective control" applications for the sale of the two hospitals.
Spokespeople for Centurion and Prospect could not be immediately reached Thursday afternoon.
Prospect, a California-based private equity firm that purchased the health care facilities associated with CharterCARE Health Partners – including Roger Williams and Fatima – in 2014, started putting its assets across the U.S. up for sale in December 2021.
In more than two years, the only viable buyer it has found for the two Rhode Island-based hospitals is The Centurion Foundation Inc., an Atlanta-based nonprofit that lacks a track record in operating hospitals.
The proposed $193 million deal – which includes a $160 million purchase for the hospitals, as well as other physician groups and offices that CharterCARE operates – has drawn opposition from many employees at the hospital who raised red flags about Centurion's management inexperience in the sector and its vague plans to turn around the fortunes of Fatima and Roger Williams.
Neronha has also expressed skepticism, something that appeared to be reflected in the conditions he set on Centurion and Prospect on Thursday.
“Beyond the numbers, figures and provisions that make up a transaction are the communities, patients and providers that these hospitals serve and employ,” Neronha said in a statement. “Our conditions aim to ensure that these hospitals continue to deliver quality, accessible, and affordable healthcare, gainfully employ thousands of Rhode Islanders and successfully operate long into the future.”
Other conditions set for Neronha's approval include:
• To mitigate poor management practices in the past by distant and self-interested owners, the board of the New CharterCARE System must adopt specific best governance practices, include local and community input and may not alienate, encumber or pledge New CharterCARE System’s assets without notice to and approval by the attorney general.
• To address the application’s reliance on future, contingent events such as IRS approval of nonprofit status for any chance of success, conditions specifically mandating the timing, level of effort and manner in which these steps must be completed.
• To ensure that the community’s needs are adequately served, the New CharterCARE System must adhere to industry standards for charity care and adequately fund identified community health needs; and
• To ensure continuity of quality care, the New CharterCARE System must notify the attorney general of any reductions in workforce that meet a certain threshold, and it must maintain the current level of employee benefits during the initial period following the transaction.
“To understand our decision today, one must look briefly backward. Prospect Medical Holdings is principally owned by two individuals, Sam Lee and David Topper [via trust]," Neronha said. "In 2018 and 2019, Mr. Lee and Mr. Topper, and their former joint and majority owner of Prospect, private equity firm Leonard Green, deliberately placed our Rhode Island hospitals in a tenuous financial situation by lining their pockets, and those of their investors, with hundreds of millions of dollars at the expense of patients across this country. Leonard Green did not exit the situation it created in 2021 without meeting our strong conditions designed to safeguard healthcare in Rhode Island.
"Neither will Prospect and its sole principal owners, Mr. Lee and Mr. Topper," he said.
William Hamilton is the managing editor for Providence Business News. He can be reached at hamilton@pbn.com.
