The sale of two cash-strapped Rhode Island medical centers is on track to be finalized in early 2025, but municipal leaders have raised concerns about how the deal could cost their communities millions of dollars in tax revenue.
In November, the R.I. Department of Health approved a change in effective control application for the sale of Roger Williams Medical Center in Providence and Our Lady of Fatima Hospital in North Providence. This cleared the way for the two medical centers to transition from a for-profit status, under owner Prospect Medical Inc., to a nonprofit status under Georgia-based nonprofit Centurion Foundation, which was the sole bidder on the hospitals.
While the total debt related to the deal will reach $192 million, the purchase price for the hospitals is actually $80 million, according to state officials.
However, Providence Mayor Brett P. Smiley and North Providence Mayor Charles A. Lombardi say the transaction and the switch from a for-profit to nonprofit status could lead to a loss of revenue because it would end existing payment agreements that Prospect Medical has with the municipalities.
Under the proposed deal, Providence could suffer a $4 million loss in fiscal year 2025 and a more than $4.5 million loss in 2026, and North Providence would lose $3 million in 2025 and $3.5 million in 2026, Smiley and Lombardi said in a joint letter sent to the R.I. Health and Educational Building Corp., a quasi-public agency that can help secure low-cost financing for health care institutions.
The agency is considering facilitating the issuance of tax-exempt bonds to assist Centurion’s effort to purchase CharterCARE Health Partners, the subsidiary that operates the two hospitals and other physician groups and offices.
“These unsustainable revenue losses will lead to devastating cuts to our annual operating budgets,” Smiley and Lombardi said.
Both mayors asked RIHEBC to add contingencies that would require Centurion to honor payments that were expected under current tax agreements and give them the authority to negotiate new-payment-in-lieu-of-tax agreements that will reimburse the municipalities at 27% of the real estate value of the two hospitals.
Lombardi said he wants to negotiate a PILOT agreement that would “make the town whole,” so it covers the lost tax revenue. He also wants RIHEBC to do more.
“The burden shouldn't be shifted to the taxpayers for the operations of a new company at Fatima or Roger Williams,” Lombardi said.
However, RIHEBC says it will not intervene in PILOT discussions.
“Negotiating PILOT agreements between municipalities and not-for-profit organizations is outside of RIHEBC's scope,” Christopher Hunter, the agency’s spokesperson, said in a statement.
But Lombardi isn’t ready to give in.
“Listen, I don’t want to hear that … they should be protecting the city and the town to say that they can't do anything for our constituents. I'm not interested in hearing that,” Lombardi said in response to RIHEBC declining to get involved in municipal revenue discussions. “The next meeting the issue is placed on their agenda, I’ll be in the front row.”
RIHEBC did ask Centurion and CharterCARE to work with Providence and North Providence to “address the fiscal impacts of the coming transition from for-profit to non-profit status,” Dylan Zelazo, RIHEBC’s executive director, said in a Nov. 25 letter to Smiley and Lombardi.
“RIHEBC is a committed partner, and we will continue to encourage Centurion/CharterCARE to make best efforts to aid in addressing the revenue impacts of the hospital’s system’s transition to non-profit status on both of your communities,” Zelazo said.
Meanwhile, CharterCARE’s leaders say they are open to discussing a PILOT agreement.
“The change in tax status and its impact on your community is not lost on us,” said Benjamin Mingle, Centurion president in a Dec. 11 letter to Smiley and Lombardi. “That is why we have expressed to you a commitment to sit down and discuss how the new CharterCARE Health of Rhode Island can be a contributing partner to the town.”
RIHEBC granted preliminary approval to grant a bond for the transaction in October and has worked with a bond counsel and an underwriter to begin the due diligence process, Hunter says. The financing team is still reviewing the potential transaction. RIHEBC is expected to make a decision on final approval in the coming months.