Rhode Island Attorney General Peter Neronha announced Thursday that his office will permit a heavily scrutinized sale of two struggling safety net hospitals, though it will be imposing a laundry list of “significant conditions” around funding, outstanding balances, governance and community benefit.
The facilities’ owner, Los Angeles-based for-profit Prospect Medical Holdings, is seeking an exit from the state and in 2022 found a willing partner in Atlanta-based nonprofit The Centurion Foundation.
The two organizations submitted their plan to transition the hospitals—Our Lady of Fatima and Roger Williams Medical Center—and related assets that make up the CharterCARE health system into locally governed nonprofits to the attorney general and the Rhode Island Department of Health (RIDOH) last year.
Assuming that Prospect and Centurion are willing to abide by Neronha’s “non-negotiable” terms, the parties still need RIDOH to complete its review and sign off on the deal before a transaction can move forward.
Prospect, which is backed by private equity, had bought into the hospitals about a decade ago but in 2021 acquired full ownership from another private equity firm, Leonard Green. At the time, Neronha required the parties to set aside $80 million for the hospitals’ continued operations.
“Since then, despite their rosy promises, [Prospect owners] Mr. Lee and Mr. Topper have continued to be exceedingly poor stewards for these hospitals,” Neronha said Thursday in reference to the hospitals’ millions in unpaid bills. “This decision ensures that Prospect continues to be bound by the robust conditions of our previous decision until the transaction is finalized, and ensures that Prospect cannot walk away from these hospitals until they have met their baseline obligations.”
Neronha’s approval includes 40 distinct conditions that Prospect and Centurion will need to follow in order to close their deal. Chief among these are requirements to “address the currently precarious status quo” by repairing parts of the facilities that currently violate regulatory standards and making good on its unpaid bills.
The organizations would also need to inject $80 million of cash financing into the system “regardless of any failure to secure that amount through the bond transaction,” and on top of that add another $66.8 million to a dedicated fund that can’t be cashed in by Centurion management or used as executive compensation (though Prospect may apply its $47 million of outstanding escrow from the prior deal toward the latter fund).
Other terms laid out by the attorney general covered governance practices that involve community input, retainment of a consultant to help turn around the hospitals’ financial losses and mandatory notification to the attorney general’s office if the system plans major changes such as layoffs.
“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,” Neronha said.
During public comment sessions held earlier this year, executives from CharterCARE described Centurion as the only viable candidate to purchase the system. The nonprofit offered Prospect $80 million and said it would invest another $80 million into the system and assume responsibility for its outstanding loan financing.