PROVIDENCE, R.I. (WPRI) — Rhode Island Attorney General Peter Neronha announced Tuesday he’s reached an agreement with the owner of Roger Williams Medical Center and Our Lady of Fatima Hospital, setting strict financial requirements as conditions to approve the company’s request to transfer ownership.
The announcement suggests a resolution of the high-stakes battle between Neronha and Prospect Medical Holdings, the for-profit owner of the two Rhode Island hospitals.
During a news conference in Providence, Neronha said the conditions of the agreement will “ensure the financial stability of those hospitals for at least the next five years.”
The attorney general explained the demand for financial conditions came out of a year-long investigation of the company and its books, which showed “financial vulnerabilities” that threatened the financial health of the Rhode Island hospitals over the next two years.
“Our takeaway was that we need to act now, not later,” he said. “We couldn’t just approve this transaction based on the promise of … the new owners.”
Prospect, the state’s third largest hospital network, has had a majority stake in Roger Williams and Fatima since 2014. The California-based health care company is controlled by Leonard Green & Partners, a private equity firm, which has been trying to sell its ownership share to Prospect CEO Sam Lee and his partner David Topper.
“Leonard Green wanted out, and the question was, under what conditions?” Neronha said.
In a statement following the news conference, Prospect said it has now completed the transaction and that Leonard Green has exited from its investment in the company.
“We thank Leonard Green & Partners for its collaborative leadership and contributions to our company over the last 10 years as we became a national healthcare provider,” company spokesperson Otis Brown said in a statement. “We also want to thank the Rhode Island Health Council, Department of Health and the Attorney General’s office for their review and approval of the application.”
The transfer of ownership at any Rhode Island hospital requires regulatory approval from Neronha’s office and the R.I. Department of Health, and in April the attorney general indicated his approval would be contingent on Prospect putting upward of $120 million into escrow accounts to ensure the long-term financial viability of its Rhode Island operations.
Prospect balked at Neronha’s conditions at the time, calling the financial requirements unreasonable and threatening to close its two Rhode Island facilities over the dispute. In April, Prospect’s spokesperson argued the company had plenty of financial resources, including $325 million in cash and an untapped $200 million line of credit with J.P. Morgan Chase & Co.
Neronha — who held Tuesday’s news conference without anyone from Prospect or Leonard Green present — said he’s now willing to approve the transfer of ownership under the condition that the company sets aside $80 million into escrows accounts.
Asked about the roughly $40 million reduction from his original demand, Neronha said Prospect’s leaders “were not cooperating with me” when he initially sought $120 million.
“If you want to talk to me about a resolution, I need to understand your numbers,” he said. “You need to share information with me. You need to be candid with me. Don’t tell me it’s all rosy and fine when I know that it isn’t. And so when I come up with a number under those circumstances, I’m gonna err to their good and my bad.”
Neronha argued the need for money in escrow stems in part from his investigation into Prospect, which showed the company’s liabilities currently exceed its assets by over $1 billion — a sharp reversal from 2017 when the company’s assets exceeded liabilities by $67 million. He cited over $500 million in dividends paid to Prospect’s investors in recent years as part of the problem.
“It’s not in a good place,” he said, arguing executives have “put shareholder profits before the financial security of the hospitals and their health care mission.”
Prospect and Leonard Green will be required to pay $12 million into escrow to cover various outstanding costs, along with $41 million to cover capital expenditures and $27 million to go toward reimbursements in federal CARES Act money owed by the two hospitals. If the investments aren’t made in accordance with a five-year schedule, Neronha said the companies “don’t get their money back.”
In addition to the escrow commitments, Neronha is requiring Prospect to keep Roger Williams and Fatima “open and operational” with all of their current services for at least five years.
The company is also required to extend payment date of a $113 million loan by five years and “remove the sale and lease back of the Rhode Island hospitals as an option to pay back that loan during that time.” Any transfer of assets or financial indebtedness after five years must be approved by the R.I. General Assembly, he added.
The company must “submit to an extensive monitoring regime regarding its financial operations, board compositions and health care operations,” lasting into 2026, according to Neronha’s office.
Brown said the hospitals look forward to continuing its mission to “deliver high-quality health care and enhanced patient and provider experiences, at a lower cost of care, in Rhode Island and every community we serve.”
“Prospect Medical is grateful to everyone who has supported our company in this process, particularly our physicians, nurses, technicians, and other caregivers and operational staff for their consistent hard work and unwavering commitment to our patients in the communities we serve throughout an extraordinarily challenging year,” Brown said.
Following the news conference, Senate President Dominick Ruggerio, a Democrat whose district includes Fatima, said he was grateful for Neronha’s work on this issue.
“The Senate has expressed serious concerns because of several worrisome factors that potentially could impact future services and staffing at the hospitals,” Ruggerio said in a statement. “The attorney general’s thorough scrutiny was absolutely necessary, and we are pleased that his diligence has led to a positive outcome to help protect Rhode Island’s health care network.”
Prospect has previously announced it would withdraw its request for approval of the ownership transfer just hours before Neronha was slated to render his initial decision. The hospital group then filed for a temporary restraining order to prevent the attorney general from disclosing information about the company, the deal and its finances.
Superior Court Judge Brian Stern told the company and state officials to come back to the negotiating table. As a result, the restraining order has since been pending with a hearing scheduled for next week, according to court records.
Roger Williams and Fatima, which employ roughly 2,800 workers combined, have gone through a series ownership changes in recent years. They first merged in 2009 under the umbrella of a new organization, CharterCARE. In 2014, Prospect took control of CharterCARE with an 85% stake in the organization.
Prospect has since had reputational problems in Rhode Island, including a contentious relationship with the United Nurses and Allied Professionals union.
The 2014 transaction that gave Prospect control of CharterCARE also left an old hospital pension plan without a source of funding until a recent settlement. And an investigation by the outlet ProPublica raised serious concerns about Leonard Green’s financial stewardship of Prospect, which were highlighted on the PBS program “Frontline” last week.
Leonard Green has its own history in Rhode Island, as well: the firm bought a majority stake in the iconic supermarket chain Almac’s in 1991, four years before Almac’s permanently closed its doors following a bankruptcy filing.
Ted Nesi (firstname.lastname@example.org) is a Target 12 investigative reporter and 12 News politics/business editor. He co-hosts Newsmakers and writes Nesi’s Notes on Saturdays. Connect with him on Twitter, Facebook, LinkedIn and Instagram