Owner threatens to close Roger Williams Medical, Fatima Hospital amid dispute with AG

Business News

PROVIDENCE, R.I. (WPRI) — The battle over the future of Roger Williams Medical Center and Fatima Hospital escalated sharply on Thursday as the owner of the two facilities threatened to shut them down due to a dispute with Attorney General Peter Neronha.

Prospect Medical Holdings, a for-profit company based in California, has had a majority stake in the two hospitals since 2014. Prospect in turn is controlled by the private equity firm Leonard Green & Partners — and Leonard Green is now seeking state approval to sell its ownership stake to Prospect CEO Sam Lee and his partner David Topper.

Both the attorney general’s office and the R.I. Department of Health must sign off on that transaction, and Neronha — who is known to be skeptical of Prospect — is facing a Friday deadline to release his final decision.

“We expect Prospect Medical Holdings to abide by the law and the decision we issue,” Neronha said Thursday.

But even before the attorney general’s decision becomes public, Prospect has begun fighting back.

In a statement Thursday, the company announced it is prepared to begin elimination of some services at Roger Williams and Fatima — and eventually shut them down altogether — rather than comply with the draft terms of approval proposed by Neronha.

Bill Fischer, a spokesperson for Prospect, said the attorney general is expected to demand that the company put between $120 million and $150 million in escrow to ensure the long-term financial viability of the two hospitals. He insisted that is unnecessary, saying Prospect has roughly $325 million in cash on hand plus an untapped $200 million line of credit with J.P. Morgan Chase & Co.

“The imposition of such an escrow is unreasonable, unacceptable, and unprecedented,” Fischer said. “The demand for such an escrow as a condition to continue to do business in Rhode Island would leave Prospect with very little choice but to initiate a wind down of its Rhode Island operations.”

Prospect also released a letter sent Thursday to both Neronha and R.I. Department of Health Director Dr. Nicole Alexander-Scott laying out its objections.

Neronha, a Democrat, said the Rhode Island public will understand “the entire story” behind his determination regarding the Prospect transaction when his full decision is released Friday.

“What I can say now – to quote the independent financial experts who testified before the Health Services Council – is that, as a result of decisions made by Prospect and its owners at the national level, both Prospect and our local hospitals ‘face financial viability risks,'” he said.

Neronha continued, “It is the job of this office to protect these critical, safety-net hospitals on which so many Rhode Islanders rely. It is the job of the attorney general to ensure the new owners will adhere ‘to a minimum investment to protect the assets, financial health, and well-being of the new hospital and for community benefit’ for the foreseeable future. That’s the law. That is what our decision will do.”

As for Prospect’s threat to close Roger Williams and Fatima, Neronha said, “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.”

Gov. Dan McKee issued a statement, saying, “As governor, my objective is to protect Rhode Island’s health care system and preserve patient access to critical services. I urge all parties involved in the transaction to come together to reach an agreement that is in the best interest of the people of Rhode Island.”

Senate President Dominick Ruggerio, whose district includes Fatima, added: “Fatima and Roger Williams Hospitals are essential to the health and well-being of our communities. I am confident that the attorney general’s scrutiny will ensure the long-term viability of our community hospitals. This review is a central component of protecting the state’s health care system.”

Roger Williams and Fatima have gone through a series of ownership changes in recent years. They first merged in 2009 under the umbrella of a new organization, CharterCARE. A second merger, in 2014, saw Prospect Medical Holdings take control of CharterCARE, with an 85% stake in the organization.

CharterCARE is Rhode Island’s third-largest hospital group, behind Lifespan and Care New England, with roughly 2,800 employees.

Prospect has had reputational problems in Rhode Island for a number of years, including a hostile 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.

Lynn Blais, president of the nurses union, blasted Prospect in a statement.

“Sam Lee and David Topper have dragged hundreds of millions of dollars from this community,” Blais said. “The attorney general is right to insist on conditions that secure the continued operation of these hospitals. We stand with him.”

Leonard Green, the private equity firm seeking to sell its stake in CharterCARE, also has a history in Rhode Island: the firm bought a majority stake in the beloved supermarket chain Almac’s in 1991, four years before Almac’s permanently closed its doors following a bankruptcy filing.

Ted Nesi (tnesi@wpri.com) 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

Copyright 2021 Nexstar Media Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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