Attorney General imposes significant conditions on proposed hospital ownership change to protect delivery of health care for Rhode Islanders Published on Thursday, June 20, 2024 HCA decision conditionally permits Prospect Medical Holdings to exit Rhode Island, creating opportunity for local non-profit control and future stability Attorney General Peter F. Neronha announced today that the Office of the Attorney General has issued a decision, pursuant to its authority under Rhode Island’s Hospital Conversions Act (HCA), to conditionally approve a transaction that would allow a change in ownership of a health care system that includes two local safety net hospitals, Roger Williams Medical Center and Our Lady of Fatima Hospital, from Prospect Medical Holdings to The Centurion Foundation. The decision follows a robust review process in accordance with the HCA. The Rhode Island Department of Health (RIDOH), the other state regulator empowered to oversee hospital conversions in Rhode Island, is expected to separately issue its own decision on the transaction. The Attorney General’s review revealed significant shortcomings and concerns with the proposed transaction. Accordingly, at the core of the Attorney General’s decision are strong conditions that respond to those concerns and are necessary to ensure the viability of the system and the continuity of health care services and operations at Roger Williams Medical Center and Our Lady of Fatima Hospital. These conditions require proper funding, management, planning, and community input and benefit, as non-negotiable stipulations for the approval of the sale. “Our team was guided by the baseline principle that Rhode Islanders deserve quality, accessible and affordable health care,” said Attorney General Peter F. Neronha. “We also know that the future of these hospitals is critical to the collective landscape of health care in Rhode Island. This decision and the conditions we have placed on the transfer of ownership were only arrived at after careful consideration and strong scrutiny.” “To understand our decision today, one must look briefly backwards. Prospect Medical Holdings is principally owned by two individuals, Sam Lee and David Topper (via trust). In 2018 and 2019, Mr. Lee and Mr. Topper, and their former joint and majority owner of Prospect, California based 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.” “The self-evident truth is that private equity does not belong in health care. Such firms don’t care about patients or providers. They only care about profits. That is why this Office made the previous sale of these hospitals in 2021 contingent on Prospect and Leonard Green putting $80 million into escrow to ensure the hospitals’ continued operations. Since then, despite their rosy promises, Mr. Lee and Mr. Topper have continued to be exceedingly poor stewards for these hospitals. 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,” said Attorney General Neronha. Altogether, the Attorney General’s decision imposes 40 unique conditions across seven areas, with the following conditions highlighted as particularly critical to ensure the viability of the system and its hospitals: To address the currently precarious status quo and to address the application’s failure to present an adequate level of funding for the hospitals to meet their operating and capital needs: Prospect must cure all of the life safety and physical plant violations cited by state and federal regulators, including but not limited to, repair of the roof and inadequate life safety equipment; Prospect must come into compliance with the 2021 Decision, including ensuring payment of outstanding accounts payable owed to vendors of the Rhode Island Hospitals; Prospect and Centurion must commit to guarantee $80 million in cash financing to add to the books of the New CharterCARE System, regardless of any failure to secure that amount through the bond transaction; Prospect and Centurion must contribute an additional $66.8 million to a dedicated fund, toward which Prospect may apply the outstanding escrow funds (~$47 million) from the 2021 Decision, to support the newly non-profit New CharterCARE System—funds which will not be available for Centurion’s management fee or for executive compensation; and Centurion’s management fee will be paid only to the extent that the Transacting Parties remain in compliance with all conditions of the Decision; 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 lack of a credible plan to turn CharterCARE System’s long history of operating losses into New CharterCARE System’s ongoing state of sustainable operations, Prospect and Centurion must fund a turnaround consultant to be approved by the Attorney General; To address the application’s reliance on future, contingent events like IRS approval of non-profit 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, 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 must maintain the current level of employee benefits during the initial period following the closing of the Proposed Transaction. “Beyond the numbers, figures, and provisions that make up a transaction are the communities, patients, and providers that these hospitals serve and employ,” said Attorney General Neronha. “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.” The Attorney General’s decision conditionally approving the transaction, with the full list of conditions, can be found here. Timeline of the transaction On May 26, 2023, the Attorney General and RIDOH received a Hospital Conversions Act (HCA) application that would allow Prospect Medical Holdings to sell Prospect CharterCARE, a health care system that includes two community hospitals: Roger Williams Medical Center and Our Lady of Fatima Hospital, to the Centurion Foundation. On May 31, 2023, the parties in the proposed transaction were notified that the Attorney General and RIDOH deemed their submission did not constitute an initial application. On November 14, 2023, the parties submitted a second application and, consistent with the standard process set forth by the HCA, the Attorney General and RIDOH deemed this application complete on December 14, 2023. On January 29, 2024, the application was released to the public with redactions for confidential commercial information of the parties, in accordance with the provisions of the HCA. The application is available on the sites of Attorney General Neronha and RIDOH. On March 19 and 26, 2024, the Attorney General and RIDOH held two public comment sessions and accepted written comment until March 29, 2024. Videos of the sessions, as well as the submitted written comments, can be found here. ###