Attorney General imposes unprecedented conditions on hospital ownership change to ensure future operations

Published on Tuesday, June 01, 2021

PROVIDENCE, R.I. – 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, to conditionally approve a transaction that would allow a change in ownership of two local safety net hospitals in North Providence and Providence.

At the core of the Attorney General's decision are strong conditions necessary to ensure the continuity of healthcare services and operations at the hospitals for at least the next five years.

"Since our review of this proposed transaction began over a year ago, we have been guided by one principle: ensuring the delivery of quality, accessible, and affordable healthcare for all Rhode Islanders," said Attorney General Neronha. "During the course of our review, it became apparent that Roger Williams Medical Center and Our Lady of Fatima Hospital have historically been – and remain today – entirely dependent on their California owner, Prospect Medical Holdings for their financial security. PMH covers their operating costs. PMH pays for the capital improvements necessary to keep any hospital functioning at a level capable of delivering high quality care. The current financial health of PMH is thus of critical importance to the health of Roger Williams and Fatima Hospitals – and our review raised real concerns about that."

"Accordingly, for this Office to approve this proposed transaction, it was absolutely necessary that PMH's anticipated new majority owners make the upfront financial commitments – not mere verbal promises – to financially support those hospitals. They have now, finally, made those upfront financial commitments. This Office will therefore approve the proposed change in ownership, subject to these strong financial and other conditions that will ensure the continued operation of these important hospitals in their communities and our state."

The Office of the Attorney General, one of two state regulators along with the Department of Health, concluded its yearlong review of a transaction in which Prospect Medical Holdings (PMH), a national company, proposes to transfer its ownership stake in a hospital group to two current minority stake owners. The proposed transfer of ownership of the national hospital group includes two local safety net hospitals – Roger Williams Medical Center, located in Providence, and Our Lady of Fatima Hospital, located in North Providence.

To ensure the continuity of healthcare services and operations at the hospitals for the benefit of Rhode Islanders, this Office has placed strong conditions on the change of ownership transaction, which include:

• PMH must provide for a full a financial commitment to the Rhode Island hospitals that covers operational and capital expenses for the next five years.

• PMH must furnish either escrow accounts or irrevocable letters of credit totaling $80 million, to be drawn upon if PMH fails to provide for its full financial commitment to the Rhode Island hospitals to cover operating and capital expenses.

• Private equity firm Leonard Green must contribute $34.8 million toward this commitment, including the $10 million that the firm would have obtained from this transaction.

• PMH must make at least $72 million in capital investments in the Rhode Island hospitals between 2020 and 2026.

• The Rhode Island hospitals must remain open and operational and continue to provide all Essential Health Care Services they now provide. Any material reduction or termination of essential health service can only occur with DOH approval.

• PMH must extend the 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. Further, any transfer of assets or financial encumbrances on the Rhode Island hospitals beyond the five years, including a sale/leaseback, must be approved by the Attorney General.

• PMH cannot charge the Rhode Island hospitals management fees or collect previously accrued fees.

• PMH must pay all existing debt owed by the Rhode Island hospitals for Property Assisted Clean Energy (PACE) – approximately $60 million. $33 million has already been spent; $27 million (already in escrow) will be spent for capital expenditures at the hospitals going forward.

• PMH must guarantee the Rhode Island hospital's Medicare Accelerated and Advance Payment (MAAP) program liability – approximately $27 million.

• PMH and PCC must submit to an extensive monitoring regime regarding its financial operations, board composition and health care operations.

A full listing of the conditions is linked below.

"Delivering quality, accessible, and affordable healthcare is different from running a typical business – there is much more than mere money at stake," said Attorney General Neronha. "Unfortunately, not everyone embraces that concept. If you decide to get into healthcare, it is our responsibility as healthcare regulators to ensure that you do. The people of Rhode Island deserve nothing less. In the end, our conditions in this matter ensure that the communities that depend on Roger Williams and Fatima hospitals – as well as the physicians, nurses and staff providing high quality care – are supported and that there is no disruption of care. That's what matters, and that's what we have endeavored to accomplish here."

The Attorney General's decision to Approve with Conditions, including the full list of conditions, can be found below.

View the Attorney General's presentation from today's press conference below.



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