Rhode Island AG Approves Hospital Sales, With Conditions

CRANSTON, RI — Rhode Island's Attorney General made the "unprecedented" decision to conditionally approve the sale of two hospitals in Rhode Island, saying that securing future operations remains the top priority.

"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," Neronha said.

The decision concerns Our Lady of Fatima Hospital and Roger Williams Medical Center, which have "historically been – and remain today – entirely dependent on their California owner, Prospect Medical Holdings for their financial security," Neronha said, explaining that this became clear during his office's review.

"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," Neronha continued.

Because of this, it was absolutely necessary that the new majority owners commit to significant financial commitments to the hospitals upfront, "not mere verbal promises," he said.

"They have now, finally, made those upfront financial commitments," the AG continued. "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."

Neronha's office required several conditions before approving the transaction. They are:

• 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.

"Delivering quality, accessible, and affordable healthcare is different from running a typical business – there is much more than mere money at stake," Neronha continued. "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."