Neronha Secures $80M Guarantee From Owners of Fatima and Roger Williams After Demanding $150M

Neronha Secures $80M Guarantee From Owners of Fatima and Roger Williams After Demanding $150M

Rhode Island Attorney General Peter F. Neronha announced on Tuesday that his office 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 hospitals Roger Williams and Our Lady of Fatima Hospitals.

As part of the deal between Neronha’s office and Prospect Medical Holdings (Prospect/PMH)— the ownership group will put $80 million in escrow to support the hospitals over the next five years.

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Initially, Neronha had demanded $150 million and Prospect said the demand was unreasonable and threatened to close the two hospitals.

Then, Prospect filed an emergency Temporary Restraining Order against Neronha in Providence Superior Court.

 

Latest for RI Hospitals

In 2014, Neronha’s predecessor Peter Kilmartin approved the purchase of the hospitals by Prospect as well as St. Joseph.. That deal orphaned the retirement fund of St. Joseph Hospital which created the largest pension fund failure in Rhode Island history.

More recently, Prospect’s financial dealings have come under the scrutiny of the national press including Pro Publica, the Wall Street Journal, and Frontline.

Congress has held hearings on Prospect’s financial structure and its relationship to private equity.

Neronha claims that at the core of his office’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 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," he added. 

Prospect Medical's Statement:

[The] change in effective control and conversions act applications have been approved by the Rhode Island Attorney General and the Rhode Island Department of Health.

With the approval of the applications, Prospect has completed its transaction with Leonard Green & Partners that provides for Leonard Green’s exit from its investment in Prospect Medical. 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. 

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.

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.

We look forward to continuing our 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.

 

Press Conference

At the press conference, Neronha had four female staff lawyers in attendance, but none of them spoke. They stood during the press conference.

“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," he said. 

 

DOH Also Gives Approval

In conjunction with Neronha's announcement, the Rhode Island Department of Health (RIDOH) said that it too has given conditional approval to the deal.

“This conditional approval is the result of extensive and thoughtful review and deliberation of hours of testimony under oath, analysis of our consultant’s findings, public comments, transcripts, and the information and data submitted by the applicants,” said Director of Health Dr. Nicole Alexander-Scott. “Our continued priority is to assure quality, equitable, and accessible healthcare for Rhode Islanders served by Roger Williams Medical Center, Our Lady of Fatima Hospital, and other Prospect CharterCARE (PCC) facilities. The specific and strategic conditions we have included in RIDOH’s approval allow us to closely monitor the hospitals and their future viability. Most notably, we are not allowing any layoffs for a period of one year.”

According to Neronha's Office, the agreement includes the following requirements: 

- PMH must provide for a full 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.